Exam 9: Monopoly

The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Why does a monopoly arise?

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

Breakfast cereal comes in different size boxes. The large boxes cost more than the small boxes, but on a per unit basis, they cost less. What is this likely due to?

What is a natural monopoly characterized by?

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Which of the following can serve as a barrier to entry?

What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?

Which of the following statements best describes a monopoly?

Why is a monopoly inefficient?

TABLE 9-2 -Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

When is a natural monopoly likely to arise?

The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. How was this market power obtained?

Which of the following is an example of price discrimination?

Which of the following is NOT a limitation that regulators face when they implement average cost pricing?

A monopoly firm is charging the maximum price the market will bear at a level of output where MC equals $10 and is increasing, MR equals $10, and average variable cost equals $9. To maximize profits, what action should the firm take?

Under what circumstances will a price-discriminating monopolist tend to charge a higher price to senior citizens?

At a given output level, when can a monopolist earn a profit?

A patent gives a firm a monopoly in the production of the patented good. While monopoly profits provide an incentive for firms to innovate, the monopoly power imposes a cost on consumers. Why do consumers bear a cost from that monopoly? Is the cost to consumers greater than the profits earned by the monopolist?