Exam 12: Monopoly

Scenario: The following excerpt is from "Throwing the Book at Apple" (Wall Street Journal, Review and Outlook, June 12, 2013): At the time, prior to the existence of the tablet device market that Jobs created with the iPad, Apple did not sell e-books. Amazon sold nine of every 10. Justice claims Jobs then forced Amazon and every other e-book distributor to adopt a new e-book pricing model that harmed consumers. Yet the average retail price for "trade" e-books has since dropped to $7.34 from $7.97, and Amazon's Kindle is still the industry leader with Apple trailing in third. Over the same period readers bought 447% more e-books, and they can choose from dozens of tablets for titles and other media content. -Refer to the scenario above.What market structure best describes the e-book market?

Scenario: Mr. Olivander has a monopoly on supplying magic wands. The table below shows the demand schedule for magic wands per day. -Refer to the scenario above.Mr.Olivander used to sell only one wand per day.Now he plans to increase his sale to two wands.The price effect of this plan is a ________,and the quantity effect of this plan is a ________ in his revenue.

The following figure represents the cost and revenue curves of a firm that is producing a service in a monopoly market. -Refer to the figure above.What is the optimal quantity that the monopolist should produce?

Marginal revenue is less than the price for a monopolist because ________.

Which of the following statements is true of the demand curve and the marginal revenue curve of a monopolist?

A price-maker is a firm that ________.

Which of the following firms is most likely to spend on innovation?

The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure. -Refer to the figure above.After the market changes from perfect competition to a monopoly,________.

A profit-maximizing monopolist produces the quantity at which ________.

The following figure shows the demand curve faced by a monopolist. -Refer to the figure above.What is the price effect of a price increase from $3 to $5?

The following figure shows the demand and marginal revenue (MR) curves faced by a monopolist. -Refer to the figure above.What is the profit-maximizing quantity that the monopolist should produce if it faces a constant marginal cost of $5?

Scenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product. -Refer to the scenario above.Which of the following is true of the demand curve for the product in the price range $4 to $5?

The following figure shows the marginal revenue (MR) curve and the demand curve faced by a monopolist. The monopolist faces a constant marginal cost of $3. -Refer to the figure above.If the average cost faced by the monopolist when it produces and sells the optimal output is $4,the monopolist ________.

A monopolist faces a linear,downward-sloping demand curve.If the slope of the demand curve is 1 and the monopolist can sell one unit of output at a price of $10,what is the marginal revenue from selling the third unit of output?

Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $). Also, you should draw in the marginal revenue curve. -Refer to the scenario above.By how much does Tobac Co.'s revenue go up (or down)when its quantity sold goes up from 50 million to 100 million packs of cigarettes?

The figure below shows the cost and revenue curves of a firm in a monopoly market. -Refer to the figure above.What is the optimal output for this firm?

Suppose the government imposes fair-returns pricing on a monopolist.This policy creates incentives for the firm to overinvest in capital.As a result,the firm will have ________.

Which of the following statements is true?

Differentiate between a socially optimal price and a fair-returns price.

Which of the following is an example of a monopolist granted a legal market power? (You need to do some information gathering for this problem.)