Question 1

Relative to a monopolist charging a single price to all consumers, price discrimination ________ total economic surplus.

Accepted Answer

A) has no effect on 
B) sometimes increases and sometimes decreases 
C) decreases 
D) increases 
A) has no effect on 
B) sometimes increases and sometimes decreases 
C) decreases 
D) increases D

Question 2

Suppose the accompanying figure illustrates the demand curve facing a monopolist.  
  At a price of $8 per unit, the total revenue for this monopolist is ________ per day, and the marginal revenue earned from the last unit sold is ________.

Accepted Answer

A) $8; $8 
B) $3,200; $8 
C) $3,200; $4 
D) $3,200; $0 
A) $8; $8 
B) $3,200; $8 
C) $3,200; $4 
D) $3,200; $0 D

Question 3

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table.  
$$\begin{array} { | c | c | } 
\hline \text { Custamer } & \begin{array} { c } 
\text { Reservetion Price } \
\text { (\$/Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & \mathrm { 8 } \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ If Island Bikes charges a single price to all of its customers, then how many bikes will it rent out each day?

Accepted Answer

A) 6 
B) 5 
C) 4 
D) 3 
A) 6 
B) 5 
C) 4 
D) 3 D

Question 4

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

Accepted Answer

A) the marginal benefit from selling an additional unit of output is $5 for both firms. 
B) the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. 
C) the marginal benefit from selling an additional unit of output is less than $5 for both firms. 
D) the competitive firm is charging too much, and the monopolist is charging too little. 
A) the marginal benefit from selling an additional unit of output is $5 for both firms. 
B) the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. 
C) the marginal benefit from selling an additional unit of output is less than $5 for both firms. 
D) the competitive firm is charging too much, and the monopolist is charging too little.

Question 5

When marginal revenue is zero:

Accepted Answer

A) profit is maximized. 
B) total cost is minimized. 
C) elasticity of demand is zero. 
D) total revenue is maximized. 
A) profit is maximized. 
B) total cost is minimized. 
C) elasticity of demand is zero. 
D) total revenue is maximized.

Question 6

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table.  
$$\begin{array} { | c | c | } 
\hline \text { Custamer } & \begin{array} { c } 
\text { Reservetion Price } \
\text { (\$ /Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & \mathrm { 8 } \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ If Island Bikes charges a single price to all of its customers, then what will be its daily economic profit?

Accepted Answer

A) $26 
B) $27 
C) $33 
D) $36 
A) $26 
B) $27 
C) $33 
D) $36

Question 7

Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In order for the rebate to be a perfect hurdle, it must be the case that:

Accepted Answer

A) buyers use the rebate if and only if they have a reservation price between $80 and $100. 
B) all buyers with a reservation price greater than $80 use the rebate. 
C) some buyers with a reservation price greater than $80 use the rebate. 
D) buyers use the rebate if and only if their cost of filling out the rebate is less than $20. 
A) buyers use the rebate if and only if they have a reservation price between $80 and $100. 
B) all buyers with a reservation price greater than $80 use the rebate. 
C) some buyers with a reservation price greater than $80 use the rebate. 
D) buyers use the rebate if and only if their cost of filling out the rebate is less than $20.

Question 8

If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should:

Accepted Answer

A) lower its price. 
B) increase its output. 
C) leave its output and price unchanged. 
D) decrease its output. 
A) lower its price. 
B) increase its output. 
C) leave its output and price unchanged. 
D) decrease its output.

Question 9

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for:

Accepted Answer

A) 75 cents because that is the market price. 
B) less than 75 cents because CheapFizz will have greater volume and so can lower its price. 
C) more than 75 cents because the demand curve for CheapFizz soda will shift to the left. 
D) more than 75 cents because CheapFizz is the only company that can sell soda on campus. 
A) 75 cents because that is the market price. 
B) less than 75 cents because CheapFizz will have greater volume and so can lower its price. 
C) more than 75 cents because the demand curve for CheapFizz soda will shift to the left. 
D) more than 75 cents because CheapFizz is the only company that can sell soda on campus.

Question 10

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

Accepted Answer

A) do nothing. 
B) decrease output in order to increase the gap between marginal revenue and marginal cost. 
C) increase output until marginal revenue equals marginal cost. 
D) increase output until price equals marginal cost. 
A) do nothing. 
B) decrease output in order to increase the gap between marginal revenue and marginal cost. 
C) increase output until marginal revenue equals marginal cost. 
D) increase output until price equals marginal cost.

Question 11

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table.  
$$\begin{array} { | c | c | } 
\hline \text { Custamer } & \begin{array} { c } 
\text { Reservetion Price } \
\text { (\$ /Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & \mathrm { 8 } \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ If Island Bikes charges a single price to all of its customers, then what price will it charge?

Accepted Answer

A) $4 
B) $8 
C) $12 
D) $16 
A) $4 
B) $8 
C) $12 
D) $16

Question 12

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to:

Accepted Answer

A) "bait and switch" sales tactics. 
B) perfect price discrimination. 
C) the "hurdle" method of price discrimination. 
D) the "rebate and wait" method of price discrimination. 
A) "bait and switch" sales tactics. 
B) perfect price discrimination. 
C) the "hurdle" method of price discrimination. 
D) the "rebate and wait" method of price discrimination.

Question 13

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist.   At the socially optimal level of output, this monopolist would:

Accepted Answer

A) earn an economic profit of $16. 
B) incur an economic loss of $16. 
C) incur an economic loss of $64. 
D) incur an economic loss of $112. 
A) earn an economic profit of $16. 
B) incur an economic loss of $16. 
C) incur an economic loss of $64. 
D) incur an economic loss of $112.

Question 14

Suppose a monopolist faces the following demand curve.  
  This demand curve can be used to determine:

Accepted Answer

A) the total cost associated with producing different levels of output. 
B) the monopolist's total revenue at different price and quantity combinations. 
C) the impact of advertising on demand. 
D) the marginal cost associated with producing different levels of output. 
A) the total cost associated with producing different levels of output. 
B) the monopolist's total revenue at different price and quantity combinations. 
C) the impact of advertising on demand. 
D) the marginal cost associated with producing different levels of output.

Question 15

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ________.

Accepted Answer

A) increasing 
B) low 
C) high 
D) decreasing 
A) increasing 
B) low 
C) high 
D) decreasing

Question 16

The profit maximizing rule MR = MC applies to:

Accepted Answer

A) all firms. 
B) monopolists only. 
C) perfectly competitive firms only. 
D) imperfectly competitive firms only. 
A) all firms. 
B) monopolists only. 
C) perfectly competitive firms only. 
D) imperfectly competitive firms only.

Question 17

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars)is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ________.

Accepted Answer

A) $3 
B) $10 
C) $3.10 
D) $13 
A) $3 
B) $10 
C) $3.10 
D) $13

Question 18

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ________, while under monopoly ________.

Accepted Answer

A) P = MC; P > MC B) P < MR; P = MR C) P = MR; P < MR D) P = MC; P < MC A) P = MC; P > MC B) P < MR; P = MR C) P = MR; P < MR D) P = MC; P < MC

Question 19

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.   This monopolist maximizes its profit by producing ________ textbooks per week and charging a price of ________ per textbook.

Accepted Answer

A) 150; $20 
B) 100; $40 
C) 100; $80 
D) 150; $40 
A) 150; $20 
B) 100; $40 
C) 100; $80 
D) 150; $40

Question 20

When a pharmaceutical company introduces a new drug, its research and development costs are ________, and the cost of the chemicals used in manufacturing the drug are ________.

Accepted Answer

A) start-up costs; fixed costs 
B) fixed costs; start-up costs 
C) start-up costs; variable costs 
D) marginal costs; variable costs 
A) start-up costs; fixed costs 
B) fixed costs; start-up costs 
C) start-up costs; variable costs 
D) marginal costs; variable costs

Exam 8: Monopoly, Oligopoly, and Monopolistic Competition

Relative to a monopolist charging a single price to all consumers, price discrimination ________ total economic surplus.

Suppose the accompanying figure illustrates the demand curve facing a monopolist. At a price of $8 per unit, the total revenue for this monopolist is ________ per day, and the marginal revenue earned from the last unit sold is ________.

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

When marginal revenue is zero:

Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In order for the rebate to be a perfect hurdle, it must be the case that:

If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should:

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to:

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At the socially optimal level of output, this monopolist would:

Suppose a monopolist faces the following demand curve. This demand curve can be used to determine:

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ________.

The profit maximizing rule MR = MC applies to:

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars)is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ________.

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ________, while under monopoly ________.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. This monopolist maximizes its profit by producing ________ textbooks per week and charging a price of ________ per textbook.

When a pharmaceutical company introduces a new drug, its research and development costs are ________, and the cost of the chemicals used in manufacturing the drug are ________.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Suppose the accompanying figure illustrates the demand curve facing a monopolist. At a price of $8 per unit, the total revenue for this monopolist is per day, and the marginal revenue earned from the last unit sold is .

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition , while under monopoly .

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. This monopolist maximizes its profit by producing textbooks per week and charging a price of per textbook.

When a pharmaceutical company introduces a new drug, its research and development costs are , and the cost of the chemicals used in manufacturing the drug are .