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Exam 14: Monopoly

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Question 51

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Bob's Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is maximizing his profit, which of the following statements is true?

A) The price of Bob's bison burgers will be less than Bob's marginal cost.
B) The price of Bob's bison burgers will exceed Bob's marginal cost.
C) The price of Bob's bison burgers will equal Bob's marginal cost.
D) Costs are irrelevant to Bob because he is a monopolist.

E) C) and D)
F) B) and D)

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Question 52

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Figure 15-13 -Refer to Figure 15-13. A profit-maximizing monopolist would create a deadweight loss to society valued at

A) $12.
B) $24.
C) $42.
D) $84.

E) None of the above
F) A) and D)

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Question 53

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When a natural monopoly exists, it is

If the distribution of water is a natural monopoly, then i) imultiple firms would likely each have to pay large fixed costs to develop their own network of pipes. Ii) allowing for competition among different firms in the water-distribution industry is efficient. Iii) a single firm can serve the market at the lowest possible average total cost.

One example of price discrimination occurs in the publishing industry when a publisher initially releases an expensive hardcover edition of a popular novel and later releases a cheaper paperback edition. Use this example to demonstrate the benefits and potential pitfalls of a price discrimination pricing strategy.

Scenario 15-3 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. -Refer to Scenario 15-3. At Q = 500, the firm's total revenue is

A monopolist's supply curve is horizontal.

In order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage.

Figure 15-3 -Refer to Figure 15-3. Which panel could represent the demand curve facing a local cable television provider if that firm in a monopolist?

Scenario 15-4 Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. -Refer to Scenario 15-4. The profit-maximizing monopolist will have a deadweight loss of

When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output effect.

Suppose a monopolist is able to charge each customer a price equal to that customer's willingness­to­pay for the product. Then the monopolist is engaging in

Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because i) almost all people fear the generic drug companies are devoting too few resources to research and development. Ii) some people fear that generic drugs are inferior. Iii) some people are loyal to the name brand.

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent

Which statement best describes the effects) that occur when a monopoly firm reduces the price of its product?

Table 15-11 The following table shows quantity, price, and marginal cost information for a monopoly: -Refer to Table 15-11. What price should the firm charge to maximize its profit?

At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all equal.

Table 15-7 Sally owns the only shoe store in town. She has the following cost and revenue information. -Refer to Table 15-7. Sally will maximize her profits by selling

Table 15-15 A monopolist faces the following demand curve: -Refer to Table 15-15. The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's profit is

The market demand curve for a monopolist is typically