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Exam 15: Monopoly

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Question 61

True/False

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Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.

A) True
B) False

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Question 62

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When an industry is a natural monopoly,

A) it is characterized by constant returns to scale.
B) it is characterized by diseconomies of scale.
C) a larger number of firms may lead to a lower average total cost.
D) a larger number of firms will lead to a higher average total cost.

E) A) and B)
F) All of the above

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Question 63

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For a monopoly, the socially efficient level of output occurs where

Table 15-2 Suppose a monopolist faces the following demand curve: ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} \\\hline 8 & 300 \\\hline 7 & 400 \\\hline 6 & 500 \\\hline 5 & 600 \\\hline 4 & 700 \\\hline 3 & 800 \\\hline 2 & 900 \\\hline 1 & 1,000 \\\hline\end{array}$ ​ -Refer to Table 15-2. The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell?

​As long as as a monopolist is able to control the resale of its product, then it can successfully practice price discrimination.

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

Which of the following statements is not correct?

Figure 15-12 ​ ​ -Refer to Figure 15-12. If a regulator requires this firm to charge a socially optimal price, which letter represents the amount of output it will produce?

Government intervention is always preferable to doing nothing when reducing the social inefficiencies of monopoly.

Comparing firms in perfectly competitive markets to monopoly firms, which results in a deadweight loss?

Figure 15-7 -Refer to Figure 15-7. To maximize total surplus, a benevolent social planner would choose which of the following outcomes?

Price discrimination

Price discrimination adds to social welfare in the form of

There has been much discussion of deregulating electricity and natural gas delivery companies in the United States. Discuss the likely effect of deregulation on prices in these two industries.

Monopolies are socially inefficient because the price they charge is

Which of the following is not an example of a barrier to entry?

In both perfectly competitive and monopoly markets, the price per unit of a good is equal to the

Figure 15-4 ​ ​ -Refer to Figure 15-4. What price will the monopolist charge in order to maximize profit?

The law passed by Congress in 1890 to reduce the market power of the dominating trusts at that time was

Scenario 15-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $40, its average revenue is $80, and its average total cost is $44. -Refer to Scenario 15-1. At Q = 500, the firm's total revenue is