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Exam 15: Monopoly

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Question 1

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Figure 15-6 ​ ​ -Refer to Figure 15-6. What is the area of deadweight loss?

A) The rectangle (X − Z) × J
B) The triangle 1/2[(X − Z) × (K − J) ]
C) The triangle 1/2[(X − Y) × (K − J) ]
D) The rectangle (X − Z) × J plus the triangle 1/2[(X − Z) × (K − J) ]

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

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Question 2

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Price discrimination can increase both the monopolist's profits and society's welfare.

A) True
B) False

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Question 3

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Scenario 15-2 Vincent operates a scenic tour business in Boston. He has one bus that can fit 50 people per tour and each tour lasts 2 hours. His total cost of operating one tour is fixed at $450. Vincent's cost is not reduced if he runs a tour with a partially full bus. While his cost is the same for all tours, Vincent charges each passenger his/her willingness to pay: adults $18 per trip, children $10 per trip, and senior citizens $12 per trip. At those rates, on a typical day Vincent's demand is: ​ ​ $\begin{array} { | c | c | c | } \hline \text { Passenger Type } & \begin{array} { c } \text { Willingness to Pay } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} \\\hline \text { Adult } & 18 & 70 \\\hline \text { Children } & 10 & 25 \\\hline \text { Senior Citizens } & 12 & 55 \\\hline\end{array}$ Assume that Vincent's customers are always available for the tour; therefore, he can fill his bus for each tour as long as there is sufficient total demand for the day. ​ -Refer to Scenario 15-2. What is Vincent's total revenue on a typical day?

What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.

A monopoly can earn positive profits because it

Figure 15-2 ​ -Refer to Figure 15-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

In a natural monopoly,

Figure 15-10 ​ ​ -Refer to Figure 15-10. If a regulator requires the firm to charge an average cost price, what price will the firm charge?

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

The deadweight loss associated with a monopoly occurs because the monopolist

Dontrell's Fish Market is the only place within 125 miles that sells yellowfin tuna. Assuming that Dontrell is a monopolist and maximizing his profit, which of the following statements is true?

Average revenue for a monopoly is the total revenue divided by the quantity produced.

Firms with substantial monopoly power are quite common because many goods are unique.

Which of the following would be most likely to have monopoly power?

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

Monopoly firms face

Table 15-1 The following table provides information on the price, quantity, and average total cost for a monopoly. ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Average Total Cost } \\\text { (Dollars per unit) }\end{array} \\\hline 24 & 0 & - \\\hline 18 & 5 & 14.00 \\\hline 12 & 10 & 11.00 \\\hline 6 & 15 & 10.67 \\\hline 0 & 20 & 11.00 \\\hline\end{array}$ ​ -Refer to Table 15-1. What is the maximum profit that the monopolist can earn?