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Exam 15: Monopoly

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Question 21

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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 $2,000.

A) True
B) False

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Question 22

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Scenario 15-3 Vincent operates a scenic tour business in Boston. He has one bus which 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: $\begin{array} { | l | l | l | } \hline \text { Passen ger Type } & \text { Willingness to Pay } & \text { Demand per day } \\\hline \text { Adults } & \$ 18 & 70 \\\hline \text { Children } & \$ 10 & 25 \\\hline \text { Senior Citizens } & \$ 12 & 55 \\\hline\end{array}$ 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 15-3. One of Vincent's friends tells him he would be more profitable if he charged a single price of $18. Assuming no changes in consumer demand, what would Vincent's profit be if he charged every customer $18?

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Question 23

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Figure 15-9 ​ ​ -Refer to Figure 15-9. How much profit will this monopolist earn if it charges each consumer the same price?

Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.

Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.

In the market for "home heating" consumers typically have several options (e.g., electricity, heating fuel, natural gas, propane, etc.), yet we often think of firms in this industry as behaving like monopolists. Discuss the context in which your electricity provider is a monopolist. Is this characterization universally applicable? Explain your answer.

​Since monopolists that practice price discrimination generally increase market output, compared to a monopoly that charges a single price, practicing price discrimination generally leads to a smaller deadweight loss.

Which of the following is not an example of price discrimination by a firm?

A patent gives a single person or firm the exclusive right to sell some good or service for a specific period of time.

Figure 15-5 The following graph depicts the market situation for a monopoly pastry shop called Bearclaws. -Refer to Figure 15-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

Table 15-4 $\begin{array} { | l | l | } \hline \text { Quantity } & \text { Price } \\\hline 10 & \$ 46 \\\hline 20 & \$ 42 \\\hline 30 & \$ 38 \\\hline 40 & \$ 34 \\\hline 50 & \$ 30 \\\hline 60 & \$ 26 \\\hline 70 & \$ 22 \\\hline 80 & \$ 18 \\\hline 90 & \$ 14 \\\hline 100 & \$ 10 \\\hline\end{array}$ -Refer to Table 15-4. The average revenue of the 50th unit of output is

Figure 15-4 ​ ​ -Refer to Figure 15-4. What area measures the monopolist's profit?

A monopolist is able to choose whatever price that it wishes and is only constrained by its greed. ​

One problem with government operation of monopolies is that

Like competitive firms, monopolies charge a price equal to marginal cost.

For a monopolist, an increase in output sold causes marginal revenue to be negative when

Deadweight loss measures the loss in society's welfare that occurs because a monopolist does not produce the socially efficient level of output.

Table 15-3 Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. ​ ​ ​ -Refer to Table 15-3. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold?

State one benefit of government-granted monopolies like patents and copyrights.

A natural monopoly occurs when