Mastering Monopoly: Key Concepts and Quiz Insights

Chapter 23: Monopoly 1. By adhering to the MR = MC rule, a single-price monopoly Correct: maximizes its profit, which may in some cases mean minimizing its losses. 2. Both a price taker and a price searcher maximize profits (or minimize losses) by producing the quantity of output at which __________ equals __________. Correct: marginal revenue; marginal cost 3. Exhibit 24-1 Correct: area 0P 2 CQ 1 4. If economies of scale are so pronounced in an industry that only one firm can survive in the industry, this firm is called a(n) __________ monopoly. Correct: natural 5. Exhibit 24-1 Refer to Exhibit 24-1 The deadweight loss of the profit-maximizing monopoly is identified by what area? Correct: area BCA 6. Question 6 2/2 Exhibit 24-4 Price Quantity Demanded Total Fixed Cost Total Variable Cost Total Revenue Total Cost Marg $50 0 $8 $0 (C) (H) 45 1 8 20 (D) (I) (L)

40 2 (A) 30 (E) (J) (M) 35 3 8 55 105 63 (N) 30 4 8 (B) (F) 93 (P) 25 5 8 125 (G) (K) (Q) Refer to Exhibit 24-4. What dollar amounts go in blanks (F), (G), (H), (I), and (J), respectively? Correct: $120; $125; $8; $28; and $38 7. Question 7 2/2 Exhibit 24-8 Quantity Total Revenue T 2 $200 $ 3 $270 $ 4 $328 5 $375 6 $390 Refer to Exhibit 24-8. Assuming that total fixed costs are $80, the average variable cost of producing 5 units of output is Correct: $34.40. 8. Exhibit 24-1 Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do total costs equal at the profit maximizing level of output? area 0P 1 BQ 1 Correct answer area BCA Incorrect: area P 1 P 2 CB area P 2 CAP 1 none of the above 9. For the monopoly firm, its demand curve is

Correct: the market demand curve. 10. In general, electric, gas, and water companies are examples of __________ monopolies. Correct: natural 11. A price searcher Correct: is a seller that has the ability to control to some degree the price of the product it sells. 12. Exhibit 24-10 Refer to Exhibit 24-10. The deadweight loss triangle is what area? GFC HGD Incorrect: GCD DCE Correct answer BFG 13. Which of the following statements is false? Correct: The monopolist is a price taker. Correct: For a monopolist, the law of diminishing marginal returns does not hold. Correct answer A monopoly firm will earn profit if it produces the quantity of output at which MR = MC, and charges a price that is above its average total cost. The monopolist firm searches for the highest per-unit price it can charge for the quantity of output it produces. The highest per-unit price a monopoly firm can charge is determined by the height of its demand curve.

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14. A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called 15. Correct: a public franchise. 16. At the level of output at which a single-price monopolist maximizes profit, price is Correct: greater than marginal cost. 17. Suppose Johnny, seven years old, is selling lemonade to his neighbors and he sells each of his buyers the refreshment for the maximum price that each buyer is willing to pay. Johnny is practicing Correct: perfect price discrimination. 18. Exhibit 24-7 Refer to Exhibit 24-7. If D represents the demand curve facing a perfectly price-discriminating monopolist, the price it charges for the last unit sold exceeds the marginal cost of the last unit by Hide answer choices Incorrect: $30. $15. $0. Correct answer an amount that cannot be determined without the average cost curve. 19. Economic rent is a payment in excess of Correct: opportunity cost. 20. Question 20 2/2

Marginal revenue is equal to __________ divided by __________. Correct: the change in total revenue; the change in quantity of output Fpr question 3 For question 5 For question 8 For question 12 For question 18 Part. 2: 1. Question 1 Exhibit 24-4 Total Total

Price Quantity Demanded Fixed Cost Variable Cost Total Revenue Total Cost Marg $50 0 $8 $0 (C) (H) 45 1 8 20 (D) (I) (L) 40 2 (A) 30 (E) (J) (M) 35 3 8 55 105 63 (N) 30 4 8 (B) (F) 93 (P) 25 5 8 125 (G) (K) (Q) Refer to Exhibit 24-4. What dollar amounts go in blanks (P), (Q), (R), and (S), respectively? Correct: $15; $5; $20; and $10 2. Which of the following statements is false? Hide answer choices Congress has granted the U.S. Postal Service the exclusive franchise to deliver first-class mail. A natural monopoly exists where economies of scale are so pronounced in an industry that only one firm can survive. Correct: In the United States patents are granted for a period of 10 years. Correct answer A public franchise is a right granted to a firm by government that permits the firm to provide a particular good or service and excludes all others from doing the same. 3. If a perfectly competitive firm and a single-price monopolist face the same demand and cost curves, then Hide answer choices the competitive firm will attain resource-allocative efficiency, but the monopolist will not. Correct answer the competitive firm will attain resource-allocative efficiency, but the monopolist may or may not, depending upon the demand for its product. the competitive firm will not attain resource-allocative efficiency, but the monopolist will. Incorrect:

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both the competitive firm and the monopolist will attain resource-allocative efficiency. neither the competitive firm nor the monopolist will attain resource-allocative efficiency. 4. For a monopoly firm, marginal revenue equals marginal cost at 100 units (of output). At 100 units, price is above marginal cost. It follows that the monopoly firm Hide answer choices Incorrect: earns profits. takes losses. faces some close substitutes for its product. faces no substitutes for its product. is not resource-allocative efficient. Correct answer 5. If economies of scale are so pronounced in an industry that only one firm can survive in the industry, this firm is called a(n) __________ monopoly. Correct: natural 6. A public franchise is a right granted Correct: to a firm by government that prevents other firms from producing the same product or service. 7. Third-degree price discrimination is discrimination among Correct: buyers. 8. In order for a monopolist to be earning a profit, price must be greater than Correct: average total cost. 9. Individuals who spend resources to influence public policy in a way that will redistribute income to themselves are

Correct: rent seeking. 10. The perfectly competitive firm charges ____________ price for each unit of the good it sells, and the perfectly price-discriminating monopolist charges _________________ price for each unit of the good it sells. Correct: the same; a different 11. Exhibit 24-6 Refer to Exhibit 24-6. The price and quantity of a single-price monopolist producing good X are P 0 and q B , respectively. The marginal revenue curve is represented by Correct: A. 12. Which of the following statements is false? Correct: The monopolist faces a horizontal demand curve. Correct answer For the single-price monopolist, marginal revenue is less than price. For the monopolist, revenue maximization and profit maximization are usually not the same. The monopolist is a price searcher. 13. A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called Correct: a public franchise. 14. The single-price monopolist produces where price is ___________ than marginal cost because for it price is __________ than marginal revenue and its demand curve lies __________ its marginal revenue curve. less; less; below greater; greater; above Correct answer

greater; greater; below Incorrect: less; less; above greater; less; below 15. Exhibit 24-4 Price Quantity Demanded Total Fixed Cost Total Variable Cost Total Revenue Total Cost Marg $50 0 $8 $0 (C) (H) 45 1 8 20 (D) (I) (L) 40 2 (A) 30 (E) (J) (M) 35 3 8 55 105 63 (N) 30 4 8 (B) (F) 93 (P) 25 5 8 125 (G) (K) (Q) Refer to Exhibit 24-4. What dollar amounts go in blanks (T), (U) and (V), respectively? Correct: $25; $30; and $40 16. Exhibit 24-10 Refer to Exhibit 24-10. The profit-maximizing single-price monopolist earns profits equal to what area? Incorrect: ABGH HGCD DCE ABCD Correct answer GFC 17. Exhibit 24-3 Refer to Exhibit 24-3. The profit-maximizing single-price monopolist produces output Correct: q 1 .

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18. A seller that has the ability (to some degree) to control the price of the product it sells is called a price Correct: searcher. 19. Exhibit 24-9 Quantity Sold Price (units) Total C $10 10 $80 9 20 100 8 30 130 7 40 170 6 50 5 60 4 70 Refer to Exhibit 24-9. Assuming that the firm is maximizing profits, the marginal revenue of the last unit produced equals Correct: $4. 20. Exhibit 24-7 Refer to Exhibit 24-7. Let D be the demand curve facing a perfectly price-discriminating monopolist. The lowest price this monopolist will charge is $60. $45. $30. Correct answer Incorrect: $0. For question 11

For question 16 For question 17 For quwation 20

For question

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Chapter 23 quiz - Monolopy

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