ch 11 Flashcards
(32 cards)
For a monopoly, marginal revenue is less than price because
A) the firm is a price taker.
B) the firm must lower price if it wishes to sell more output.
C) the firm can sell all of its output at any price.
D) the demand for the firm’s output is perfectly elastic.
B) the firm must lower price if it wishes to sell more output.
For a monopoly, marginal revenue is less than price because
A) the demand for the firm’s output is downward sloping.
B) the firm has no supply curve.
C) the firm can sell all of its output at any price.
D) the demand for the firm’s output is perfectly elastic
A) the demand for the firm’s output is downward sloping.
Marginal Revenue is
A) the increase in total revenue from selling one more unit of output.
B) equal to P(1+1/ε).
C) equal to P when the price elasticity of demand is infinite.
D) All of the above.
D) All of the above.
At an output level of 100, a monopolist faces MC = 15 and MR = 17. At output level q = 101, the monopolist’s MC = 16 and MR = 15. To maximize profits, the firm
A) should produce 100 units.
B) should produce 101 units.
C) cannot maximize profits.
D) is not a monopoly.
A) should produce 100 units.
If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then profit maximization
A) is achieved when 21 units are produced.
B) is achieved by setting price equal to 21.
C) is achieved only by shutting down in the short run.
D) cannot be determined solely from the information provided.
A) is achieved when 21 units are produced.
Suppose a monopolist has TC = 40 + 10Q + Q2, and the demand curve it faces is
p = 130 - 2Q. What is the profit-maximizing price and output?
A) P = 50; Q = 20
B) P = 110; Q = 40
C) P = 90; Q = 40
D) P = 90; Q = 20
D) P = 90; Q = 20
Suppose a monopolist has TC = 40 + 10Q + Q2, and the demand curve it faces is
p = 130 - 2Q. What is the maximum profit achieved by this monopoly?
A) Profit = 1160
B) Profit = 1240
C) Profit = 1450
D) Profit = 1800
A) Profit = 1160
The ability of a monopoly to charge a price that exceeds marginal cost depends on
A) the price elasticity of supply.
B) price elasticity of demand.
C) slope of the demand curve.
D) shape of the marginal cost curve.
B) price elasticity of demand.
The Lerner Index is
A) the ratio of the difference between price and marginal cost to price.
B) equal to (Price - MC)/Price.
C) a measure of market power.
D) All of the above.
D) All of the above.
Market power guarantees profit.
A) True, which is why firm’s locate as far away from each other as possible.
B) False, market power guarantees price greater than marginal cost.
C) True, market power guarantees price greater than average cost.
D) False, market power guarantees price equal to average cost.
B) False, market power guarantees price greater than marginal cost.
If a monopoly can produce a good at zero marginal cost, then its Lerner Index is
A) zero.
B) one.
C) infinity.
D) undetermined.
B) one.
The loss associated with the fact that at the profit-maximizing quantity consumers value the goods more than it cost to produce them is called
A) deadweight loss.
B) comparative loss.
C) Lerner Loss.
D) Consumer Value Loss.
A) deadweight loss.
) If the government desires to raise a certain amount of revenue by taxing a monopoly, an ad valorem tax will
A) generate the same loss of consumer surplus as a specific tax.
B) generate a greater loss of consumer surplus than a specific tax.
C) generate a smaller loss of consumer surplus than a specific tax.
D) generate no loss of consumer surplus.
C) generate a smaller loss of consumer surplus than a specific tax.
The producer surplus to a monopolist must be
A) less than zero or the firm is in violation of anti-trust statutes.
B) at least as great as the producer surplus in a competitive market.
C) positive, otherwise why would the monopoly produce?
D) the same as for a competitive market.
B) at least as great as the producer surplus in a competitive market.
When government imposes a tax on a monopoly,
A) the deadweight loss increases.
B) consumer surplus shrinks.
C) producer surplus decreases.
D) All of the above are correct.
D) All of the above are correct.
A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour-producing monopoly locally because
A) the mill has a very inelastic supply curve.
B) the mill is a natural monopoly.
C) the mill controls a key input.
D) the government will declare it a monopoly.
C) the mill controls a key input.
Which of the following total cost functions suggests the presence of a natural monopoly?
A) TC = 2Q
B) TC = 100 + 2Q
C) TC = 100 + 2Q2
D) All of the above.
B) TC = 100 + 2Q
The situation in which one firm can produce the total output of the market at a lower cost than several firms is called a
A) natural monopoly.
B) pure monopoly.
C) ruling monopoly.
D) cost monopoly.
A) natural monopoly.
Which of the following is most likely the most beneficial form of monopoly advantage?
A) better production methods
B) input hoarding
C) decreasing returns to scale
D) government protection
A) better production methods
Government actions that create monopolies
A) spur product innovation by the monopoly.
B) create deadweight loss.
C) result in lower average costs of production.
D) ensure that firms price at marginal cost.
B) create deadweight loss.
Optimal price regulation sets price equal to
A) marginal cost.
B) average variable cost.
C) average cost.
D) minimum average cost.
A) marginal cost.
If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then
A) a shortage will exist.
B) a surplus will exist.
C) producer surplus is maximized.
D) consumer surplus is maximized.
A) a shortage will exist.
The government forcing a monopoly telecommunications company to allow other firms to use its cables is an attempt to
A) regulate prices.
B) decrease the monopoly market power by eliminating a natural monopoly.
C) decrease the monopoly market power by increasing competition.
D) None of the above.
C) decrease the monopoly market power by increasing competition.
When attempting price regulation, a government faces what problem(s)?
A) limited information
B) bribes
C) uncooperative firms
D) All of the above.
D) All of the above.
