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Exam 15: Monopoly

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Question 71

Multiple Choice

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Figure 15-14 -Refer to Figure 15-14. A benevolent social planner would have the monopoly operate at an output level

A) less than Q0.
B) greater than Q0.
C) equal to Q0.
D) equal to zero.

E) B) and C)
F) A) and D)

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Question 72

Multiple Choice

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The collection of statutes aimed at curbing monopoly power is called

A) the 14th amendment.
B) the Clayton Act.
C) the Sherman Act.
D) antitrust law.

E) C) and D)
F) A) and B)

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Question 73

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One solution to the problems of marginal-cost pricing of a regulated natural monopolist is average cost pricing. In this model, the monopolist is allowed to price its production at average total cost. How does average-cost pricing differ from marginal-cost pricing? Does this solution maximize social well-being?

Table 15-1 -Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of output (Q) will it produce and what price (P) will it charge?

If the government deems a newly-invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.

Monopolies use their market power to

Figure 15-10 -Refer to Figure 15-10. What area measures the deadweight loss?

Table 15-21 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 15-21. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold?

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

Scenario 15-1 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: Passenger Type Willingness to Pay Demand per day Adults $18 70 Children $10 25 Senior Citizens $12 55 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 15-1. What is Vincent's cost of serving all passengers demanding a tour on a typical day?

A monopolist produces where P > MC = MR.

Table 15-20 A monopolist faces the following demand curve: -Refer to Table 15-20. If a monopolist faces a constant marginal cost of $10, how much output should the firm produce in order to maximize profit?

A firm that is a natural monopoly

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as

A rational pricing strategy for a profit-maximizing monopolist is

Figure 15-6 -Refer to Figure 15-6. How much output will the monopolist produce?

For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which

Patent and copyright laws

Scenario 15-7 Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. -Refer to Scenario 15-7. What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price discriminating policy?

Consumers' willingness to pay for a good minus the amount they actually pay for it equals