question
True or False: Because they can control product price, monopolists can guarantee profitable production by simply charging the highest price consumers will pay.
answer
False
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True or False: The pure monopolist seeks the output that will yield the greatest per-unit profit.
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False
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True or False: An excess of price over marginal cost is the market's way of signaling the need for more production of a good.
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True
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True or False: The more profitable a firm, the greater its monopoly power.
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Cannot be determined
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True or False: The monopolist has a pricing policy; the competitive producer does not.
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True
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True or False: With respect to resource allocation, the interests of the seller and of society coincide in a purely competitive market but conflict in a monopolized market.
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True
question
The demand, marginal-revenue, average-total-cost, and marginal-cost curves are shown in the diagram below. Identify the monopoly price, the fair-return price, and the socially optimal price.
answer
Monopoly Price: MR = MC, traced up the the price of the demand curve. This is where profits are maximized because TC is low, and price is high.
Fair-Return Price: P = ATC... this is where the Demand curve intersects with the ATC curve. At this price, regulators set it so that monopolies can break-even and continue operations. This is equal to normal profit. Does not lead to dull allocative efficiency... but is an improvement.
Socially Optimal Price: P = MC.. this is where the MC curve intersects with the demand curve. Where allocative efficiency and productive efficiency would be achieved. .. the flaw is that this price will likely be below the ATC curve.
Fair-Return Price: P = ATC... this is where the Demand curve intersects with the ATC curve. At this price, regulators set it so that monopolies can break-even and continue operations. This is equal to normal profit. Does not lead to dull allocative efficiency... but is an improvement.
Socially Optimal Price: P = MC.. this is where the MC curve intersects with the demand curve. Where allocative efficiency and productive efficiency would be achieved. .. the flaw is that this price will likely be below the ATC curve.
question
The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:
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downward sloping.
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Which of the following could explain why a firm is a monopoly?
answer
- Patents
- Government Licenses
- Economies of Scale
- Government Licenses
- Economies of Scale
question
Refer to the demand schedule below.
a. Use the following demand schedule to calculate total revenue and marginal revenue at each quantity.
Price ($): 7.00, 6.50, 6.00, 5.50, 5.00, 4.50, 4.00, 3.50, 3.00, 2.50
Quantity Demanded: 0, 1, 2, 3, 4, 5, 6, 7, 8, 9
b. Plot the demand, TR, and MR curves.
c. Use Chapter 6's total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve.
e. Suppose the marginal cost of successive units of output is zero. What output would the profit-seeking firm produce? (Assume the firm can only produce whole units.)
a. Use the following demand schedule to calculate total revenue and marginal revenue at each quantity.
Price ($): 7.00, 6.50, 6.00, 5.50, 5.00, 4.50, 4.00, 3.50, 3.00, 2.50
Quantity Demanded: 0, 1, 2, 3, 4, 5, 6, 7, 8, 9
b. Plot the demand, TR, and MR curves.
c. Use Chapter 6's total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve.
e. Suppose the marginal cost of successive units of output is zero. What output would the profit-seeking firm produce? (Assume the firm can only produce whole units.)
answer
a. Total Revenue ($): 0.00, 6.50, 12.00, 16.50, 20.00, 22.50, 24.00, 24.50, 24.00, 22.50
Marginal Revenue ($): -, 6.50, 5.50, 4.50, 3.50, 2.50, 1.50, 0.50, -0.50, -1.50
c. Demand is elastic from a price of $6.50 to a price of $3.50. Demand is inelastic from a price of $3.00 to a price of $2.50.
d. In general, when marginal revenue is positive, demand is elastic. When marginal revenue is negative, demand is inelastic.
e. 7
Marginal Revenue ($): -, 6.50, 5.50, 4.50, 3.50, 2.50, 1.50, 0.50, -0.50, -1.50
c. Demand is elastic from a price of $6.50 to a price of $3.50. Demand is inelastic from a price of $3.00 to a price of $2.50.
d. In general, when marginal revenue is positive, demand is elastic. When marginal revenue is negative, demand is inelastic.
e. 7
question
How often do perfectly competitive firms engage in price discrimination?
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Never
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The socially optimal price (P = MC) is socially optimal because:
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it achieves allocative efficiency.
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The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price:
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may be so low that the regulated monopoly can't break even.
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