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Exam 15: Monopoly

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Question 61

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Calculate the deadweight loss due to profit-maximising monopoly pricing under the following conditions. The price charged for goods produced is $10. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 100 units and marginal revenue is $5. The socially efficient level of production is 110 units. The demand curve is linear and downward-sloping and the marginal-cost curve is linear and upward-sloping.

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Question 62

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Patents are employed to give drug companies temporary monopoly power in order to:

A) encourage research and innovations in pharmaceutical products
B) protect corporate interests
C) regulate drug companies to charge a price that is equal to their marginal cost
D) do all of the above

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

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Question 63

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Table 15-1 -Refer to Table 15-1. What is the average revenue received from selling 4 units of the monopolist's product?

The main differences between a competitive firm and a monopoly are: (i) competitive firms do not have to worry about the price effect lowering their total revenue (ii) marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge (iii) monopolies must lower their price in order to sell more of their product, while competitive firms do not

Graph 15-5 This graph depicts the demand, marginal-revenue and marginal-cost curves of a profit-maximising monopolist. Use the graph to answer the following question(s) . -Refer to Graph 15-5. Which of the following areas represents the deadweight loss due to monopoly pricing?

A monopolist's marginal-revenue curve is less than price for which of the following reasons? (i) to sell additional units of the good, the price charged on all units must decrease (ii) with the sale of an additional unit, the monopolist receives less revenue for each of the previous units it planned to sell (iii) because of the downward-sloping demand curve

A government created monopoly arises when:

C.R. Evans, a transportation corporation, has just completed the development of a new subway system in Melbourne. Currently there are plenty of seats on the subway, and it is never crowded. Its capacity well exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans common stock are experiencing incredible rates of return on their investment, due to the profitability of the corporation. -According to the information provided,C.R. Evans may continue to be a monopolist in the subway transportation industry only if:

The inefficiency of a deadweight loss stems from the fact that:

A monopolist's average revenue is always:

Describe how government is involved in creating a monopoly. Why might the government create one? Give an example.

Patent and copyright laws are major sources of government created monopolies.

If a monopolist faces a downward-sloping market demand curve, its:

Graph 15-2 This graph reflects the cost and revenue structure for a monopoly firm. Use the graph to answer the following question(s) . -Refer to Graph 15-2. The average-total-cost curve for a monopoly firm is depicted by curve:

An industry is a natural monopoly when which of the following is(are) true? (i) a single firm will supply a good or service at a socially optimal quantity (ii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms (iii) a single firm can produce additional units at a smaller marginal cost

When a firm operates under conditions of a monopoly, its price is constrained by demand.

A profit-maximising monopolist will choose a level of output at where:

If the firm is the only owner of a key resource then this will be a significant barrier to entry.

Like monopolies, competitive firms choose to produce a quantity in which marginal revenue equals marginal cost.

Consider the following diagram of a monopoly. Assuming that the monopoly is at its profit-maximising point, identify the values of its marginal revenue, marginal cost, average revenue and price.