ECON 0110: Monopoly
30 Cards in this Set
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Suppose ABC Aluminum Inc. owns 80% of the world's bauxite, a mineral used in the production of aluminum. Which of the following reasons describes the fundamental barrier to entry for the aluminum industry?
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monopoly resources
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Which of the following would be most likely to have monopoly power?
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a local cable TV provider
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A firm that is the sole seller of a product without close substitutes is
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a monopolist
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A fundamental source of monopoly market power arises from
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barriers to entry.
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Patent and copyright laws encourage
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creative activity
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A firm that is a natural monopoly
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is not likely to be concerned about new entrants eroding its monopoly power.
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When there are economies of scale over the relevant range of output for a monopoly, the monopoly
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is a natural monopoly
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When a firm experiences continually declining average total costs,
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society is better served by having one firm supply the product
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If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
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marginal revenue is less than the price of the product
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Which of the following statements is correct for both a monopolist and a perfectly competitive firm?
(i)The firm maximizes profits by equating marginal revenue with marginal cost.
(ii)The firm maximizes profits by equating price with marginal cost
(iii)Demand equals marginal revenue
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(i) and (iv) only
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What is the shape of the monopolist's marginal revenue curve?
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a downward-sloping line that lies below the demand curve
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The price effect describes the situation when a monopolist lowers the price of output and, all else equal, total revenue
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decreases
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Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product?
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The "output effect" causes total revenue to rise.
The "price effect" causes total revenue to fall
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If the monopoly firm is currently producing Q4 units of output, then a decrease in output will necessarily cause profit to
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increase as long as the new level of output is at least Q2.
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Refer to Figure 15-5. A profit-maximizing monopoly's total cost is equal to
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P5 x Q3.
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Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of
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$20.
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Refer to Figure 15-7. A profit-maximizing monopolist would earn total revenues of
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$240
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Refer to Table 15-3. The maximum profit this monopolist can earn is
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$28.
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Refer to Table 15-6. Suppose the monopolist has total fixed costs equal to $5 and a variable cost equal to $4 per unit for all units produced. What is the total profit if she operates at her profit-maximizing price?
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$11
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Refer to Table 15-7. What is the marginal cost of the 8th pair of shoes?
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$90
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Refer to Table 15-7. What is the marginal revenue from selling the 8th pair of shoes?
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$20
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Refer to Table 15-20. If a monopolist faces a constant marginal cost of $5, how much output should the firm produce in order to maximize profit?
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4 units
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To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where
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MC intersects the demand curve.
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Refer to Figure 15-8. What is the area of deadweight loss?
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the triangle 1/2[(A-C)*(Y-X)]
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Refer to Figure 15-13. A profit-maximizing monopolist would create a deadweight loss to society valued at
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$12.
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Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10.
Refer to Scenario 15-4. The profit-maximizing monopolist will earn pro…
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$1,600
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When a monopolist is able to sell its product at different prices, it is engaging in
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price discrimination.
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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 …
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$2,170
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Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to
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$1,000.
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Which of the following is the preferred strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies?
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None of the above strategies is preferred. Each is a viable strategy
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ECON 0110: Monopoly