FINANCE

Chapter 24 Homework
Which of the following is not a characteristic of a monopoly?
A. Barriers to entry.
B. Free entry and exit.
C. A product with no close substitutes.
D. A single firm in the market.

 

Which of the following markets has a barrier to entry?
A. Gold can only be mined in certain places in the world.
B. Stan’s Garbage Company runs the only trash collection service in town.
C. There are already many fast food restaurants in the City of Buffalo.
D. An aluminum company owns all bauxite mines, an essential input.

Which of the following markets has a barrier to entry?
A. Joe’s Bar owns the only liquor license issued by the town.
B. Gold can only be mined in certain places in the world.
C. There are already many fast food restaurants in the City of Buffalo.
D. Stan’s Garbage Company runs the only trash collection service in town.

For a monopolist, marginal revenue is (Graph)
A. greater than the price of the product.
B. less than the price of the product.
C. unable to be determined.
D. equal to the price of the product.

Since a monopolist faces the downward-sloping industry demand curve,
A. it can charge any price that it wants.
B. it must charge the same price as a competitive firm.
C. the price it can charge must be regulated by the government.
D. the price it will charge depends on the elasticity of demand.

A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be maximizing its economic profits. The manager’s argument is
A. incorrect, since profit maximization requires that marginal revenue equals marginal cost but does not require the average total cost to be at any particular level.
B. correct, since a monopolist maximizes profit at a point where average total cost should be at its lowest level.
C. incorrect, since at the minimum feasible point of the average total cost curve, a monopolist earns zero profit.
D. correct, since a monopolist maximizes profit at a point where average total cost is equal to marginal cost.
A new competitor enters the industry and competes with a second firm, which had been a monopolist. The second firm finds that although demand is not perfectly elastic, it is now relatively more elastic. The second firm’s marginal revenue will be _____________ and its profit-maximizing price will be ___________
A. perfectly inelastic; higher.
B. less elastic; higher.
C. more elastic; lower.
D. perfectly elastic; the same.

 

The following table shows demand and marginal cost for a monopolist. Calculate marginal revenue (MR) at each quantity. (Enter your response as an integer.)
Output (units)
(Q) Price per Unit
(P) Marginal Revenue
(MR) Marginal Cost
(MC)
0 40 — —
1 35   5
2 30   10
3 25   15
4 20  20
5 15  25

A profit-maximizing monopolist will produce ___units and set a price of $__.
The following table shows daily demand and costs for a monopolist.
Output (units)
(Q) Price per Unit
(P) Marginal Revenue
(MR) Marginal Cost
(MC) Average Cost
(ATC)
0 30 — — —
1 25 25 5 25
2 20 15 10 15
3 15 5 15 18
4 10 −5 20 21
5 5 −15 25 24
A profit-maximizing monopolist will produce __ units and set a price of $.
This monopolist’s daily profit is equal to $___.

Consider a price discriminating monopolist. Which of the following is true?
A. A monopoly will engage in price discrimination whenever feasible to increase profits.
B. Charging different prices to different customers does not mean the monopoly is necessarily using price discrimination.
C. The monopolist will sell some of its output at higher prices to consumers with less elastic demand.
D. All of the above are true.
E. None of the above are true.

For each of the following examples, which group will pay the higher price?

Air transport for businesspeople and tourists

Serving food on weekdays to businesspeople and retired people. (Hint: Which group has more flexibility during a weekday to adjust to a price change and, hence, a higher price elasticity of demand?)
A theater that shows the same movie to large families and to individuals and couples. (Hint: For which set of people will the overall expense of a movie be a larger part of their budget, so that demand is more elastic?)

Which of the following is necessary for a firm to practice price discrimination?
A. The firm must be a monopoly.
B. The firm must be able to prevent resale of the product.
C. The firm must be selling a service, not a product.
D. There must be only two groups of buyers in the market.

As compared to a perfectly competitive industry, a monopoly industry with identical cost curves will
A. produce less and set a lower price.
B. produce less and set a higher price.
C. produce less and set the same price.
D. produce more and set a higher price.
E. produce more and set a lower price.

The marginal revenue curve of a monopoly crosses its marginal cost curve at $31 per unit, and an output of 3 million units.

What is the profit-maximizing (loss-minimizing) output?

When the demand for a monopolist falls, the marginal revenue also shifts left and will intersect the marginal cost at a l—–output level. The output rate will____, and economic profits will likely ________.

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