Chapter 15

25 July 2022
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A monopoly creates a deadweight loss to society because it earns both short-run and long-run positive economic profits.
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False
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By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profits.
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True
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Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.
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True
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The amount of power that a monopoly has depends on whether there are close substitutes for its product.
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True
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By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.
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True
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The collection of statutes aimed at curbing monopoly power is called
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antitrust law.
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Which of the following is not correct?
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A monopolist can charge any price and sell any quantity that it chooses.
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Antitrust laws have economic benefits that outweigh the costs if they
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prevent mergers that would decrease competition and raise the costs of production.
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Which of the following statements is correct? Monopolies are socially inefficient because they (i) charge a price above marginal cost. (ii) produce too little output. (iii) earn profits at the expense of consumers. (iv) maximize the market's total surplus.
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(i) and (ii) only
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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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When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 60 units. The marginal revenue for the firm over this range is
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$22.
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A market force that can prevent firms from price discriminating is
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arbitrage.
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A monopolist
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does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply.
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The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the
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Clayton Act.
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For a profit-maximizing monopolist,
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P > MR = MC.
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Deadweight loss measures the loss in society's welfare that occurs because a monopolist can earn profits without the concern of new firms entering its industry.
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False
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Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.
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False
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If the government regulates the price a natural monopolist can charge to be equal to the firm's marginal cost, the government will likely need to subsidize the firm.
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True
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The socially efficient quantity is found where the demand curve intersects the marginal cost curve.
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True
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University financial aid can be viewed as a type of price discrimination.
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True
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Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because (i) almost all people fear the generic drug companies are devoting too few resources to research and development. (ii) some people fear that generic drugs are inferior. (iii) some people are loyal to the name brand.
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(ii) and (iii) only
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A monopolist maximizes profits by
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(a) producing an output level where marginal revenue equals marginal cost. (b) charging a price that is greater than marginal revenue. Both a and b are correct.
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Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?
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The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits.
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Which of the following may eliminate some or all of the inefficiency that results from monopoly pricing?
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The government can regulate the monopoly.
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When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output effect.
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True
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A monopolist's profit is equal to (Price - Marginal Cost) Β΄ Quantity.
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False
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Average revenue for a monopoly is the total revenue divided by the quantity produced.
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True
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A monopolist maximizes profit by producing an output level where marginal cost equals price.
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False
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One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.
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False
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The social cost of a monopoly is equal to its
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dead weight loss.
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Economists assume that monopolists behave as
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profit maximizers.
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In order for antitrust laws to raise social welfare, the government must
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be able to determine which mergers are desirable and which are not.
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When a monopolist increases the number of units it sells, there are two effects on revenue. They are the
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output effect and the price effect.
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Which of the following is not an example of a barrier to entry?
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A college student starts a part-time tutoring business.
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If a monopolist's marginal costs increase by $1 for all levels of output, then the monopoly price will
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rise by less than $1.
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Patent and copyright laws encourage
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creative activity.
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When an industry is a natural monopoly,
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a larger number of firms will lead to a higher average cost.
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Which of the following statements is correct?
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A competitive firm is a price taker, whereas a monopolist is a price maker.
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The best solution to the problem of welfare loss from monopoly is public ownership.
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False
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A monopolist does not have a supply curve because the firm's decision about how much to supply is impossible to separate from the demand curve it faces.
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True
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Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.
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False
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Deadweight loss measures the loss in society's welfare that occurs because a monopolist does not produce the socially efficient level of output.
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True
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A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost.
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False
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A reduction in a monopolist's fixed costs would
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government-created monopolies.
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The economic inefficiency of a monopolist can be measured by the
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deadweight loss.
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If government officials break a natural monopoly up into several smaller firms, then
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the average costs of production will increase.
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Because a monopolist must lower its price in order to sell another unit of output,
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marginal revenue is less than price.
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When a firm's average total cost curve continually declines, the firm is a
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natural monopoly.
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A monopolist will choose to increase output when
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at the present level of output, marginal revenue exceeds marginal cost.