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Exam 15: Monopoly

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Question 131

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A monopolist's supply curve is vertical.

A) True
B) False

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Question 132

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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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B) False

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Question 133

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Figure 15-1 -Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?

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

Drug companies are allowed to be monopolists in the drugs they discover in order to

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

The three main sources of barriers to entry are monopoly resources, government regulation, and the firm's production process.

Price discrimination

Scenario 15-7 Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. -Refer to Scenario 15-7. What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price discriminating policy?

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent

Figure 15-24 -Refer to Figure 15-24. Use the letters in the figure to identify the area of deadweight loss for the single price monopolist.

A common solution to monopoly in European countries is public ownership.

The market demand curve for a monopolist is typically

In order to sell more of its product, a monopolist must

Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. -Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600?

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 62 units. The marginal revenue for the firm over this range is

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

Figure 15-3 -Refer to Figure 15-3. Which panel could represent the demand curve facing a local cable television provider if that firm in a monopolist?

Table 15-4 A monopolist faces the following demand curve: -Refer to Table 15-4. In order to maximize total revenues, the monopolist should produce

The collection of statutes aimed at curbing monopoly power is called