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Homework answers / question archive / University of Waterloo MICROECONO AFM101 CHAPTER 12 Complete the sentence
University of Waterloo
MICROECONO AFM101
CHAPTER 12
Complete the sentence.
1)A natural monopoly regulated by a marginal cost pricing rule is .
A. efficient and incurs an economic loss
B. inefficient and makes an economic profit
C. efficient and makes normal profit in the long run
D. inefficient and incurs an economic loss
2)
A. According to social interest theory, the political and regulatory process allocates resources efficiently.
B. According to capture theory, regulation serves the self-interest of the consumer.
C. Regulation is a guaranteed solution to the dilemma presented by natural monopoly.
D. Regulation attempts to solve the dilemma presented by legal monopolies.
3) A monopoly arises for two key reasons, which are .
A. most firms do not want to be price takers and most firms do not want to be regulated
B. close substitutes and a downward-sloping long-run average cost curve
C. government regulation and technology
D. barriers to entry and no close substitutes
4) The graph shows the total revenue and total cost curves for Bob's Books, the only bookstore in town.
5) What is Bob's profit-maximizing quantity of books? Bob's profit-maximizing quantity of books is .
A. 4,000 books a year
B. 26,000 books a year
C. 22,000 books a year
D. 15,000 books a year
5) When can a monopoly price discriminate among groups of buyers?
A monopoly can price discriminate among groups of buyers if across the two groups.
A. marginal benefit differs
B. the willingness to pay is the same
C. marginal cost differs
D. average total cost differs
6) Sam's Surfboards is the sole renter of surfboards on Big Wave Island.
Complete the sentence. If marginal revenue is positive at the actual number of surfboard rentals made each hour, then .
A. the demand for surfboard rentals is unit elastic
B. the demand for surfboard rentals is elastic
C. Sam's Surfboards can increase economic profit by increasing the number of rentals
D. the demand for surfboard rentals is inelastic
7) With competitive rent seeking, a single-price monopoly's .
A. producer surplus increases
B. economic profit increases
C. Youtput exceeds that of a competitive industry
D. deadweight loss increases
8) The graph shows the demand curve for pizza in an isolated town that has only one pizzeria. Draw the corresponding marginal revenue curve. Make your curve intersect both axes and label it. Choose the correct statement.
A. When price is lowered to sell one more unit, the lower price results in a revenue loss and the increased quantity sold results in a revenue gain.
B. For a monopoly, total revenue equals marginal revenue multiplied by the quantity sold.
C. For a monopoly, marginal revenue equals price.
D. Marginal revenue equals total revenue divided by quantity sold.
9) A monopoly .
A. never produces an output in the inelastic range of the market demand because it could charge a higher price, produce a smaller quantity, and increase its profit
B. never produces an output in the elastic range of the market demand because it could charge a higher price, produce a smaller quantity, and increase its profit
C. usually produces the quantity at which market demand is unit elastic, and at that quantity total revenue is maximized
D. always produces output in the inelastic range of the market demand
10) Roxie's Movie Theatre is the only one in town.
The table gives the demand schedule for movie tickets.
Roxie's is a single-price monopoly and the marginal cost of showing a movie is $6. What is Roxie's movie ticket price and how many movie tickets a week will Roxie's sell? Roxie's will charge a movie ticket and will sell movie tickets a week.
A. $12; 200
B. $6; 400
C. $15; 100
D. $9; 300
11)
A. Barriers to entry limit rent seeking.
B. With competitive rent seeking, a single-price monopoly will use all its economic profit to maintain its monopoly.
C. The social cost of monopoly with rent seeking is less than the deadweight loss without rent seeking.
D. Rent seeking is the attempt by monopoly owners to increase demand and charge higher prices.
12) When economies of scale enable one firm to supply the entire market at the lowest possible cost, the .
A. firm is protected from competition by a legal barrier
B. firm is a natural monopoly
C. firm is a single-price monopoly
D. good that the market produces has close substitutes
13) A perfect price discriminating monopoly produces .
A. a larger output than a perfectly competitive market
B. the same quantity as a single-price monopoly
C. an output at which marginal revenue exceeds marginal cost
D. the same quantity of output as a perfectly competitive market
14)
A. If a monopoly wants to make an economic profit it must practise price discrimination.
B. A monopoly that practises price discrimination is a price taker.
C. A firm practises price discrimination when it sells different units of a good or service for different prices.
D. All firms that practise price discrimination are monopolies.
15) The producer of natural gas is a natural monopoly. The graph illustrates the market for natural gas. When the government regulates the company by imposing an average cost price rule, what is the price per household per month and what is the deadweight loss?
When the government regulates the company by imposing an average cost price rule, the price per household per month is .
A. $20 and the loss per household is $10
B. $20 and 30,000 households are served
C. $30 and the deadweight loss is $25,000
D. $30 and the deadweight loss is $50,000
16) The graph shows the marginal cost, marginal revenue, and demand curves for a monopoly. The monopoly practises perfect price discrimination.
Draw a point to indicate the quantity that this monopoly will sell to the market and the lowest price it will charge.
When a monopoly that produces a service practises perfect price discrimination, .
A. the supply of the service increases
B. producer surplus is zero
C. consumer surplus is zero
D. consumer surplus is at a maximum
17) When a firm engages in discrimination between two types of buyers .
A. the firm sells a greater quantity, and consumer surplus and producer surplus increase
B. the quantity sold does not change but some consumers pay a higher price and some consumers pay a lower price
C. marginal cost decreases and the firm's economic profit increases
D. economic profit decreases
18) The graph shows the demand curve for the output of a single-price monopoly and the firm's costs. Draw a point on the MC curve that indicates the quantity produced by the firm. Label it 1.
Draw a point that indicates the price charged by the firm and the quantity produced. Label it 2.
If the monopoly produces a quantity at which marginal revenue exceeds marginal cost, .
A. economic profit increases if output decreases
B. demand is inelastic
C. economic profit increases if output increases
D. economic profit is maximized
19) The graph illustrates the demand for haircuts and the costs of producing haircuts.
Draw a point to indicate the profit-maximizing output and price if this market is perfectly competitive. Label the competitive equilibrium EC.
Draw a point to indicate the profit-maximizing output and price if the haircut producer is a single-price monopoly. Label the monopoly equilibrium EM.
When a perfectly competitive industry is taken over by a single firm, the competitive industry's
curve becomes the monopoly's curve.
A. marginal revenue; demand
B. average total cost; supply
C. supply; marginal cost
D. average total cost; marginal cost
CHAPTER 12 B
1) When a firm practises perfect price discrimination .
A. producer surplus decreases
B. consumer surplus increases
C. it sells each unit of output for the lowest price someone is willing to pay for it
D. the demand curve becomes the marginal revenue curve
2) A single-price monopoly .
A. is a collection of many firms that sell identical goods for the same price
B. is a price taker
C. experiences economies of scale over the relative portion of the LRAC curve
D. can sell a larger quantity only by setting a lower price
3) The graph shows the demand and cost conditions facing a perfectly competitive industry.
If the industry is taken over by a monopoly, what is the deadweight loss that results from the behaviour of the monopoly?
The deadweight loss that results from the behaviour of the monopoly is
4) Wanda's Healthy Waters is a monopoly.
The table gives the demand schedule for water bottled by Wanda's Healthy Waters. Wanda's marginal cost is a constant $2 a bottle. There are no fixed costs.
How many bottles does Wanda's produce and what is the price Wanda's charges? What is Wanda's producer surplus?
Wanda's produces bottles of water and charges a bottle.
A. 4,000; $2
B. 2,000; $4
C. 1,000; $5
D. 3,000; $3
Wanda's producer surplus is
5) Sam's Surfboards is the sole renter of surfboards on Big Wave Island. Complete the sentence.
For Sam's Surfboards, the change in total revenue for each additional surfboard rented is always .
A. equal to the marginal cost of providing the rental service
B. equal to the rental price of a surfboard
C. greater than the marginal cost of providing the rental service
D. less than the rental price of a surfboard
6) Which of the following firms is most likely to be a monopoly?
A. a local distributor of electricity
B. a shoe store
C. a computer store
D. a local fast-food restaurant
7) The social cost of a monopoly .
A. is greater with rent seeking than it otherwise would be
B. equals the social benefit
C. is equal to the value of the economic rent
D. is illustrated by a curve that would also be the supply curve of the competitive industry
8) Roxy Theatre is a monopoly.
Roxy discovers that at the price that maximizes its profit, seniors are not coming to the theatre. So Roxy conducts a survey. The table reveals the results of the survey.
Roxy decides to price discriminate among patrons who attend on weekends and those who attend on weekdays.
If the marginal cost of a show is $6.00, what price does Roxy charge on weekdays and what price does Roxy change on weekends to maximize profit?
If the marginal cost of a show is $6.00, Roxy will maximize profit by charging a ticket on weekdays and charging a ticket on the weekend.
A. $6.00; $15.00
B. $6.00; $18.00
C. $9.00; $15.00
D. $7.50; $12.00
9) Mario's Pizza is the only pizza place in Sorrento City.
The graph shows the market demand curve for pizza in Sorrento City. Mario's Pizza is a perfect price discriminator.
What is the marginal revenue from the 20th pizza sold in an hour? The marginal revenue from the 20th pizza sold in an hour is .
A. −$4
B. $16
C. $15
D. $300
10) There is one newspaper publisher in the town of Sparta, and it is a monopoly. The table shows the total revenue and total cost schedules of the publisher. What is the publisher's profit-maximizing output?
The publisher's profit-maximizing output is____
11) Rocky's Mountain Water is a natural monopoly, which the government regulates by imposing a marginal cost pricing rule.
The graph shows the demand for Rocky's Mountain Water and the marginal cost is $0.20 a bottle. What is the price of a bottle of Rocky's Mountain Water and how many bottles a day are sold?
The price of Rocky's Mountain Water is a bottle and bottles are sold a day. A. $0.40; 400
B. $0.50; 150
C. $0.20; 300
D. $0.20; 600
12) Barbara owns a truck stop on the prairies, miles from anywhere.
The graph shows her marginal revenue and marginal cost curves and the demand curve she faces. How many fewer meals does Barbara serve than she would if the market were perfectly competitive?
Barbara serves_ fewer meals a week than she would if the market were perfectly competitive.
13) A profit-maximizing monopoly never produces an output in the range of its
curve.
A. elastic; supply
B. unit elastic; marginal revenue
C. inelastic; demand
D. inelastic; supply
14) The activity of rent seeking shifts the firm's curve upward.
A.) ATC
B.) AVC
C.) MC
D.) MR
15) A monopoly that can perfectly price discriminate has a marginal revenue curve that is the demand curve for the good that the monopoly produces.
If a monopoly can perfectly price discriminate, it produces deadweight loss.
A the same as; no
B steeper than; a large
C steeper than; a small
D flatter than; a small
16) A monopoly that perfectly price discriminates is .
A. less efficient than a perfectly competitive market
B. more efficient than a single-price monopoly
C. less efficient than a single-price monopoly
D. more efficient than a perfectly competitive market
17) JK Rowling's copyright on the Harry Potter series of books is an example of .
A. a natural barrier to entry
B. a legal barrier to entry
C. an ownership barrier to entry
D. price discrimination
18) The graph illustrates the demand for Sandi's hand-made greeting cards.
What is Sandi's marginal revenue when production increases from 4 cards to 5 cards? When Sandi increases production from
4 cards to 5 cards, marginal revenue is ___________________
19) Bob's Books is the only bookstore in town.
The graph shows the demand curve for books and Bob's Books' marginal revenue curve and marginal cost curve.
How does Bob's Books maximize its profit?
Bob's Books maximizes its profit by charging a book and selling books a year. A. $8; 30,000
B. $22; 16,000
C. $16; 22,000
D. $6; 16,000
20) A price cap regulation .
A. is a price ceiling
B. eliminates deadweight loss
C. is often combined with a government subsidy, which makes the market efficient
D. sets price equal to marginal cost
21) The graph shows the marginal cost curve, average total cost curve, and demand curve of a natural monopoly.
Draw a point to indicate the output and price under an average cost pricing rule. Under an average cost pricing rule, the firm .
A. produces the efficient quantity
B. makes an economic profit
C. makes zero economic profit
D. incurs an economic loss
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