Problem 1
Which of the following could explain why a firm is a monopoly? Select one or more answers from the choices shown. LO12.2 a. Patents. d. Government licenses. b. Economies of scale. e. Downsloping market demand. c. Inelastic demand.
Problem 2
The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is: \(L O 12.3\) a. Horizontal, too. c. Downsloping. b. Upsloping. d. It depends.
Problem 3
Use the following demand schedule to calculate total revenue and marginal revenue at each quantity. Plot the demand, totalrevenue, and marginal-revenue curves, and explain the relationships between them. Explain why the marginal revenue of the fourth unit of output is \(\$ 3.50,\) even though its price is \(\$ 5 .\) Use Chapter 6 's total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve. What generalization can you make as to the relationship between marginal revenue and elasticity of demand? Suppose the marginal cost of successive units of output was zero. What output would the profit-seeking firm produce? Finally, use your analysis to explain why a monopolist would never produce in the inelastic region of demand. LO12.3 $$\begin{array}{|c|c|c|c|} \hline \text { Price (P) } & \begin{array}{c} \text { Quantity } \\ \text { Demanded (Q) } \end{array} & \text { Price (P) } & \begin{array}{c} \text { Quantity } \\ \text { Demanded (O) } \end{array} \\ \hline \$ 7.00 & 0 & \$ 4.50 & 5 \\ 6.50 & 1 & 4.00 & 6 \\ 6.00 & 2 & 3.50 & 7 \\ 5.50 & 3 & 3.00 & 8 \\ 5.00 & 4 & 2.50 & 9 \\ \hline \end{array}$$
Problem 4
How often do perfectly competitive firms engage in price discrimination? LO12.6 a. Never. b. Rarely. c. Often. d. Always.
Problem 5
Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has: \(L O 12.6.\) a. The higher elasticity of demand. b. The lower elasticity of demand. c. Richer members.
Problem 6
The socially optimal price \((P=M C)\) is socially optimal because: \(L O 12.7\) a. It reduces the monopolist's profit. b. It yields a normal profit. c. It minimizes ATC. d. It achieves allocative efficiency.
Problem 7
The main problem with imposing the socially optimal price \((P=\mathrm{MC})\) on a monopoly is that the socially optimal price: \(L O 12.7.\) a. May be so low that the regulated monopoly can't break even. b. May cause the regulated monopoly to engage in price discrimination. c. May be higher than the monopoly price.
