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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 10 Market Power: Monopoly and Monopsony10.1 MonopolyWhen the demand curve is downward sloping, marginal revenue is: A) equal to price.B) equal to average revenue.C) less than price.D) more than price.Answer: CDiff: 1Section: 10.1iXdl.N per unitRefer to F
2、igure 10.1.1 above. For the monopolist shown below, the profit maximizing level of output is:Q1Q2Q3Q4A)B)OD)Answer: ADiff： 1Section: 10.1E)125Answer: CDiff: 2Section: 10.135) Refer to Scenario 10.3. At the profit-maximizing level of output, demand is:A) completely inelastic.B) inelastic, but not com
3、pletely inelastic.C) unit elastic.D) elastic, but not infinitely elastic.E) infinitely elastic.Answer: DDiff: 2Section: 10.1Refer to Scenario 10.3. Compared to a competitive red herring industry, the monopolistic red herring industry:A) produces more output at a higher price.B) produces less output
4、at a higher price.C) produces more output at a lower price.D) produces less output at a lower price.E) There is not enough information to relate the monopolistic red herring industry to a competitive industry.Answer: BDiff： 2Section: 10.1Refer to Scenario 10.3. Suppose that a tax of $5 per unit of o
5、utput is imposed on red herring producers. The price of red herring will:A) not change.B) increase by less than $5.C) increase by $5.D) increase by more than $5.E) decrease.Answer: BDiff: 3Section: 10.1Scenario 10.4:The demand for tickets to the Katy Perry concert (Q) is given as follows:Q = 120,000
6、 - 2,000PThe marginal revenue is given as:MR = 60-.001QThe stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point.36) Refer to Scenario 10.4. Given the information ab
7、ove, what arc the profit maximizing number of tickets sold and the price of tickets?A) 0z $60B) 20,000, $50C) 40,000, $40D) 60,000, $30E) 80,000, $20Answer: DDiff： 2Section: 10.137) Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert pr
8、omoters. Given the information above, the profit maximizing ticket price would: A) increase by $10.B) increase by $5.C) not change.D) decrease by $5.E) decrease by $10.Answer: BDiff: 2Section: 10.1A multiplant monopolist can produce her output in cither of two plants. Having sold all of her output s
9、he discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will:A) produce more output in plant 1 and less in the plant 2.B) do nothing until it acquires more information on revenues.C) produce less output in plant 1 and more in plan
10、t 2.D) produce less in both plants until marginal revenue is zero.E) shut down plant 1 and only produce at plant 2 in the future.Answer: CDiff： 2Section: 10.1Scenario 10.5:A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the ma
11、rginal revenue from producing garden hoses are given in the following table:CaliforniaOhioOc + oMROcMCcOoMCo12131242324220353631649484125165125862461764Refer to Scenario 10.5. From the perspective of the firm, what is the marginal cost of the 5th garden hose?A) 4B)5C) 16D)12E)8Answer: BDiff： 2Sectio
12、n: 10.138) Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits?A)1B)2Q3D)4E)5Answer: CDiff: 2Section: 10.1Scenario 10.6:If red rubber balls can be produced at any of the three plants, what is theJohn is the manufacturer of red rubber balls (Q).
13、 He has a red rubber ball manufacturing plant in California, Florida and Montana. The total cost of producing red rubber balls at each of the three plants is given by the following table:CaliforniaFloridaMontanaOcTCcQfTCfOmTCm15181421021628315324312420432416525540520630648624735756728840864832945972
14、93610501080104011infinity11infinity11infinity43) Refer to Scenario 10.6.marginal cost of 5th red rubber ball?4 5 8 2A)B)0D)E) none of the aboveAnswer: ADiff： 2Section: 10.1Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, and John decides to produce 1 red rubber
15、 ball, at which plant will he produce it?A) CaliforniaFloridaB) MontanaHe is indifferent between California and Florida.C) He is indifferent between Florida and Montana.Answer: CDiff: 1Section: 10.1The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16-P MR = 1
16、6-2QWhat level of output maximizes profit?A)0B)4C) 5.5D)6E) B, C and D all maximize profit.Answer: DDiff： 3Section: 10.1What is the profit maximizing price?A) 1020Q3D) 40E) none of the aboveAnswer: ADiff： 1Section: 10.144) At the profit-maximizing level of output, demand is:A) completely inelastic.B
17、) inelastic, but not completely inelastic.C) unit elastic.D) elastic, but not infinitely clastic.E) infinitely elastic.Answer: DDiff： 2Section: 10.1Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit?A) -1B)3C) 4.5D)5E) B, C, and
18、 D are correct.Answer: DDiff: 3Section: 10.145) After the imposition of a tax of $2 per unit of output, what is the profit maximizing price?A) $11$21B) $31$41C) none of the aboveAnswer: ADiff: 1Section: 10.1Scenario 10.7:The marginal revenue of green ink pads is given as follows:MR = 2500 - 5QThe ma
19、rginal cost of green ink pads is 5Q.46) Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue?A)0250B) 300500E)none of the aboveAnswer: DDiff: 2Section: 10.147) Refer to Scenario 10.7. How many ink pads will be produced to maximize profit?A) 50250B) 500800C) none of the abov
20、eAnswer: BDiff: 2Section: 10.148) Refer to Scenario 10.7. Suppose that the firm chooses to produce 200 ink pads. At this level of output the demand for ink pads is:A) inelastic.B) perfectly inelastic.C) elastic.D) unit elastic.Answer: CDiff： 1Section: 10.1The marginal cost of a monopolist is constan
21、t and is $10. The marginal revenue curve is given as follows:MR = 100-2QThe profit maximizing price is:A) $70.B) $65.C) $60.D) $55.E) $50.Answer: DDiff： 2Section: 10.1A multiplant firm has equated marginal costs at each plant. By doing this:A) profits are maximized.B) costs are minimized given the l
22、evel of output.C) revenues are maximized given the level of output.D) none of the aboveAnswer: BDiff： 3Section: 10.153) Bancroft Pharmaceuticals has a patent on a new medication used to treat high blood pressure, so it is the monopoly seller of this new drug product. The marginal cost of producing o
23、ne dose of the drug is $10, and the elasticity of demand for the product is -3. What is the profit maximizing monopoly price for this patented drug product?A) $10$12.50C)$15D) $30Answer: CDiff: 2Section: 10.1Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cho
24、lesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product?A) The price-cost markup is 25% of the price.B) The price-cost markup is 25% of the marginal c
25、ost.C) The price-cost markup is 4% of the marginal cost.D) The price-cost markup is 4% of the price.Answer: ADiff： 2Section: 10.1A firms demand curve is given by P = 500 - 2Q. The firms current price is $300 and the firm sells 100 units of output per week.a. Calculate the firms marginal revenue at t
26、he current price and quantity using the expression for marginal revenue that utilizes the price elasticity of demand.b. Assuming that the firms marginal cost is zero, is the firm maximizing profit?Answer:Begin by calculating the price elasticity of demand, ED: u AQ PEd- AP QTo find solve for Q in te
27、rms of P.P = 500 - 2QP-500 = -2QQ = 250 - 0.5PEd =1Ed =1ED墨苇如2 7510()MR = 300-200 =100b.If MC = 0, the firm is not maximizing profit since MR should be equal to MC. The firm should expand output.MR = 500 - 4Q = 04Q = 500Q = 125Diff： 2Section: 10.110.2 Monopoly Power1) The elastic a firms demand curv
28、e, the greater its.A) less; monopoly powerless; outputB) more; monopoly powermore; costsAnswer: ADiff： 1Section: 10.22) Refer to Figure 10.2.1 above. Which monopoly charges a greater price markup?A) The monopoly in panel (a).B) The monopoly in panel (b).C) Both firms charge the same markup.D) The mo
29、nopoly with more elastic demand.Answer: BDiff: 1Section: 10.2Refer to Figure 10.2.1 above. Which monopoly has greater monopoly power?A) The monopoly in panel (a).B) The monopoly in panel (b).C) Both firms charge the same market power.D) Cannot tell from this figure.Answer: BDiff: 1Section: 10.2Monop
30、oly power results from the ability to: A) set price equal to marginal cost.B) equate marginal cost to marginal revenue.C) set price above average variable cost.D) set price above marginal cost.Answer: DDiff: 1Section: 10.2Refer to Figure 10.1.2 above. When the monopoly maximizes profit, how much is
31、the amount of profit?A) $4.50S14.7B) $15.6$52.00Answer: CDiff: 1Section: 10.1Which of the following is NOT true regarding monopoly?A) Monopoly is the sole producer in the market.B) Monopoly price is determined from the demand curve.C) Monopolist can charge as high a price as it likes.D) Monopoly dem
32、and curve is downward sloping.Answer: CDiff: 1Section: 10.1Which of the following is true at the output level where P = MC?A) The monopolist is maximizing profit.B) The monopolist is not maximizing profit and should increase output.C) The monopolist is not maximizing profit and should decrease outpu
33、t.D) The monopolist is earning a positive profit.Answer: CDiff： 1Section: 10.15) What is the value of the Lerner index under perfect competition?A)1B)0C) infinitytwo times the priceAnswer: BDiff： 1Section: 10.2The more elastic the demand facing a firm,A) the higher the value of the Lerner index.B) t
34、he lower the value of the Lerner index.C) the less monopoly power it has.D) the higher its profit.Answer: BDiff： 2Section: 10.2The Lerner index measures:A) a firms potential monopoly power.B) the amount of monopoly power a firm chooses to exercises when maximizing profits.C) a firms potential profit
35、ability.D) an industrys potential market power.Answer: BDiff： 2Section: 10.2Assume that a firms marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firms profit maximizing price is approximately:A) $20.B) $5.C) $10.D) The answer cannot be determined without additional i
36、nformation.Answer: ADiff: 2Section: 10.2Use the following two statements to answer this question:I) A firm can exert monopoly power if and only if it is the sole producer of a good.J) . The degree of monopoly power a firm possesses can be measured using the Lerner Index:L = (P- AC)/AC.K) Both I and
37、II are true.L) I is true, and II is false.M) I is false, and II is true.N) Both I and II are false.Answer: DDiff: 2Section: 10.2Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:A) to decrease the price of rice to the Japanese people
38、.B) to decrease the consumer surplus of Japanese rice consumers.C) to decrease the producer surplus of Japanese rice producers.D) a welfare gain for the Japanese people.E) increase the consumption of rice by the Japanese people.Answer: BDiff： 2Section: 10.2DVDs can be produced at a constant marginal
39、 cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Ranibeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies? A) Both equal one.B) 2 and 3, respectively0.5
40、 and 0.67, respectivelyC) 1 and 2, respectivelyAnswer: CDiff: 2Section: 10.26) DVDs can be produced at a constant marginal cost of $5 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is
41、 priced at $30 per disk. What are the price elasticities of demand for these two movies?A) Both equal -1.2.B) -0.75 and -5/6, respectively-1.33 and -1.2, respectivelyC) -1.33 and -2, respectivelyAnswer: CDiff： 2Section: 10.27) DVDs can be produced at a constant marginal cost, and Roaring Lion Studio
42、s is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at S20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing bo
43、th DVDs?A) MC = $10 B) MC = $15 C) MC = $20D) MC = $5 Answer: B Diff: 3Section: 10.28) Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25,
44、 and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD?A) YesNo, the retail price is too lowB) No, the retail price is too highWe do not have enough information to answer this question.Answer: CDiff： 2Section: 10.2What is the maximu
45、m value of the Lerner index?A) InfinityB)100C) TwoD) OneAnswer: DDiff： 2Section: 10.2You work as a marketing analyst for a pharmaceutical firm, and you are trying to gather information about the marginal cost of production for a competing firm. You know that they have a patent on a popular medicatio
46、n that sells for $20 per dose, and you believe the elasticity of demand for this product is roughly -4. Assuming the competing firm acts as a profit-maximizing monopolist, what is the competing firms approximate marginal cost of production?A) $10 per dose$12.50 per doseB) $15 per dose$20 per doseAns
47、wer: CDiff: 2Section: 10.217) Determine the rule-of-thumb price when the monopolist has a marginal cost of $25 and the price elasticity of demand of -3.0.Answer: Use equation (10.2) from the text, and solve for price.p MC $25.00 ck ,rr = = = $37.511 + 1 +-!-Ed -3Diff: 2Section: 10.210.3 Sources of Monopoly Power1) Suppose Orange Inc. sells MP3 players and initially has