MGEA02H3 Lecture Notes - Lecture 20: Form 10-Q, Plywood, Dynamic Efficiency

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24 Feb 2015

School

UTSC

Department

Economics for Management Studies

Course

MGEA02H3

Professor

Gordon Cleveland

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MGEA02H3 Full Course Notes

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What are the results: inefficiency and monopoly. Dynamic efficiency vs. allocative efficiency: where does monopoly come from; what conditions are necessary; what are the public policy responses, excise tax on a monopoly, ways to regulate natural monopolies, including marginal cost pricing and average cost pricing. Single seller faces entire market demand curve (price maker, not price taker) To pc firm, p was a constant (price taker) To monopolist, p is a choice variable, so we must treat p as a function of q. For a linear demand curve p = a bq, so . So mr has the same intercept and twice the slope of the linear demand curve. So, total revenue = tr = pxq = Marginal revenue = dtr/dq = (marginal revenue is the rate at which total revenue is changing as output increases) Assume total cost function of monopoly firm is:

Related Questions

21)

Compared to the results in a perfectly competitive market, a monopoly does which of the following?

	It charges a higher price.
	It charges a price greater than the marginal cost.
	It produces less output.
	All of the above
	None of the above

22)

"X-inefficiency" refers to the idea that

	government restrictions on competition create a monopoly, which results in inefficiency.
	the cost of rent-seeking activity should be added to the welfare cost of monopoly.
	Generation X is less efficient due to a lack of competitive spirit.
	a lack of competitive pressure results in a monopoly not keeping its costs down to the lowest possible level.
	price discrimination results in inefficiently low cross-elasticities of demand.

23)

Firms in which of the following market structures can engage in price discrimination?

	monopoly
	oligopoly
	monopolistic competition
	All of the above
	None of the above

24)

Monopolistic competition and perfect competition are in all of the following ways except

	Barriers to entry are low in both
	There are many firms in both
	Firms in both produce the output level where MR=MC
	Nonprice competition is important in both

25)

To get rid of excess capacity from the monopolistic competition in the long run, what would have to be given up?

	Free entry and exit.
	economic rent
	resource allocative efficiency
	differentiated product
	productive efficiency

taupeant454

1.
A monopolist faces the following demand curve:

Price Quantity Demanded

$51 1

$47 2

$42 3

$36 4

$29 5

$21 6

$12 7

The monopolist has total fixed costs of $60 and has a constantmarginal cost of $15. What is the profit-maximizing level ofproduction?

A) 5 units
B) 3 units
C) 2 units
D) 4 units
2.
A monopolist faces the following demand curve:

Price Quantity Demanded

$10 5

$9 10

$8 16

$7 23

$6 31

$5 49

$4 52

$3 60

The monopolist has total fixed costs of $40 and a constant marginalcost of $5. At the profit-maximizing level of output, themonopolistâs average total cost is

A) $6.74
B) $9.00
C) $7.50
D) $5.82
3.
A monopoly market

A) generally fails to maximize total economic well-being.
B) generally fails to maximize producer surplus.
C) always maximizes total economic well-being.
D) always minimizes consumer surplus.
4.
For a monopoly, the supply curve is a portion of its
A) none of the above; a monopoly does not have a supplycurve.
B) average total cost curve.
C) marginal revenue curve.
D) marginal cost curve.
5.
A monopoly firm can sell 200 units of output for $36.00 per unit.Alternatively, it can sell 201 units of output for $35.80 per unit.The marginal revenue of the 201st unit of output is
A) $â35.80.
B) $4.20.
C) $â4.20.
D) $35.80.
6.
If a monopolist sells 100 units at $8 per unit and realizes anaverage total cost of $6 per unit, what is the monopolist'sprofit?
A) $800
B) $400
C) $600
D) $200
7.
A monopolist is a price
A) setter, and therefore has no demand curve.
B) setter, and therefore has no supply curve.
C) taker, and therefore has no supply curve.
D) setter, and therefore has no variable cost curve.
8.
To define a monopoly, we cite the following characteristics: (i)The firm is the sole seller of its product. (ii) The firmâs productdoes not have close substitutes. (iii) The firm generates a largeeconomic profit. (iv) The firm is located in a small geographicmarket.
A) (ii) and (iv)
B) All of the above are correct.
C) (i) and (ii)
D) (i) and (iii)
9.
Consider a transportation corporation named C.R. Evans that hasjust completed the development of a new subway system in amedium-sized town in the Northwest. Currently, there are plenty ofseats on the subway, and it is never crowded. Its capacity farexceeds the needs of the city. After just a few years of operation,the shareholders of C.R. Evans experienced incredible rates ofreturn on their investment, due to the profitability of thecorporation.

Which of the following statements are most likely to be true? (i)New entrants to the market know they will earn a smaller piece ofthe market than C.R. Evans currently has. (ii) C.R. Evans is mostlikely experiencing increasing average total cost. (iii) C.R. Evansis a natural monopoly.

A) (ii) and (iii)
B) All of the above are correct.
C) (i) and (iii)
D) (i) and (ii)
10.

Quantity
Price
Total Revenue
Average Revenue
Marginal Revenue
1
$35
$35

2

64
32
29
3
$29

4

17
5
$23

11
6

120

7
$17

-1
8

-7
9

99
11
-13
10

80
8

If the monopolist sells 8 units of its product, how much totalrevenue will it receive from the sale?

You wil have to complete the entries in this table to get ananswer. It is a wothwhile exercise and I encourage you to completethe table.

HINT: (a.) Total Revenue = Price x Quantity. (So for quantity of 3x price of $29 = 87 total revenue)

(b) Average Revenue is the same as Price. (So column 2 and column 4would be the same. Calculate to see if that is correct)

(c) Marginal Revenue = Change in TR divided by change in quantity.(You calculated TR = 87 for Q=3. Thus to find MR for Q = 3, findthe change in TR= 87 - 64 and divided by one).

A) 112
B) It cannot be determined from the information provided.
C) 164
D) 40
11.
What conditions need to be present for a firm to be able to use'price discrimination?'
A) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; items can beresold
B) Firm should be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
C) Firm should not be perfectly competitive; buyers should havesame elasticities;; resale of the items is not possible.
D) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
12.
If the government regulates the natural monopoly by asking it tocharge a price that is equal to its marginal cost (P=MC) theregulated monopoly will -------- so instead the government ends upletting it charge a price equal to its ------
A) have a profit; fixed cost
B) have a profit; average cost
C) have a loss; variable cost
D) have a loss; average cost

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MGEA02H3 Lecture Notes - Lecture 20: Form 10-Q, Plywood, Dynamic Efficiency

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