CAS EC 101 Lecture Notes - Lecture 17: Marginal Cost, Monopoly Price, Marginal Revenue

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13 Dec 2017

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Alte(cid:409)s the (cid:409)elationship (cid:271)et(cid:462)een a (cid:310)i(cid:409)m"s (cid:272)osts and the sellin(cid:311) p(cid:409)i(cid:272)e. Cha(cid:409)(cid:311)es a p(cid:409)i(cid:272)e that e(cid:467)(cid:272)eeds ma(cid:409)(cid:311)inal (cid:272)ost. A hi(cid:311)h p(cid:409)i(cid:272)e (cid:409)edu(cid:272)es the (cid:408)uantit(cid:468) pu(cid:409)(cid:272)hased. A ke(cid:468) (cid:409)esou(cid:409)(cid:272)e (cid:409)e(cid:408)ui(cid:409)ed (cid:310)o(cid:409) p(cid:409)odu(cid:272)tion is o(cid:462)ned (cid:271)(cid:468) a sin(cid:311)le (cid:310)i(cid:409)m. Go(cid:461)e(cid:409)nment (cid:462)ill sometimes li(cid:272)ense a monopol(cid:468) as a (cid:462)a(cid:468) to in(cid:272)enti(cid:461)ize p(cid:409)i(cid:461)ate in(cid:461)esto(cid:409)s to in(cid:461)est in somethin(cid:311) Go(cid:461)e(cid:409)nment (cid:311)i(cid:461)es a sin(cid:311)le (cid:310)i(cid:409)m the e(cid:467)(cid:272)lusi(cid:461)e (cid:409)i(cid:311)ht to p(cid:409)odu(cid:272)e some (cid:310)ood o(cid:409) se(cid:409)(cid:461)i(cid:272)e. A sin(cid:311)le (cid:310)i(cid:409)m (cid:272)an suppl(cid:468) a (cid:311)ood o(cid:409) se(cid:409)(cid:461)i(cid:272)e to an enti(cid:409)e ma(cid:409)ket. Re(cid:461)enue pe(cid:409) ea(cid:272)h additional unit o(cid:310) output. Ma(cid:409)(cid:311)inal - (cid:409)e(cid:461)enue (cid:272)u(cid:409)(cid:461)e is (cid:271)elo(cid:462) the demand (cid:272)u(cid:409)(cid:461)e. P(cid:409)o(cid:310)it = tr- tc = (cid:614)p-atc(cid:615) (cid:467) q. E(cid:272)onomi(cid:272) (cid:462)ell-(cid:271)ein(cid:311) o(cid:310) (cid:271)u(cid:468)e(cid:409)s and selle(cid:409)s in a ma(cid:409)ket. Consume(cid:409)s" (cid:462)illin(cid:311)ness to pa(cid:468) (cid:310)o(cid:409) a (cid:311)ood. Minus the amount the(cid:468) a(cid:272)tuall(cid:468) pa(cid:468) (cid:310)o(cid:409) it. P(cid:409)odu(cid:272)es less than the so(cid:272)iall(cid:468) e(cid:310)(cid:310)i(cid:272)ient (cid:408)uantit(cid:468) o(cid:310) output. Sell the same (cid:311)ood at di(cid:310)(cid:310)e(cid:409)ent p(cid:409)i(cid:272)es to di(cid:310)(cid:310)e(cid:409)ent (cid:272)ustome(cid:409)s. Re(cid:408)ui(cid:409)es the a(cid:271)ilit(cid:468) to sepa(cid:409)ate (cid:272)ustome(cid:409)s a(cid:272)(cid:272)o(cid:409)din(cid:311) to thei(cid:409) (cid:462)illin(cid:311)ness to pa(cid:468)

Related Questions

1. To maximize profits, a firm should produce output up to the point where

A. marginal revenue equals marginal cost

B. price equals marginal cost

C. the gap between the demand curve and the ATC is the greatest

D. all of the above

E. answers a and b, but not c

2. Which statement is false?

A. a profit maximizing firm will increase production when price exceeds marginal cost

B. the lowest point on a firm's short-run supply curve is at the shut-down point

C. A firm will operate at that ouput where MC equals MR only when it is maximizing profits

D. A profit-maximizing firm will decrease production when marginal cost exceeds price.

3. which statement is true?

A. all monopolies are good

B. All monopolies are bad

C. Most natural monopolies are government regulated or government owned

D. None of these statements is true

4. There are _____ limits to monopoly power

A. no

B. some

C. many

5. Which statement is true?

A. the monopolist's most efficient output is her most profitable output as well

B. the monopolist charges a higher price than the perfect competitor in the long run.

C. all monopolists have control over an essential resource.

D. none is true

6. As a firm grows larger

A. economies of scale set in, then diseconomies of scale.

B. diseconomies of scale set in, then economies of scale.

C. economies of scale and diseconomies of scale set in at the same time.

D. neither economies of scale nor diseconomies of scale set in.

7. A monopolist operates at the minimum point of her ATC curve

A. only in the short run

B. only in the long run

C. in both the short run and the long run

D. in neither the short run nor the long run

8. A natural monopoly

A. has an average cost curve that reaches minimum possible average cost at a low level of output.

B. has a marginal cost curve that is steeply upward slopoing.

C. is usually subject to antitrust suits

D is usually allowed to choose its price so as to maximize profits in the United States.

E. occurs when a single firm can supply the entire market demand for a product at a lower average cost than would be possible if two or more firms supplied the market.

9. For a monopolist, the price of the product

A. always equals the marginal revenue

B. is always less than the marginal revenue

C. exceeds the marginal revenue

D. always equals the marginal cost of the product

10. Monopolies are usually viewed with concern from an economic standpoint since

A. size is ingerently dangerous; the larger ther firm, the more likely it is to squeeze out the "little producer"

B. resources may be allocated in an efficient manner.

C. the government may be put at the mercy of several large producers

D. always equals the marginal cost of the product

1) Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B:

Dear Owner of Firm B,

I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it.

Sincerely,

Owner of Firm A

If this letter were sent in the year 1944, the:

a) Owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 contained exceptions for certain nationally important industries like the steel industry.

b) Owners of both Firm A and Firm B would not be guilty of anything because there were no antitrust laws in existence in 1944.

c) Owner of Firm A would be guilty of violating antitrust laws only if she met with the owner of Firm B and signed the contract, but she would not be guilty if the attempt to monopolize the market failed because the owner of Firm B never responded to the letter.

d) Owner of Firm A would be guilty of violating antitrust laws because she merely attempted to monopolize the steel industry.

e) Owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 applied only to industries made up of three or more firms.

2) Entry of new firms will continue in a monopolistically competitive industry until:

a) Marginal cost = 0 (zero).

b) Economic profit is negative.

c) Marginal revenue = marginal cost.

d) Economic profit equals zero.

e) Marginal Revenue = 0 (zero).

3) A monopolistically competitive firm usually charges less than a monopoly firm because:

a) It is part of a group of firms that have formally agreed to control the price and the output of a product.

b) Its primary goal is to reap monopoly profits by replacing competition with cooperation.

c) It has a monopoly, but potential entrants exist in the form of contestable markets.

d) It faces some degree of competition due to low barriers to entry.

e) Producing homogenous output is more expensive than producing differentiated output.

4) An example of price discrimination is when:

a) A single box of Froot Loops costs $3.50, but when purchased in a case of six, it costs only $3.00 per box.

b) You can purchase a new PC for half the price of a new Mac, even though they are both computers.

c) Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products.

d) Out-of-state students pay more for the same education as in-state students.

e)Movie theaters do not allow children into R-rated movies without a parent or guardian.

5) The Varsity, located in downtown Atlanta, is the world's largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customers: college students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5. What will be the amount of total revenue for the Varsity if the owners offer a single price of $8 per combo meal?

a) $65,000

b) $85,000

c) $40,000

d) $80,000

e) $90,000

6) A competitive firm would have:

a) More elastic demand than a monopolistically competitive firm.

b) More inelastic demand than a monopolistically competitive firm.

c) A horizontal demand curve.

d) Bowed-in or bowed-out demand.

e) An upward-sloping demand curve.

7) It is unrealistic to regulate a natural monopoly at marginal cost pricing because:

a) The government is not allowed to regulate markets.

b) With this type of regulation, the firm will want to shut down, and that outcome is not desirable for society.

c) Firms do not need to follow regulations from the government.

d) Regulating a market causes more deadweight loss.

e) Marginal cost pricing ends up having the natural monopoly firm earn zero economic profits.

8) Price discrimination allows businesses to make additional profits and allows markets to work more:

a) Efficiently

b) Unfairly

c) Realistically

d) Equitably

e) Independently

9) Antitrust laws are designed to:

a) Increase prices.

b) Promote monopoly practices.

c) Promote awareness of government programs.

d) Promote competition.

e) Decrease output.

10) Barriers to entry:

a) Do not exist for monopolies.

b) Exist for perfectly competitive firms.

c) Restrict the entry of new firms into the market.

d) Always lead to profits.

e) Measure the ability of firms to set the price for a good.

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home / study / business / economics / questions and answers / Question 1 Which Of The Following Is The Best Example ... Question: Question 1 Which of the following is the best exam... Bookmark Question 1 Which of the following is the best example of a positive externality? A car company lays off 10,000 employees in order to cut costs. An individual drives a large SUV, which increases the amount of greenhouse gases in the atmosphere. An individual smokes in a restaurant, which bothers other patrons. A child is vaccinated against a disease, which reduces the probability that other children will catch the disease. 4 points Question 2 As a result of a negative externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. high; high. low; low. high; low. low; high. 4 points Question 3 Based on the diagram below, the deadweight loss area associated with the market equilibrium equals: Week06_graph1.jpg $10 $50 $80 $1,000 4 points Question 4 A firm's accounting profit is given by total revenue: less implicit costs. less explicit costs. less economic profit. less implicit and explicit costs. 4 points Question 5 Suppose an activity has a private cost equal to $30 and a private benefit equal to $30. The associated social cost equals $35 and the social benefit equals $30. Which of the following statements is true about this activity? There is a negative externality associated with this activity but not a positive externality. There is a positive externality associated with this activity but not a negative externality. There is both a positive and a negative externality associated with this activity. There is neither a positive nor a negative externality associated with this activity. 4 points Question 6 The Coase Theorem implies that: the efficient level of an externality is generally zero. private individuals living in market economies should not be concerned with externalities. government intervention is not always needed to arrive at the efficient level of an externality. government laws are unnecessary. 4 points Question 7 An industry in which a small number of large firms sell products that are either close or perfect substitutes is: perfectly competitive. monopolistically competitive. an oligopoly. a monopoly. 4 points Question 8 When a negative externality is present in a market: a tax can increase the level of economic surplus. the social benefits are greater than the private benefits. there is generally too little of the good produced by private markets. the government should ensure that there are zero external costs associated in all markets. 4 points Question 9 In the presence of a positive externality, the government can arrive at the socially optimal output level by: paying producers a subsidy equal to the amount of social benefits associated with the activity. charging producers a tax equal to the amount of social costs associated with the activity. paying producers a subsidy equal to the amount of external benefits associated with the activity. charging producers a tax equal to the amount of external costs associated with the activity. 4 points Question 10 The tragedy of the commons is that: too few individuals have access to high quality healthcare. common people overconsume public goods. the quality of life for lower income people is generally lower than that of higher income people. a resource with no price tends to be exploited until its marginal benefit falls to zero. 4 points Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy.

CAS EC 101 Lecture Notes - Lecture 17: Marginal Cost, Monopoly Price, Marginal Revenue

CAS EC 101 Full Course Notes

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