ECON 2010 Lecture Notes - Lecture 17: State Ownership, Deadweight Loss, Clayton Antitrust Act
ECON 2010 Full Course Notes
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In which of the following ways is a monopoly beneficial to an economy?
A. Monopoly profits give firms more reason to invest in the creation of new products through research and development.
B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market.
C. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers.
D. All of the above.
Which of the following is a difference between a perfectly competitive market and a monopoly?
A. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.
B. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.
C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.
D. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.
In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Although the fatality rate in this industry is so high, many workers still choose to work as loggers.
What could explain this?
A. Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage.
B. Low-risk jobs are already taken, so workers must choose their next-best alternative, which in this case is logging.
C. Workers in these industries lack human capital and must choose to work as loggers.
D. Loggers must be indifferent between low-risk and high-risk jobs.
In the case of a decrease in product prices:
A. the quantity effect always dominates the price effect.
B. the price effect always dominates the quantity effect.
C. when the price effect dominates the quantity effect, total revenue decreases.
D. when the quantity effect dominates the price effect, total revenue decreases
#7
If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost
| i |
| ii |
| iii |
| i and iii |
| ii and iv |
#8
A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases
| i |
| ii |
| iii |
| iv |
| ii and iii |
| ii and iv |
| ii, iii, and iv |
#9
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
| they are all barriers to entry |
| they all help explain why a monopolists demand and marginal revenue curves are identical |
| they must all be present before a monopolist may practice price discrimination |
| they all help explain why a firms short run average total cost curve is U-shaped |
#10
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:
| to both perfectly competitive firms and monopolies |
| only to monopolies |
| only to perfectly competitive firms |
| only to firms that can employ discriminatory pricing strategies |
#11
A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:
| is operating at maximum total profit |
| is operating at a loss that could be reduced by shutting down |
| is operating at a profit that could be increased by producing more output |
| is operating at a loss that is less than the loss incurred by shutting down |
#12
Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:
| produce 48 units of output, charge a price of $110, and earn a total profit of $5280 |
| produce 48 units of output, charge a price of $110, and earn a total profit of $2744 |
| produce 52 units of output, charge a price of $134, and earn a total profit of $5322 |
| produce 52 units of output, charge a price of $134, and earn a total profit of $4016 |
