ECON-UA 2 Lecture Notes - Fixed Cost, Price Discrimination, Demand Curve

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8 May 2014

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Monopolies pass taxes entirely onto their customers: fixed tax. Raises the fixed cost the monopoly face but the amount of the tax is not effected by the output level: variable tax. Tax on each unit of output produced and sold. Mc curve shifts up by amount of tax. Monopoly shifts only part of the tax to its customers. So far everything has been a single price monopoly. The monopoly would charge all of its customers a single price. Many monopolies (or firms with some monopoly power) can practice price discrimination. A firm has monopoly power if when it raises its price it doesn"t lose all of its customers. (the demand curve slopes downwards). Price discrimination is charging different prices to different customers for reasons other than differences in cost. For all practical purposes this is based on difference in willingness to pay.

Related Questions

QUESTION 25

What will happen in a market where a binding price floor is removed?

	a.	There will be upward pressure on the prices.
	b.	The price or quantity of the product sold in the legal market will not change.
	c.	There will be downward pressure on the prices.
	d.	The products sold will become scarcer.
	e.	There will be increased pressure to buy and sell the good on the black market.

1.05000 points

QUESTION 26

The local bakery calculates the price elasticity of demand for its cinnamon rolls to be â1.25. This tells them that demand is ________ and price is ________ to the buyer.

	a.	perfectly inelastic; everything
	b.	perfectly elastic; meaningless
	c.	elastic; more important than the quantity
	d.	inelastic; less important than the quantity
	e.	unitary elastic; on the same level as quantity

1.05000 points

QUESTION 27

Marginal product is the change in:

	a.	total output minus the change in input.
	b.	total output divided by the change in input.
	c.	input divided by the change in total output.
	d.	total output plus the change in input.
	e.	total output times the change in input.

1.05000 points

QUESTION 28

The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

	a.	supply curve shifts to the left.
	b.	supply curve shifts to the right.
	c.	demand curve shifts to the right.
	d.	demand curve shifts to the left.
	e.	the supply curve and the demand curve shift to the left.

1.05000 points

QUESTION 29

Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:

	a.	the demand curve for Pepsi shift to the right.
	b.	the demand curve for Coke shift to the right.
	c.	no change in the demand for Coke.
	d.	the demand curve for Coke shift to the left.
	e.	the demand curve for Pepsi shift to the left.

1.05000 points

QUESTION 30

The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

	a.	as long as there are positive health benefits associated with this policy.
	b.	as long as it will not increase the price of the good being produced.
	c.	in all such cases.
	d.	if the benefits of doing so outweigh the costs.
	e.	as long as it will not create unemployment in this industry.

1.05000 points

QUESTION 31

The out-of-pocket expenses incurred in producing a good are also known as:

	a.	wages and prices.
	b.	fiduciary costs.
	c.	explicit costs.
	d.	capital costs.
	e.	implicit costs.

chocolatemule814

11.) Which statement is false?
A. The minimum point of the AVC curve is the shutdown point.
B. The minimum point of the ATC curve is the breakeven point.
C. The firm's short-run supply curve runs up the marginal cost curve from the shutdown point all the way up the curve.
D. None of these statements are false.
12.) Which statement is false?
A. The firm's short-run supply curve runs along the MC curve from the shutdown point to the break-even point.
B. The MC curve intersects the ATC curve at the latter's minimum point.
C. Total revenue = price x output sold.
D. None of these statements are false.

26.) If the price were $25, this firm would _______ in the short run and _______ in the long run.
A. shut down; stay in business
B. shut down; go out of business
C. operate; stay in business
D. operate; go out of business

22.) If price is above the break-even point, in the short run the firm will _____ and in the long run the firm will _____.
A. shut down; stay in business
B. shut down; go out of business
C. operate; go out of business
D. operate; stay in business

8.) Which statement is true?
A. Because they are the only seller in the industry, the monopolist does not have to lower their price to sell more output.
B. Most firms in the United States are monopolies.
C. Unlike the perfect competitor, the monopolist does not necessarily produce at that output where MC = MR.
D. None of these statements are true.

15.) In the United States, natural monopolies
A. are easily converted to competitive industries.
B. are common in retailing.
C. are commonly regulated by governments.
D. are rarely regulated by governments.

21.) If a monopoly firm can sell its eighth unit of output for a price of $175, it may expect to receive a price __________ in order to sell more than eight units.
A. of more than $175
B. of $175
C. of less than $175
D. of $100

27.) Which statement is true?
A. Since the monopolist is the only firm in the industry, its profit is calculated differently from the way a perfect competitor would calculate profit.
B. The monopolist's demand curve and marginal revenue curve are the same line.
C. In the long run under monopoly, the most efficient output is the most profitable output.
D. A monopolist may lose money in the short-run

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

iii

i and iii

ii and iv

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

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

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ECON-UA 2 Lecture Notes - Fixed Cost, Price Discrimination, Demand Curve

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