Lesson test: Monopoly

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Monopoly

1.[2p]
A monopolist faces $p = 100 - 2 q$ with constant marginal cost £20. How many units does it sell?

CorrectNot quite: 20

2.[3p]
For that monopolist, what is the deadweight loss in pounds?

CorrectNot quite: 400

3.[2p]
Why does marginal revenue lie below price for a monopolist?

Selling one more unit requires cutting the price on every unit already sold

Correct

The monopolist must pay a tax on each extra unit

The answer is: Selling one more unit requires cutting the price on every unit already sold

Marginal cost rises with output

The answer is: Selling one more unit requires cutting the price on every unit already sold

Consumers buy less as the firm grows larger

The answer is: Selling one more unit requires cutting the price on every unit already sold

4.[2p]
A profit-maximising monopolist never operates where demand is inelastic.

True

Correct

False

The answer is: True

5.[2p]
A monopolist prices at £60 with marginal cost £20. What is its Lerner index?

CorrectNot quite: 0.667

6.[3p]
Why can a natural monopoly not be made to price at marginal cost without a subsidy?

Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit

Correct

Marginal cost is impossible to measure for a utility

The answer is: Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit

Regulators are not permitted to set prices below average revenue

The answer is: Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit

Demand for utilities is perfectly inelastic

The answer is: Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit

7.[3p]
What does price discrimination require?

Select all that apply

Market power, so the firm is not a price taker

Correct

Some way of telling buyers or groups apart

Correct

A way to prevent resale between buyers

Correct

Constant marginal cost

The answer is: Market power, so the firm is not a price taker, Some way of telling buyers or groups apart, A way to prevent resale between buyers

8.[3p]
Under perfect first-degree price discrimination, what happens to the deadweight loss?

It vanishes, since every unit worth more than marginal cost is sold

Correct

It doubles, since the firm extracts more surplus

The answer is: It vanishes, since every unit worth more than marginal cost is sold

It is unchanged, since output is unchanged

The answer is: It vanishes, since every unit worth more than marginal cost is sold

It becomes negative

The answer is: It vanishes, since every unit worth more than marginal cost is sold

9.[3p]
Match each type of pricing to an example.

First degree
Second degree
Third degree
Uniform

student and senior tickets
one posted price for everyone
a price set for each buyer individually
advance purchase and bulk discounts

Show the answer

First degree: a price set for each buyer individually Second degree: advance purchase and bulk discounts Third degree: student and senior tickets Uniform: one posted price for everyone

1.[2p] A monopolist faces p=100-2q with constant marginal cost £20. How many units does it sell?

2.[3p] For that monopolist, what is the deadweight loss in pounds?

3.[2p] Why does marginal revenue lie below price for a monopolist?

4.[2p] A profit-maximising monopolist never operates where demand is inelastic.

5.[2p] A monopolist prices at £60 with marginal cost £20. What is its Lerner index?

6.[3p] Why can a natural monopoly not be made to price at marginal cost without a subsidy?

7.[3p] What does price discrimination require?

8.[3p] Under perfect first-degree price discrimination, what happens to the deadweight loss?

9.[3p] Match each type of pricing to an example.

1.[2p]
A monopolist faces $p = 100 - 2 q$ with constant marginal cost £20. How many units does it sell?

2.[3p]
For that monopolist, what is the deadweight loss in pounds?

3.[2p]
Why does marginal revenue lie below price for a monopolist?

4.[2p]
A profit-maximising monopolist never operates where demand is inelastic.

5.[2p]
A monopolist prices at £60 with marginal cost £20. What is its Lerner index?

6.[3p]
Why can a natural monopoly not be made to price at marginal cost without a subsidy?

7.[3p]
What does price discrimination require?

8.[3p]
Under perfect first-degree price discrimination, what happens to the deadweight loss?

9.[3p]
Match each type of pricing to an example.