Monopoly
1.[2p] A monopolist faces with constant marginal cost £20. How many units does it sell?
A monopolist faces with constant marginal cost £20. How many units does it sell?
2.[3p] For that monopolist, what is the deadweight loss in pounds?
For that monopolist, what is the deadweight loss in pounds?
3.[2p] Why does marginal revenue lie below price for a monopolist?
Why does marginal revenue lie below price for a monopolist?
The answer is: Selling one more unit requires cutting the price on every unit already sold
The answer is: Selling one more unit requires cutting the price on every unit already sold
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.
A profit-maximising monopolist never operates where demand is inelastic.
The answer is: True
5.[2p] A monopolist prices at £60 with marginal cost £20. What is its Lerner index?
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?
Why can a natural monopoly not be made to price at marginal cost without a subsidy?
The answer is: Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit
The answer is: Average cost is still falling, so marginal cost lies below average cost and the firm loses money on every unit
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?
What does price discrimination require?
Select all that apply
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?
Under perfect first-degree price discrimination, what happens to the deadweight loss?
The answer is: It vanishes, since every unit worth more than marginal cost is sold
The answer is: It vanishes, since every unit worth more than marginal cost is sold
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.
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