A Good Is Characterized By Network Economies If It

Question: A monopolistically competitive firm is one:

Answer: of many firms that sell products that are close but not perfect substitutes.

Question: A good is characterized by network economies if it:

Answer: becomes more valuable as more people own it.

Question: A natural monopoly is a monopoly that arises from:

Answer: economies of scale.

Question: The profit-maximizing level of output for this monopolist is ______ units per day.

Answer: F

MC = MR at F units of output.

Question: Suppose the table below describes the demand for a good produced by monopolist.

Picture

The monopolist’s marginal revenue from selling the 4th unit of output is less than $7 because:

Answer: it has to charge $1 less for each of the first 3 units of output.

Thus, while it gains $7 from selling the 4th unit, it loses $3 because it has to charge $1 less for the first 3 units. Thus, marginal revenue is equal to $7 - $3 = $4.

Question: Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

Answer: the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

Question: Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______.

Answer: 300; 10

Question: Perfect competition is socially efficient and monopoly is not because under perfect competition price is ______ while under monopoly price is ______.

Answer: equal to MC; greater than MC

Question: The figure below shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist.

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The socially optimal level of output is:

Answer:

Question: A perfectly price discriminating monopolist charges each buyer:

Answer: exactly his or her reservation price.

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