A Good Is Characterized By Network Economies If It

A monopolistically competitive firm is one:

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

A good is characterized by network economies if it:

becomes more valuable as more people own it.

A natural monopoly is a monopoly that arises from:

economies of scale.

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

F


MC = MR at F units of output.

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:

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.

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

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

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 $______.

300; 10

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

equal to MC; greater than MC

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

Picture

The socially optimal level of output is:

...

A perfectly price discriminating monopolist charges each buyer:

exactly his or her reservation price.

Suppose the table below describes the relationship between price and quantity demanded for a monopolist.

Picture

If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit.

$8

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

increase output until marginal revenue equals marginal cost.

If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n):

perfectly competitor.

If a natural monopoly decreases the quantity of output it produces, then:

its average cost will increase.

Suppose a monopolist faces the demand curve shown below:

Picture

If you were to draw the monopolist's marginal revenue curve, it would:

...

TotsPoses, Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. The total cost of each photo portrait is $12.

a. Complete the following table.

Instruction: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Enter your responses as whole numbers.

Customer
Reservation price
($ per photo)
Total revenue
($ per day) Marginal revenue
($ per photo)
1 50 50 correct 0 incorrect
2 46 92 correct 42 correct
3 42 126 correct 34 correct
4 38 152 correct 26 correct
5 34 170 correct 18 correct
6 30 180 correct 10 correct
7 26 182 correct 2 correct
8 22 176 correct -6 correct

How much should George charge if he must charge a single price to all customers? $ 34 correct.

At this price, how many portraits will George produce each day? 5 correct portraits.

What will be his economic profit? $ 110 correct per day.


b. How much consumer surplus is generated each day at this price? $ 40 correct.


c. What is the socially efficient number of portraits? 8 correct portraits.


d. George is very experienced in the business and knows the reservation price of each of his customers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day? 8 correct portraits.

What will his economic profit be? $ 192 correct per day.


e. In this case, how much consumer surplus is generated each day? $ 0 correct.

...

A single-priced, profit-maximizing monopolist:

Always charges a price above the marginal cost of production. correct

If a monopolist could perfectly price-discriminate:

...

State whether the following statements are true or false.

a. In a perfectly competitive industry, the industry demand curve is horizontal, whereas for a monopoly it is downward-sloping.

false correct

b. Perfectly competitive firms have no control over the price they charge for their product.

true correct

c. For a natural monopoly, average cost declines as the number of units produced increases over the relevant output range.

true correct

...