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Table of Contents

  1. Chapter Eight: Monopoly

Chapter Eight: Monopoly

1
Question 1

A monopolist that can sell into two segmented markets that have different demand conditions will:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Equate marginal revenue in the two markets.Your answer has been saved.
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2
Question 2

A profit maximizing monopolist will:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Choose the output for which marginal cost equals marginal revenue and set a price above marginal cost.Your answer has been saved.
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3
Question 3

A profit maximising monopolist would not rationally:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) Choose to sell at a point on the demand curve where demand is inelastic.Your answer has been saved.
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4
Question 4

A monopoly in economic theory is:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) The only producer of a specific product.Your answer has been saved.
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5
Question 5

Which of the following is true about the supply curve of a monopolist?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) A monopolist does not have a supply curve, as the monopolist's supply decision cannot be set out independently of demand. Your answer has been saved.
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6
Question 6

Monopoly is allocatively inefficient because:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) Monopolists set price above marginal cost and this leads to a deadweight loss of consumer and producer surplus.Your answer has been saved.
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7
Question 7

Cartels tend to be unstable because:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Each producer is at a production level where marginal revenue greatly exceeds marginal costs and so there is an incentive to cheat by selling a bit more than the agreed market share.Your answer has been saved.
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8
Question 8

Why is the marginal revenue curve for a monopolist twice the slope of its average revenue (demand) curve?

Hint: re-read the sections 'Cost and revenue in the short run' (pp160162), focusing in particular in Figure 8.2.Hint

9
Question 9

'Because monopolists have so much market power, profits are most likely to be maximised on the price inelastic section of its demand curve'. What is wrong with this statement?

Hint: re-read the sections 'Cost and revenue in the short run' and 'Short run monopoly equilibrium' pp 160-163. Focus in particular on Figures 8.2 (p162) and 8.3 (p163).Hint

10
Question 10

Why is there no relationship between market price and the quantity supplied by a monopolist?

Hint: re-read the section 'No supply curve for a monopoly' pp163-164.Hint

11
Question 11

Assume that a perfectly competitive market is replaced by a monopolist.

(a) Given that the monopolist is also part of society, is the redistribution of consumers' surplus to the monopolist (as additional producers' surplus) actually undesirable?
(b) Why does society lose out overall from the change?

Hint: re-read the section 'The allocative inefficiency of monopoly' pp 165-166. The content of this section provides some of the rationale for governments to adopt policies that regulate monopoly activity. Hint

12
Question 12

Which of the following are examples of price discrimination?

(a) A train company charging different fares for adults and children for a journey from London to Edinburgh.
(b) A market trader selling bananas more cheaply than a local corner shop.
(c) An electricity company selling unused capacity more cheaply at certain times of the day.
(d) A bus company charging different fares for adults according to the time of day they travel.
(e) An auctioneer selling several units of the same item at different prices.
(f) An individual bulk buying potato crisps from a wholesaler instead of buying each packet individually from a supermarket.
(g) An established firm being offered preferential terms for a bank loan compared with a brand new small company.
(h) Leisure centres charging lower prices to use their facilities during the standard working day.

Hint: re-read the introduction to the major section 'A multi-price monopolist: price discrimination' on p166.Hint

13
Question 13

What are the problems associated with a monopolist trying to operate a pricing policy that involves perfect price discrimination?

Hint: re-read the section 'Why price discrimination is profitable' on pp166-167. Hint

14
Question 14

Assume that you are the manager of a health and fitness club. What problems (if any) would you need to overcome if you were going to:

(a) charge students a different rate from customers in full time work;
(b) charge club members a lower price to use facilities than non-members;
(c) charge a lower price to use the facilities between the hours of 9am-4pm than for the hours 4pm-11pm;
(d) charge workers from local companies a preferential 'group rate';
(e) offer a multi-buy ticket where 10 gym sessions are sold at the same price of 8 individual sessions.

Hint: re-read the section 'When is price discrimination possible?' on pp167-168.Hint

15
Question 15

Discuss the proposition that as by definition, price discrimination involves discrimination, it must be a bad thing.

Hint: think about the answer to this question based upon the whole of the major section 'A multi-price monopolist: price discrimination' on p166-169Hint

16
Question 16

What types of barriers can prevent new firms from entering an industry currently served by a monopolist?

Hint: re-read the section 'Entry barriers' on pp170-171Hint

17
Question 17

What are the potential instabilities that exist for the oil producers' cartel OPEC?

Hint: re-read the OPEC case study on pp173-176Hint

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Question 18

Like perfect competition, pure monopoly is sometimes referred to as a 'benchmark' industrial structure. In what sense is pure monopoly also a benchmark?

Hint: this question provides you with an opportunity to overview the whole of Chapter 8.Hint