Chapter 10 - Monopoly, Cartels, and Price Discrimination

Question 1

Differentiate monopoly and monopolist

Answer 1

Monopoly: market with a single firm
Monopolist: a firm that’s the only seller in the market

Question 2

What is a monopolists’ DC?

Answer 2

Downward sloping

Question 3

Give the equation for total revenue (TR) when monopolists charges the same price

Answer 3

TR = p x Q

Question 4

Give the equation for average revenue (AR)

Answer 4

AR = TR/Q 
AR = (p x Q)/Q = p

Question 5

Give the equation for marginal revenue (MR)

Answer 5

MR = dTR/dQ

Question 6

Since monopolist is not a price taker (compared to perfect competition), what is MR?

Answer 6

MR = a -2bQ

Question 7

Describe the slope of MR

Answer 7

Twice the DC, lying below it

Question 8

When MR > 0, elasticity is _ 1

Answer 8

>

Question 9

When MR < 0, elasticity is _ 1

Question 10

When MR = 0, elasticity is _ 1

Answer 10

=

Question 11

The monopolist’s restriction of output creates a _ for society

Answer 11

Deadweight loss

Question 12

Entry barriers allow monopoly profits to persist in the _ run

Answer 12

Long

Question 13

What are economies of scale?

Answer 13

When industry demand conditions doesn’t allow more than one firm to cover its costs

Question 14

What causes a natural monopoly?

Answer 14

Economies of scale

Question 15

What are two created barriers?

Answer 15

Firms already in the market

Government regulations

Question 16

What is creative destruction?

Answer 16

The replacement of one monopolist by another through innovation

Question 17

What is a cartel?

Answer 17

Organization of producers who act as a single seller to maximize joint profits

Question 18

What are anti-trust policies?

Answer 18

Prevent the creation of large cartels would have considerable market power

Question 19

The profit maximizing cartelization of a competitive industry (inc/dec) output and (inc/dec) price from the perfectly competitive level

Answer 19

Decreases, increases

Question 20

Why are cartels unstable?

Answer 20

Members have an incentive to cheat

Question 21

What is price discrimination?

Answer 21

Charging different prices for the same product that have the same cost

Question 22

Any firm facing a _-sloping DC can increase profits if it is able to price discriminate

Answer 22

Downward

Question 23

Weekend airline fares that are less than mid-week fares

Answer 23

Discriminatory

Question 24

Business-class airline fares that are 3 times as high as economy fare

Answer 24

Not discriminatory

Question 25

Different prices charged by movie theatres for adults/seniors/ or students

Answer 25

Discriminatory

Question 26

When is price discrimination possible (3)?

Answer 26

When firms have market power
When consumers differ in their valuations
When firms can prevent arbitrage

Question 27

(Higher/lower) price in the segment with less elastic demand

Answer 27

Higher

Question 28

(Higher/lower) price in the segment with more elastic demand

Answer 28

Lower

Question 29

Equating MRs in 2 markets will only result in different prices when _ (3)

Answer 29

There are different elasticities of demand
Members of different market segment must be identifiable
Minimal or no arbitrage

Question 30

What is hurdle pricing?

Answer 30

When firms create an obstacle that consumers must overcome to get a lower price