(1A) Which of the following explains the inefficiency of monopoly?
A
A monopolist produces a higher level of output than a perfectly competitive industry
does.
B
A monopolist produces a level of output equal to what a perfectly competitive industry does.
C
A monopolist produces a level of output higher than what all consumers are willing to buy.
D
A monopolist produces a lower level of output than a perfectly competitive industry does.
E
None of the above.
(2A) Demand is more inelastic in the short-term because consumers
A
are impatient.
B
have no time to find available substitutes.
C
are present-oriented
D
none of the above
E
maximize utility
(3A) If a monopolist engages in price discrimination, we can expect:
A
profits increase and output decreases
B
profits decrease and output increases.
C
profits to increase and output to fall
D
the demand curve to lie below the marginal revenue curve.
E
both profits and output increase
(4A) Assume that a franchiser is receiving a percentage share of total sales from each store. If both,
the franchiser and the franchisee, are profit maximizing, there is a conflict about the prices of their
product.
A
The franchiser wants to set the price so, that marginal revenue is equal to zero. The stores
want to set the price so, that elasticity of demand is minus one.
B
The franchiser wants to set the price so, that marginal revenue is equal to marginal costs.
The stores want to set the price so, that elasticity of demand is minus one.
C
The franchiser wants to set the price so, that price elasticity is equal to minus one. The stores
want to set the price so, that marginal revenue is equal to marginal costs.
D
The franchiser wants to set the price so, that elasticity of demand is minus one. The stores
want to set the price so, that marginal revenues are equal to zero.
E
none of the above
(5A) Price Discrimination:
You are manager of a firm producing luxury ships. This firm sells in two distinct markets (Asia and
Europe), each of which is completely sealed off from the other. The demand curve for the firm’s
output in the Asian market is Pas = 90 – 3Qas, where Pas is the price of the product and Qas is the
amount sold in the United States. The demand curve for the firm’s output in the European market is
Peu = 68 – 2Qeu, where Peu is the price of the product and Qeu is the amount sold in Europe. The
firms marginal cost curve is 2 + Q, where Q is the firm’s entire output (destined for either market).
Using price discrimination, which price will you choose in Asia, which price in Europe?
A
Pas = 80
Peu = 92
B
Pas = 11
Peu = 11
C
Pas = 14
Peu = 75
D
Pas = 57
Peu = 46
E
no answer is right
(6C) A local video store estimates their average customer's demand per year is Q = 7 - 2P, and
knows the marginal cost of each rental is $0.5. How much should the store charge for an annual
membership in order to extract all the consumer surplus via an optimal two-part pricing strategy?
A
$9
B
$10
C
$11
D
$12
E
$13
(7A) Elasticities
After a careful statistical analysis, the Sunderland Company concludes the demand function for its
product is
Q = 500 - 2P + 2Pr + 0.1I
Where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its
rival's product, and I is per capita disposable income (in euros).
At present, P=20€, Pr=70€, and I=6000€.
What is the income elasticity of demand for the firm's product?
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A
Income elasticity of demand is 0.1
B
Income elasticity of demand is 0.3
C
Income elasticity of demand is 0.5
D
Income elasticity of demand is 1
E
no answer is right