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Chapter 15x



True/False
Indicate whether the sentence or statement is true or false.
 

1. 

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.
 

2. 

It doesn't make sense to talk about a monopolist's supply curve.
 

3. 

Airlines often separate their customers into business travelers and personal travelers by giving a discount to those travelers who stay over a Saturday night.
 

4. 

University financial aid can be viewed as a type a price discrimination.
 

5. 

The NCAA has convinced most observers that it is morally wrong to pay college athletes for their services.
 

Short Answer
 

6. 

What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.
 

7. 

In the market for "home heating" consumers typically have several options (i.e., electricity, heating fuel, natural gas, propane, etc.) yet we often think of firms in this industry as behaving like monopolists. Using your understanding of monopoly, discuss the context in which your electricity provider is a monopolist. Is this characterization universally applicable? Carefully explain your answer.
 

8. 

There has been much discussion of deregulating electricity and natural gas delivery companies in the United States. Using your understanding of monopolies, discuss the likely effect of deregulation on prices in these two industries.
 

9. 

Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from taxation?
 

10. 

What is the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: The price charged for goods produced is $10. The intersection of the marginal revenue and marginal cost curves occurs where output is 100 units and marginal revenue is $5. The socially efficient level of production is 110 units. The demand curve is linear and downward sloping and the marginal cost curve is linear and upward sloping.
 

11. 

In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services. (In some cases these firms are "nationalized" and the government actually buys or confiscates firms that operate in monopoly markets). What would be the advantages and disadvantages of such an approach to ensuring the "best interest of society" is promoted in these markets? Carefully explain your answer.
 

12. 

Let's assume that a monopolist decides to maximize revenue, rather than profit. How does this operating objective change the size of the deadweight loss? If you are a "benevolent" manager of a monopoly firm and are interested in reducing the deadweight loss of monopoly, should you maximize profits or maximize revenue? Carefully explain your answer.
 

13. 

One solution to the problems of marginal cost pricing of a regulated monopolist is average cost pricing. In this model, the monopolist is allowed to price its production at average total cost. How does average cost pricing differ from marginal cost pricing? Does this solution maximize social well-being?
 

14. 

What are the four ways that government policymakers can respond to the problem of monopoly?
 

15. 

Explain the benefits and costs of antitrust laws.
 



 
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