Meeting 6

If regulators impose marginal-cost pricing on a

natural monopoly, a possible problem is that

• consumers will buy more of the good than is

  efficient

• consumers will buy less of the good than is

  efficient

• the firm will lose money and exit the market

• the firm will make excessive profits

Price discrimination by a monopolist refers to

charging different prices based on

• the consumer’s willingness to pay

• the consumer’s racial or ethnic group

• whether the consumer is likely to become a

  repeat buyer

• the cost of producing the good for a particular

  consumer

Compared to the social optimum, a monopoly firm

chooses

• a quantity that is too low and a price that is

  too high

• a quantity that is too high and a price that is

  too low

• a quantity and a price that are both too high

• a quantity and a price that are both too low

The deadweight loss from monopoly arises because

• the monopoly firm makes higher profits than a

  competitive firm would.

• some potential consumers who forgo buying the

  good value it more than its marginal cost

• consumers who buy the good have to pay more

  than marginal cost, reducing their consumer

  surplus

• the monopoly firm chooses a quantity that fails

  to equate price and average revenue

If a monopoly’s fixed costs increase, its price will

_________ and its profit will _________.

• increase; decrease

• decrease; increase

• increase; stay the same

• stay the same; decrease

A monopolistically competitive firm will increase its

production if

• marginal revenue is greater than marginal cost

• marginal revenue is greater than average total cost

• price is greater than marginal cost

• price is greater than average total cost

What is true of a monopolistically competitive

market in long-run equilibrium?

• Price is greater than marginal cost

• Price is equal to marginal revenue

• Firms make positive economic profits

• Firms produce at the minimum of average total

  cost

New firms will enter a monopolistically competitive

market if

• marginal revenue is greater than marginal cost

• marginal revenue is greater than average total cost

• price is greater than marginal cost

• price is greater than average total cost

Advertising can be a signal of quality

• if advertising is freely available to all firms

• if the benefit of attracting customers is greater

  for firms with better products

• only if consumers are irrationally attracted to

  products they see advertised

• only if the content of the ads contains credible

  information about the products

If advertising makes consumers more aware of

alternative products, it could _________ the

elasticity of demand and _________ the markup of

price over marginal cost.

• increase; increase

• increase; decrease

• decrease; increase

• decrease; decrease