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ECO 550 Week 4 Chapter 6 Quiz 3
Question 16
1. The demand curve faced by a perfectly competitive firm is:
downward sloping.
the same as the market demand curve.
horizontal.
perfectly inelastic.
Question 17
1. Refer to Table 6-2. Assume that the monopolist sells only health drinks to Group 1 and
only fruit juices to Group 2. What profit will the monopolist earn?
The following table gives the valuations of fruit juices and health drinks by two groups of
consumers in the city of Vanilla. A single producer of both products controls the entire
market for beverages in this city and is considering strategies to bundle one bottle of
health drink with one bottle of fruit juice. Assume that the marginal cost of supplying
both varieties is $2 each.
Table 6-2
$35
$10
$31
$14
Question 18
1. A monopolist can:
produce as much or as little as it wants without affecting price.
decide the price that will be charged in the market.
provide discounts below market price to attract more customers.

2. price its products by considering the possible reactions of future competitors
or firms that produce close substitutes for its output.
Question 19
1. In the small country of Talisman, the liquor industry is monopolized by a single producer
Best Drinks Inc. Best Drinks charges high end customers like 5-star hotels a much higher
price than it charges local pubs. Identify the correct statement from the following.
Best Drinks is aware of the variations in the valuation of its products by
different consumer segments.
Best Drinks minimizes cost by charging different consumers different prices.
Charging different prices for different consumers increases consumer surplus.
Best Drinks charges different prices because its sole objective is sales
maximization.
Question 20
1. Which of the following statements is true regarding the difference between a monopolist
and a perfectly competitive firm?
Competitive price is higher than the price charged by a monopolist.
Supply of output is higher in case of a monopoly than if the market is
competitive.
A monopoly can choose its price while a competitive firm is a price taker.
A market characterized by competition has a higher deadweight loss.
Question 21
1. Which of the following is a possible explanation for the fall in prices after an industry is
monopolized by combining a group of competitors?
A monopolist faces a downward sloping demand curve. Hence, output
expansion leads to lower prices.
A reduction in price increases producer surplus. Hence a monopolist may
reduce the price of his product.
A monopolist may reduce prices to make it difficult for other firms to
compete.
A monopolist can increase profits by reducing price when its cost of
production declines due to increased size of the new firm. The fall in price is
less than the decline in cost.

3. Question 22
1. The practice of charging different prices on the basis of varying customer preferences is
known as:
arbitrage.
discounting.
price discrimination.
rationing.
Question 23
1. Tying products can be a profitable strategy for facilitating price discrimination only
when:
the demands for the goods are unrelated.
the supply of one of the tied products is low.
the demands for the goods are related.
the market for one of the goods is competitive.
Question 24
1. The peak of the total revenue curve is achieved at the point where:Answer
marginal revenue is the highest.
price is the highest.
marginal revenue is zero.
marginal cost is zero.
Question 25
1. Refer to Figure 6-4. What price will the monopolist charge when its marginal cost shifts
from C to C’?
The following figure depicts the demand, marginal revenue (MR), and marginal cost
(MC) for a monopolist.
Figure 6-4
$20
$16
$15

4. $9
Question 26
1. Refer to Figure 6-1. Which of the following conclusions can be drawn from this figure?
The following figure shows the demand, marginal revenue, and marginal cost curves for
a profit maximizing monopolist.
Figure 6-1
The monopolist produces at the point where marginal cost is zero.
The monopolist incurs a fixed marginal cost of OC’.
The monopolist charges a price of OP’ and total revenue is OP’D’Q’.
The consumer surplus enjoyed by customers is PC’D”.
Question 27
1. Refer to Figure 6-2. What is the consumer surplus under monopoly?
A group of firms in competitive market produced 20 units of a good when the market
price was $2. They incurred no marginal cost. Eventually they realized the benefits they
could get by teaming up and acting as a monopolist. The following figure shows the
demand curve and marginal revenue curve for this profit maximizing monopolist.
Figure 6-2
$96
$48
$36
$72
ANS: B PTS: 1 DIF: Easy NAT: Analytic
Question 28
1. Monopolies exist for each of the following reasons, EXCEPT:
competitors are legally unable to challenge them.
they have control over resources with very few good substitutes.
it is sometimes inefficient to have competition in certain markets.

5. it increases both producer and consumer surplus.
Question 29
1. X-inefficiency implies:
the practice of using less than the optimal amount of inputs for production.
the practice of using the lowest quantity of input to produce maximum output.
always producing less than the optimal amount of output.
excessive use of inputs relative to best-practice methods.
Question 30
1. When a monopolist’s marginal cost of production is zero:
the deadweight loss is reduced.
production is lower than if marginal cost were positive.
the price charged is higher than if marginal cost were positive.
maximizing profit is same as maximizing revenue.

6. it increases both producer and consumer surplus.
Question 29
1. X-inefficiency implies:
the practice of using less than the optimal amount of inputs for production.
the practice of using the lowest quantity of input to produce maximum output.
always producing less than the optimal amount of output.
excessive use of inputs relative to best-practice methods.
Question 30
1. When a monopolist’s marginal cost of production is zero:
the deadweight loss is reduced.
production is lower than if marginal cost were positive.
the price charged is higher than if marginal cost were positive.
maximizing profit is same as maximizing revenue.