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Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below.  Customer  Reservation Price ($ Rental ) A22B16C12D8E6F4\begin{array} { | c | c | } \hline \text { Customer } & \begin{array} { c } \text { Reservation Price } \\( \$ \text { Rental } ) \end{array} \\\hline \mathrm { A } & 22 \\\hline \mathrm { B } & 16 \\\hline \mathrm { C } & 12 \\\hline \mathrm { D } & 8 \\\hline \mathrm { E } & 6 \\\hline \mathrm { F } & 4 \\\hline\end{array} If Island Bikes charges a single price to all of its customers, then how many bikes will it rent out each day?


A) 6
B) 5
C) 4
D) 3

E) A) and D)
F) All of the above

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When marginal revenue is zero:


A) profit is maximized.
B) total cost is minimized.
C) elasticity of demand is zero.
D) total revenue is maximized.

E) B) and C)
F) A) and D)

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To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly competitive firm ______.


A) need not alter its price; must lower its price
B) must hope the market price falls; must lower its price
C) need not alter its price; need not alter its price
D) must lower its price; must lower its price

E) A) and D)
F) None of the above

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Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q. Big Inc: TC = 4,000 + 200Q. ______ has a higher fixed cost and ______ has a higher marginal cost.


A) Big Inc; Mega Corp
B) Mega Corp; Big Inc
C) Big Inc; Big Inc
D) Mega Corp; Mega Corp

E) All of the above
F) A) and B)

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Patents, which confer market power, are intended to:


A) protect consumers from imitations, or knock-offs.
B) enable patent holders to charge lower prices for new and innovative products.
C) encourage innovation by helping firms recoup the costs of research and development.
D) maintain the dominance of U.S.firms.

E) None of the above
F) A) and D)

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According to the textbook, the most important and enduring source of market power is:


A) government franchises.
B) patents.
C) copyrights.
D) economies of scale.

E) All of the above
F) A) and B)

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Suppose a monopolist faces the demand curve shown below: Suppose a monopolist faces the demand curve shown below: If you were to draw the monopolist's marginal revenue curve, it would: A) lie on top of the demand curve. B) intersect the vertical axis at $35. C) intersect the horizontal axis at 35. D) have a slope equal to the reciprocal of the slope of the demand curve. If you were to draw the monopolist's marginal revenue curve, it would:


A) lie on top of the demand curve.
B) intersect the vertical axis at $35.
C) intersect the horizontal axis at 35.
D) have a slope equal to the reciprocal of the slope of the demand curve.

E) A) and B)
F) B) and C)

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Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At this monopolist's profit-maximizing level of output, consumer surplus is ______. A) $9,000 B) $4,500 C) $4,000 D) $2,000 At this monopolist's profit-maximizing level of output, consumer surplus is ______.


A) $9,000
B) $4,500
C) $4,000
D) $2,000

E) B) and D)
F) None of the above

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Under cost-plus regulation, a regulated firm is permitted to charges prices that cover the explicit cost of production plus a markup to cover the:


A) opportunity cost of the resources supplied by the firm's owners.
B) extra cost associated with the state ownership of natural monopolies.
C) cost of winning a government contract.
D) owner's economic rent.

E) A) and D)
F) A) and C)

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Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is ______.


A) $3
B) $3.10
C) $10.30
D) $1.03

E) All of the above
F) A) and C)

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Monopolists use the hurdle method of price discrimination in order to:


A) separate consumers on the basis of their reservation prices.
B) lower their marginal cost.
C) increase the demand for their good.
D) produce the socially optimal level of output.

E) None of the above
F) A) and D)

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A

Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At the monopolist's profit-maximizing level of output, deadweight loss equals the area: A) C0N B) ALN C) JLN D) JKN At the monopolist's profit-maximizing level of output, deadweight loss equals the area:


A) C0N
B) ALN
C) JLN
D) JKN

E) B) and D)
F) A) and B)

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C

A perfectly price discriminating monopolist charges each buyer:


A) exactly his or her marginal cost.
B) more than his or her reservation price.
C) exactly his or her reservation price.
D) the perfectly competitive equilibrium price.

E) A) and B)
F) A) and C)

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If a monopolist's marginal revenue is $25 and its marginal cost is $19, then the monopolist should:


A) raise its price.
B) increase its output.
C) leave its output and price unchanged.
D) decrease its output.

E) A) and B)
F) None of the above

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In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for:


A) 75 cents because that is the market price.
B) less than 75 cents because CheapFizz will have greater volume and so can lower its price.
C) more than 75 cents because the demand curve for CheapFizz soda will shift to the left.
D) more than 75 cents because CheapFizz is the only company that can sell soda on campus.

E) B) and D)
F) B) and C)

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D

A good is characterized by network economies if it:


A) can be used by more than one person at a time.
B) becomes cheaper to produce as more people buy it.
C) becomes more valuable as more people own it.
D) is widely advertised on television.

E) A) and C)
F) A) and B)

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Suppose the table below describes the relationship between price and quantity demanded for a monopolist.  Quantity  Price 1$102$93$84$75$66$57$48$3\begin{array} { | c | c | } \hline \text { Quantity } & \text { Price } \\\hline 1 & \$ 10 \\\hline 2 & \$ 9 \\\hline 3 & \$ 8 \\\hline 4 & \$ 7 \\\hline 5 & \$ 6 \\\hline 6 & \$ 5 \\\hline 7 & \$ 4 \\\hline 8 & \$ 3 \\\hline\end{array} The marginal revenue of the third unit of output is:


A) $24.
B) $8.
C) $6.
D) -$1.

E) B) and C)
F) A) and B)

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A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. What can one can infer about the consumer's reservation price?


A) It was at least $300.
B) It was at most $280.
C) It was exactly $300.
D) It was at least $280 but less than $300.

E) C) and D)
F) B) and C)

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Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. When this monopolist maximizes its profit, consumer surplus equals the area: A) ABJ. B) ACN. C) AELJ. D) ACKJ. The monopolist will produce F units and charge a price of B) Consumer surplus is the triangular region above price and below the demand curve, to the left of the profit-maximizing level of output. When this monopolist maximizes its profit, consumer surplus equals the area:


A) ABJ.
B) ACN.
C) AELJ.
D) ACKJ.
The monopolist will produce F units and charge a price of B) Consumer surplus is the triangular region above price and below the demand curve, to the left of the profit-maximizing level of output.

E) A) and B)
F) All of the above

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Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n) :


A) pure monopolist.
B) oligopolist.
C) monopolistic competitor.
D) perfect competitor.

E) B) and D)
F) B) and C)

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