26) Which of the following is true about a perfectly price-discriminating monopo
ID: 1164571 • Letter: 2
Question
26)
Which of the following is true about a perfectly price-discriminating monopolist as compared to a single-price monopolist?
(2pts)
It captures all of what was consumer surplus as monopoly profit.
It produces more output than would occur in perfect competition.
All of the above
None of the above
18)
A monopolist is currently selling 6 widgets per day at a price of $12 per widget. In order to sell 7 widgets per day it must lower the price it charges on all units to $11 each. The firm’s marginal revenue from selling the 7th widget is
(2pts)
$48
$5
$12
$11
$7
12)
Assume that a perfectly competitive firm owns or rents a higher-quality resource that results in lower average total costs and higher economic profits in the short run. What will happen in the long-run?
(2pts)
The government will tax away any excess profits.
New firms will enter and compete any excess profits away.
The price of the higher-quality resource will be bid upward resulting in economic rents and equalizing costs across firms.
The firm with the higher-quality resource will earn positive economic profits in the long run.
None of the other answers is correct.
8)
Which of the following correctly states the situation of a perfectly competitive firm with respect to economic profits in both the short-run and the long-run?
(2pts)
It may earn negative, zero, or positive economic profits in the short-run but it must earn positive economic profits in the long-run.
It must earn positive economic profits in the short-run (otherwise it would shut down) but it will earn zero economic profits in the long-run.
It may earn negative, zero, or positive economic profits in the short-run but it must earn zero economic profits in the long-run.
It must earn zero economic profits in both the short-run and in the long-run.
It may earn negative, zero, or positive economic profits in both the short-run and the long-run.
Explanation / Answer
(26) Option (A)
A perfect price discriminating monopolist equates price with MC (as in perfect competition) and captures entire consumer surplus as profit.
(18) Option (B)
When Price = $12, Quantity = 6 and Total revenue (TR) = P x Q = $12 x 6 = $72
When Price = $11, Quantity = 7 and TR = $11 x 7 = $77
Marginal revenue on 7th unit = Change in TR / Change in Q = $(77 - 72) / (7 - 6) = $5
(12) Option (E)
In perfect competition, a single firm is too small to influence market price, so its cost structure will not make any impact in short run or long run, on overall market.
(8) Option (C)
A firm may earn profit, loss or break-even in short run, but long run economic profit is always zero.
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