Q&A Hero

Q: When a drug company develops a new drug it is granted a ________ making it illegal for other firms to enter the market until the ________ expires. A) franchise; franchise B) copyright; copyright C) government license; government license D) patent; patent

Q: Which factors determine the firm's elasticity of demand? A) Elasticity of market demand and number of firms B) Number of firms and the nature of interaction among firms C) Elasticity of market demand, number of firms, and the nature of interaction among firms D) none of the above

Q: Which of the following is NOT associated with a high degree of monopoly power? A) A relatively inelastic demand curve for the firm B) A small number of firms in the market C) Significant price competition among firms in the market D) Significant barriers to entry

Q: Suppose Orange Inc. sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the market, the demand facing Orange becomes ________ elastic and the Lerner index achieved by the firm in this market ________. A) less, declines B) less, increases C) more, declines D) more, increases

Q: Determine the "rule-of-thumb" price when the monopolist has a marginal cost of $25 and the price elasticity of demand of -3.0.

Q: You work as a marketing analyst for a pharmaceutical firm, and you are trying to gather information about the marginal cost of production for a competing firm. You know that they have a patent on a popular medication that sells for $20 per dose, and you believe the elasticity of demand for this product is roughly -4. Assuming the competing firm acts as a profit-maximizing monopolist, what is the competing firm's approximate marginal cost of production? A) $10 per dose B) $12.50 per dose C) $15 per dose D) $20 per dose

Q: What is the maximum value of the Lerner index? A) Infinity B) 100 C) Two D) One

Q: Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD? A) Yes B) No, the retail price is too low C) No, the retail price is too high D) We do not have enough information to answer this question.

Q: DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs? A) MC = $10 B) MC = $15 C) MC = $20 D) MC = $5

Q: DVDs can be produced at a constant marginal cost of $5 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the price elasticities of demand for these two movies? A) Both equal -1.2. B) -0.75 and -5/6, respectively C) -1.33 and -1.2, respectively D) -1.33 and -2, respectively

Q: DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies? A) Both equal one. B) 2 and 3, respectively C) 5 and 0.67, respectively D) 1 and 2, respectively

Q: Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be: A) to decrease the price of rice to the Japanese people. B) to decrease the consumer surplus of Japanese rice consumers. C) to decrease the producer surplus of Japanese rice producers. D) a welfare gain for the Japanese people. E) increase the consumption of rice by the Japanese people.

Q: Use the following two statements to answer this question: I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measured using the Lerner Index: L = (P - AC)/AC. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Q: Assume that a firm's marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firm's profit maximizing price is approximately A) $20. B) $5. C) $10. D) The answer cannot be determined without additional information.

Q: The Lerner index measures A) a firm's potential monopoly power. B) the amount of monopoly power a firm chooses to exercises when maximizing profits. C) a firm's potential profitability. D) an industry's potential market power.

Q: The more elastic the demand facing a firm, A) the higher the value of the Lerner index. B) the lower the value of the Lerner index. C) the less monopoly power it has. D) the higher its profit.

Q: What is the value of the Lerner index under perfect competition? A) 1 B) 0 C) infinity D) two times the price

Q: Monopoly power results from the ability to A) set price equal to marginal cost. B) equate marginal cost to marginal revenue. C) set price above average variable cost. D) set price above marginal cost.

Q: The ________ elastic a firm's demand curve, the greater its ________. A) less; monopoly power B) less; output C) more; monopoly power D) more; costs

Q: A firm's demand curve is given by P = 500 - 2Q. The firm's current price is $300 and the firm sells 100 units of output per week. a. Calculate the firm's marginal revenue at the current price and quantity using the expression for marginal revenue that utilizes the price elasticity of demand. b. Assuming that the firm's marginal cost is zero, is the firm maximizing profit?

Q: Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cholesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product? A) The price-cost markup is 25% of the price B) The price-cost markup is 25% of the marginal cost C) The price-cost markup is 4% of the marginal cost D) The price-cost markup is 4% of the price

Q: Bancroft Pharmaceuticals has a patent on a new medication used to treat high blood pressure, so it is the monopoly seller of this new drug product. The marginal cost of producing one dose of the drug is $10, and the elasticity of demand for the product is -3. What is the profit maximizing monopoly price for this patented drug product? A) $10 B) $12.50 C) $15 D) $30

Q: A multiplant firm has equated marginal costs at each plant. By doing this A) profits are maximized. B) costs are minimized given the level of output. C) revenues are maximized given the level of output. D) none of the above

Q: The market supply function is P = 10 + Q and the market demand function is P = 70 - 2Q. What is the change in consumer surplus associated with a minimum floor price of $40? A) -$25 B) -$150 C) -$175 D) -$200

Q: The market supply function is P = 10 + Q and the market demand function is P = 70 - 2Q. What is the change in consumer surplus associated with a minimum floor price of $30? A) Zero B) -$100 C) -$30 D) -$55

Q: A minimum wage policy induces an: A) excess demand for labor. B) excess supply of labor. C) efficient market outcome. D) elastic labor supply response.

Q: One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage. What is the key drawback of this version of a minimum wage policy? A) The deadweight loss may increase substantially. B) The cost to the government may be very large. C) Consumer surplus losses increase further. D) A and B are correct. E) B and C are correct..

Q: Eliminating price supports for all US agricultural producers will hurt the farmers who cultivate products that have A) a high own price elasticity of demand and a high price elasticity of market supply. B) a high own price elasticity of demand and a low price elasticity of market supply. C) a low own price elasticity of demand and a high price elasticity of market supply. D) a low own price elasticity of demand and a low price elasticity of market supply.

Q: Which of the following is NOT true about price floors? A) Consumer surplus is always lower than it would be in the competitive equilibrium. B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium. C) Producer surplus could be negative as the result of a price floor. D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost. E) The total producer surplus depends on how producers respond to the price floor in determining their output level.

Q: Figure 9.5Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will beA) $1.50.B) $300.C) $450.D) $500.E) $600.

Q: Figure 9.5Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will beA) $1.50.B) 200 pounds of berries.C) $150.D) $250.E) $300.

Q: Figure 9.5Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus willA) fall by $50.B) fall by $100.C) remain the same.D) rise by $50.E) rise by $100.

Q: Figure 9.5Refer to Figure 9.5. If the government establishes a price floor of $2.50, consumer surplus willA) fall by $50.B) fall by $150.C) remain the same.D) rise by $50.E) rise by $150.

Q: Figure 9.5Refer to Figure 9.5. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?A) 200B) 300C) 400D) 600E) 800

Q: Figure 9.4Refer to Figure 9.4. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will beA) $15.B) 30 widgets.C) $1,050.D) $1,200.E) $1,350

Q: Figure 9.4Refer to Figure 9.4. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will beA) $15.B) 10 widgets.C) $1,050.D) $1,200.E) $2,400.

Q: Figure 9.4Refer to Figure 9.4. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus willA) fall by $275.B) fall by $500.C) remain the same.D) rise by $275.E) rise by $500.

Q: Figure 9.4Suppose the market in Figure 9.4 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus willA) fall by $50.B) fall by $350.C) remain the same.D) rise by $50.E) rise by $350.

Q: Figure 9.4Suppose the market in Figure 9.4 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?A) 20B) 30C) 40D) 50E) 60

Q: The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track? A) $5.4 million B) $8.1 million C) $10.8 million D) $27 million

Q: Suppose the market supply curve is upward sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is not true? A) The decrease in consumer surplus is fully captured by the producers. B) There will be an excess quantity supplied. C) Quantity demanded will remain the same. D) Quantity demanded will decline.

Q: Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers. II. When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as: A) an imperfectly competitive market. B) a market failure. C) a deadweight loss. D) a disequilibrium.

Q: When the market price is held above the competitive level, the deadweight loss is composed of: A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged. B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Q: Consider the following statements when answering this question I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys. II. Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region, as it presently is. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is A) efficient as consumers still buy from whoever they like. B) efficient as those consumers who value base metals the most can purchase them. C) likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost. D) likely to be inefficient as the scheme will require subsidies to work. E) efficient as learning by doing effects will be strongest in the firms set up in new geographical regions.

Q: Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is A) efficient as the quantity of drugs traded is the same as under a free market. B) efficient as the price of drugs paid by the government is the same as under a free market. C) efficient as consumer surplus is maximized. D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs. E) likely to be inefficient as drug producers have a captive buyer.

Q: Which of the following policies could lead to a deadweight loss? A) price ceilings. B) price floors. C) policies prohibiting human cloning. D) all of the above E) A and B only

Q: Government intervention can increase total welfare when A) there are costs or benefits that are external to the market. B) consumers do not have perfect information about product quality. C) a high price makes the product unaffordable for most consumers. D) all of the above E) A and B only

Q: Governments may successfully intervene in competitive markets in order to achieve economic efficiency A) at no time; competitive markets are always efficient without government intervention. B) to increase the incidence of positive externalities. C) in cases of positive externalities only. D) in cases of negative externalities only. E) in cases of both positive and negative externalities.

Q: The demand and supply functions for oil on the world market are given as: QD = 25.64 - 0.06P and QS = 21.74 + 0.07P. Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?

Q: The demand and supply functions for basic cable TV in the local market are given as:QD= 200,000 - 4,000P and QS = 20,000 + 2,000P. Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?

Q: In a competitive market, the following supply and demand equations are given: Supply P = 5 + 0.36Q Demand P = 100 - 0.04Q, where P represents price per unit in dollars, and Q represents rate of sales in units per year. a. Determine the equilibrium price and sales rate. b. Determine the deadweight loss that would result if the government were to impose a price ceiling of 40 dollars per unit.

Q: In an unregulated competitive market, supply and demand have been estimated as follows: Demand P = 25 0.10Q Supply P = 4 + 0.116Q, where P represents unit price in dollars, and Q represents number of units sold per year. a. Calculate annual aggregate consumer surplus. b. Calculate annual aggregate producer surplus. c. Define what producer surplus means.

Q: The elected officials in a west coast university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a $350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as: QD = 5600 - 8P QS = 500 + 4P, where P = monthly rent, and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical. a. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both). b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/or producer surplus. c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy?

Q: In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows: Supply P = 4 + 0.116Q Demand P = 25 - 0.10Q, where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.

Q: The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:QD = 1600 - 2400PQS = 200 + 3200P,where P = price of a pay telephone call, and Q = number of pay telephone calls per month.a. Determine the equilibrium price and quantity that will prevail without the price ceiling.b. Analyze the quantity that will be available with the price ceiling (in the long-run).c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?

Q: The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue? A) $2.00 B) $1.00 C) Zero D) -$1.00

Q: Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus? A) Both PS and CS increase B) CS increases and PS decreases C) CS increases and PS remains the same D) Both CS and PS decrease

Q: Under a binding price ceiling, what does the change in producer surplus represent? A) The gain in surplus for those sellers who are still willing to supply the product at the lower price. B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price. C) The gain in surplus associated with the excess demand created by the price ceiling policy. D) Both A and B are correct. E) Both A and C are correct.

Q: Under a binding price ceiling, what does the change in consumer surplus represent? A) The gain in surplus for those buyers who can still purchase the product at the lower price. B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price. C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy. D) Both A and B are correct. E) Both A and C are correct.

Q: The consumer's gain from the imposition of a price ceiling is higher when A) the own price elasticity of market demand is high and the price elasticity of market supply is high. B) the own price elasticity of market demand is high and the price elasticity of market supply is low. C) the own price elasticity of market demand is low and the price elasticity of market supply is high. D) the own price elasticity of market demand is low and the price elasticity of market supply is low.

Q: Consider the following statements when answering this question I. Overall, the sick will always gain from a price ceiling on prescription drugs. II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: Consider the following statements when answering this question I. Employers are always hurt by minimum wage laws. II. Workers always benefit from minimum wage laws. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: Consider the following statements when answering this question I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers. II. Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: Price ceilings A) cause quantity to be higher than in the market equilibrium. B) always increase consumer surplus. C) may decrease consumer surplus if demand is sufficiently elastic. D) may decrease consumer surplus if demand is sufficiently inelastic. E) always decrease consumer surplus.

Q: Figure 9.3Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will beA) $1.50.B) $300.C) $450.D) $500.E) $600.

Q: Figure 9.3Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will beA) $1.50.B) $200.C) $150.D) $300.E) $600.

Q: Figure 9.3Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, producer surplus willA) fall by $150.B) fall by $300.C) remain the same.D) rise by $150.E) rise by $300.

Q: Figure 9.3Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, consumer surplus willA) fall by $50.B) fall by $150.C) remain the same.D) rise by $50.E) rise by $150.

Q: Figure 9.3Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?A) 200B) 300C) 400D) 600E) 800

Q: Figure 9.3Refer to Figure 9.3. If the market is in equilibrium, total consumer and producer surplus isA) $0.B) $4.C) $5.D) $600.E) $800.

Q: Figure 9.3Refer to Figure 9.3. If the market is in equilibrium, total producer surplus isA) $2.B) $3.C) $200.D) $400.E) $600.

Q: Figure 9.3Refer to Figure 9.3. If the market is in equilibrium, total consumer surplus isA) $1.B) $3.C) $200.D) $400.E) $600.

Q: Figure 9.3Refer to Figure 9.3. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit isA) $0.50.B) $0.75.C) $1.50.D) $2.00.E) $2.75.

Q: Figure 9.3Refer to Figure 9.3. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit isA) $0.50.B) $0.75.C) $1.50.D) $2.00.E) $2.75.

Q: Figure 9.2Refer to Figure 9.2. At price 0H and quantity Q1, the deadweight loss isA) DGC.B) BDC.C) BGC.D) 0FGQ1.E) none of the above

Q: Figure 9.2Refer to Figure 9.2. At price 0H and quantity Q1, producer surplus is the areaA) 0ABQ1.B) 0EDQ1.C) AHB.D) 0FGQ1.E) none of the above

Q: Figure 9.2Refer to Figure 9.2. At price 0H and quantity Q1, consumer surplus is the areaA) EDGF.B) 0FGQ1.C) HFGB.D) EFC.E) none of the above

Q: Figure 9.2Refer to Figure 9.2. At price 0E and quantity Q*, the deadweight loss isA) 0ACQ*.B) 0ECQ*.C) 0FCQ*.D) EFC.E) none of the above