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10.4  Does Monopoly Reduce Economic Efficiency? 1) Economic efficiency in a free market occurs when A) consumer surplus is maximized. B) producer surplus is maximized. C) the sum of consumer surplus and producer surplus is maximized. D) price is as low as possible. 2) A profit maximizing monopoly’s price is A) the same as the price that would prevail if the industry was perfectly competitive. B) less than the price that would prevail if the industry was perfectly competitive. C) greater than the price that would prevail if the industry was perfectly competitive. D) not consistently related to price that would prevail if the market was perfectly competitive. 3) Refer to Figure 10-5. What is the economically efficient output level? A) 600 units B) 800 units C) 940 units D) 1160 units 4) Refer to Figure 10-5. What is the difference between the monopoly output and the perfectly competitive output? A) 140 units B) 240 units C) 340 units D) 560 units 5) Refer to Figure 10-5. What is the difference between the monopoly’s price and perfectly competitive industry’s price? A) The monopoly’s price is higher by $9.50. B) The monopoly’s price is higher by $13. C) The monopoly’s price is higher by $3.50. D) The monopoly’s price is higher by $21. 6) Refer to Figure 10-5. At the profit-maximizing quantity, what is the difference between the monopoly’s price and the marginal cost of production? A) $8 B) $11.50 C) $21 D) There is no difference. 7) Compared to perfect competition, the consumer surplus in a monopoly A) is unchanged because price and output are the same. B) is lower because price is higher and output is lower. C) is higher because price is higher and output is the same. D) is eliminated. 8) Why does a monopoly cause a deadweight loss? A) because it does not produce some output for which marginal benefit exceeds marginal cost B) because it appropriates a portion of consumer surplus for itself C) because it increases producer surplus at the expense of consumer surplus D) because it does not produce some output for which demand exceeds supply 9) Relative to a perfectly competitive market, a monopoly results in A) a gain in producer surplus equal to the gain in consumer surplus. B) a gain in producer surplus equal to the loss in consumer surplus. C) a gain in producer surplus less than the loss in consumer surplus. D) greater economic efficiency. 10) Refer to Figure 10-6. What is the area that represents consumer surplus under a monopoly? A) the triangle P0P1F B) the triangle P0P2E C) the trapezium P1P2EF D) the rectangle P1P3HF

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