Final Market Power

(Figure: Pay Per View Movies on Xfinity Cable) Use Figure: Pay Per View Movies on Xfinity Cable. The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity. Assume that marginal cost and average cost are constant at $20. If the cable company has market power, what price will it charge?

$60

One of the market failures caused by market power is

underproduction

(Figure: Marginal Revenue) What is the marginal revenue of the fifth unit in the following example?

$0

If a monopolist is producing a quantity that generates MC = MR, then profit:

is maximized

If Penelope, a monopolist, is producing a quantity where MC = P, then profit:

can be increased by decreasing production.

(Figure: Marginal Revenue) What is the marginal revenue of the fourth unit in the following example?

$2

If a monopolist produces a quantity that generates MC < MR, then profit:

can be increased by increasing output.

How is the result of the Rational Rule for Sellers different for companies with market power versus companies with no market power?

The price is higher for companies with market power.

Pamela sells 10 bottles of olive oil per week at $5 per bottle. She can sell 11 bottles per week if she lowers the price to $4.50 per bottle. The quantity effect would be:

$4.50.

Mr. Parker sells 10 bottles of wine per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity effect of the sale of an additional bottle would be _____, whereas the price effect of the sale of an additional bottle would be _____.

$45; -$50

(Figure: Demand, Revenue, and Cost Curves for Thneeds) Use Figure: Demand, Revenue, and Cost Curves for Thneeds. Thneeds and Things is a monopolist in the thneed ("things we need") market. If the government wants to regulate Thneeds so that an efficient outcome is reached, it would impose a price ceiling of:

$40

According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.

two units; $450

If Penelope, a monopolist, is producing a quantity where MC > MR, then profit:

can be increased by decreasing production.

If Penelope, a monopolist, is producing a quantity where MC < MR, then profit:

can be increased by increasing production.

In a perfectly competitive market, a company's marginal revenue equals _____. For a company with market power, marginal revenue is _____.

Correct!

price; less than price

If a firm faces a downward-sloping demand curve:

P > MR.

How does marginal revenue compare to price for a seller with market power?

Beyond the first unit sold, marginal revenue is below price.

If a monopolist produces a quantity that generates MC > MR, then profit:

can be increased by increasing price.

The demand curve for a monopoly is:

above the MR curve.