Week 11 Quiz

A town grants one company the only license to run boats across its harbor, so no second ferry may start. Which barrier to entry protects that ferry?

Select one.

• Economies of scale, because one boat carries riders most cheaply
• Control of a key resource, such as owning the only dock
• Legal protection, because the license keeps rivals out
• No barrier, because riders could choose not to travel

In the course's illustrative ferry, the only ferry serving a town, demand is P = 20 − Q, where P is the fare in dollars a ticket and Q is hundreds of tickets a day, and marginal cost is a constant 4 dollars a ticket. Its total revenue is 19 at 1 hundred tickets, 36 at 2, and 51 at 3, in hundreds of dollars a day, and the fare at 3 hundred tickets is 17 dollars. What is the marginal revenue of the 3rd hundred tickets?

Select one.

• 15 dollars a ticket, the change in total revenue
• 17 dollars a ticket, the fare riders pay at that quantity
• 51, the total revenue from 3 hundred tickets
• 4 dollars a ticket, the marginal cost

In the course's illustrative ferry, the only ferry serving a town, demand is P = 20 − Q, where P is the fare in dollars a ticket and Q is hundreds of tickets a day, and marginal cost is a constant 4 dollars a ticket, and its marginal revenue is MR = 20 − 2Q. Picture the graph in words: hundreds of tickets along the bottom, dollars a ticket up the side, demand falling from 20, the marginal-revenue line falling twice as steeply, and a flat marginal-cost line at 4. How many tickets does the ferry sell, and what fare does it charge?

Select one.

• 16 hundred tickets at 4 dollars, where price equals marginal cost
• 8 hundred tickets at 12 dollars, read from the demand curve
• 8 hundred tickets at 4 dollars, where MR meets marginal cost
• 10 hundred tickets at 10 dollars, where revenue is largest

In the course's illustrative ferry, the only ferry serving a town, demand is P = 20 − Q, where P is the fare in dollars a ticket and Q is hundreds of tickets a day, and marginal cost is a constant 4 dollars a ticket, with no fixed cost. At the quantity it chooses, its fare is 8 dollars above marginal cost, and its total revenue is 96 hundred dollars a day. What is its profit, in hundreds of dollars a day?

Select one.

• 96, its total revenue
• 32, its total cost of carrying the riders
• 128, the competitive consumer surplus
• 64, the markup per ticket times the tickets sold

In the course's illustrative ferry, the only ferry serving a town, demand is P = 20 − Q, where P is the fare in dollars a ticket and Q is hundreds of tickets a day, and marginal cost is a constant 4 dollars a ticket, with no fixed cost. A competitive crossing would sell 16 hundred tickets at 4 dollars. The monopoly's fare is 8 dollars above marginal cost, and it sells half as many tickets as the competitive crossing. What is the deadweight loss of the monopoly, in hundreds of dollars a day?

Select one.

• 64, the full rectangle on the unsold tickets
• 96, the surplus riders lose
• 32, the triangle on the tickets never sold
• 128, the consumer surplus at the competitive outcome

In the course's illustrative ferry, the only ferry serving a town, demand is P = 20 − Q, where P is the fare in dollars a ticket and Q is hundreds of tickets a day, and marginal cost is a constant 4 dollars a ticket, with no fixed cost. Moving from the competitive outcome to the monopoly, riders lose 96 hundred dollars a day of consumer surplus; the monopoly's fare is 8 dollars above marginal cost, and it sells half the 16 hundred tickets a competitive crossing would. Which description of those 96 fits the model?

Select one.

• Two-thirds moves to the owner as profit and one-third is lost to everyone
• All of it is deadweight loss, because riders lose all of it
• All of it becomes the owner's profit, so nothing is lost
• One-third moves to the owner as profit and two-thirds is lost to everyone

True or false: because the town's only ferry has no rivals, it can raise its fare as high as it likes without losing any riders.

True or false.

• True
• False

A cinema charges students less than other adults for the same seat at the same show and checks a student ID at the door. Which conditions does price discrimination like this require? Select every one that applies.

Select every option that applies.

• Market power, so the seller is not a price taker
• A way to sort buyers by willingness to pay
• A way to prevent resale between buyers
• A higher cost of serving the full-price buyers
• Many rival cinemas selling the same show

The course's illustrative ferry, the only ferry serving a town, has a Lerner index, the markup of price over marginal cost as a share of the price, of 2 ⁄ 3. Which sentence says what that means?

Select one.

• The ferry's profit is that share of its total cost
• The fare is that share of the ferry's marginal cost
• The index is zero, because the ferry has no rivals
• Two-thirds of each fare is markup over marginal cost

People debating how hard to enforce the federal antitrust laws make many claims. Which of these claims is normative rather than positive?

Select one.

• A monopoly with the same costs sells less than a competitive market
• Regulators should block mergers that create market power
• The Sherman Act became law in 1890
• A patent gives an inventor the legal right to keep rivals out