Question

What is true of rent-seeking activities?

a.	They never have a positive result for the firm.	b.	They require no additional spending.
c.	They raise the cost of doing business.	d.	They decrease the costs of the firm.

What will happen based on the higher the price set by a monopolist and the longer it is maintained?

a.	The level of costs will decrease.	b.	Fewer firms will use rent seeking activities.
c.	The sale of the firm will drop.	d.	More rivals will attempt to enter the market.

When comparing a single-price monopoly with a perfectly competitive industry with similar costs and demand, it will produce _________ and the deadweight loss will be __________.

a.	more; less	b.	less; less
c.	more; greater	d.	less; greater

If a firm is to successfully price discriminate, which of the following is true?

a.	The firm must be earning an economic profit prior to introducing price discrimination.	b.	It is nearly impossible for buyers to purchase and resell the firm’s product.
c.	The product must have no substitutes.	d.	The firm must be unable to segment the market.

Which of the following is true for a firm to successfully price discriminate?

a.	The firm must be able to keep the market sealed to competition.	b.	The firm must be able to segment buyers.
c.	The firm must be able to adjust price on the basis of cost.	d.	The firm must be earning an economic profit.

Which of the following would be a firm’s goal to produce if it can segment submarkets?

a.	MC > ATC	b.	MR = ATC
c.	P = MR	d.	MC = MR for each submarket

Price discrimination does which of the following?

a.	It does not require that the firm has control over price, only that customers are willing to buy.	b.	It increases a monopolist’s revenue.
c.	It occurs when a firm sells its product below the marginal cost of production.	d.	It involves a higher price to customers with a higher price elasticity and a lower price to customers with a lower price elasticity.

Answer 1

1) The correct option is d.

a) Rent seeking activities are activities which firms do to increase their own wealth. So they tend to have a positive result.

b) Rent seeking activities do have additional costs in order to increase their wealth.

c) Rent seeking activities are performed to increase wealth of firms and not increase their costs.

d) With the decrease in cost, firms will be able to increase their wealth. So this is a rent seeking activity.

2) The correct option is c.

a) Charging higher prices of products will not reduce the cost of production of the monopolist.

b) Increase in price will increase the wealth of the firms. This is a type of rent seeking activities which many firms will use and not few.

c) The demand curve of a monopolist is downward sloping. So increase in the price of the product will lead to fall in demand.

d) In a monopoly market, there are no rival firms.

3) The correct option is d.

a) A monopolist firm is the only firm supplying product in the market. This will lead to less production by monopolist to be able to charge more and earn more profit.

b) Since monopoly is the only firm in the market, it will produce less. This will cause high inefficiency in the production compared to that of perfect competition.

c) Monopolist being the only supplier in the market will produce less to be able to charge more.

d) Since monopoly is the only firm in the market, it will produce less to charge more. This will lead to inefficiency of resources leading to more deadweight loss.

4) The correct option is b.

a) A firm that is not earning economic profit can also use the pricing strategy of price discrimination.

b) The firm should make sure that its products are not sold from one buyer to the other. Otherwise the practice of price discrimination will not work properly where different buyers are charged different prices for same product.

c) Even if the products have close substitute, then also firms can apply price discrimination. Like airlines services.

d) It is very important that the firms are able to segment the market to apply the pricing policy of price discrimination.