MPP801Monopoly

StudyQuestions

KevinWainwright

MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
1) Themarginalrevenuefacingamonopolist

1)

A) isthesameasthedemandfacingthemonopolist.
B) showsthechangeintheprofitslevelofthefirm.
C) liesbelowtheaveragerevenue.
D) atfirstfallstoaminimumandthenrisesasoutputisincreased.
E) isthesameastheaveragerevenuefacingthemonopolist.
2) Amonopolistfacesadownward-slopingdemandcurvebecause

2)

A) itsaveragerevenueequalsitsmarginalrevenue.
B) itssupplycurveisupwardsloping.
C) itsellstypicallytoonlyoneconsumer.
D) itsdemandcurveisthemarketdemandcurve.
E) demandisperfectlyinelastic.
3) Amonopolisticfirmfacesadownward-slopingdemandcurvebecause

3)

A) themonopolisticfirmcanexploiteconomiesofscale.
B) thedemandforitsproductisalwaysinelastic.
C) marginalrevenueisnegativethroughoutthefeasiblerangeofoutput.
D) therearealargenumberoffirmsintheindustry,allsellingthesameproduct.
E) unlikethatofacompetitivefirm,theamountamonopolisticfirmsellsaffectsthemarket
price.
4) Foramonopolistmarginalrevenuefallsfasterthanpricebecause

4)

A) thecostofproducingextraunitsofoutputincreasesasproductionisincreased.
B) toselladditionalunitsthepricemustbeloweredonallunitssold.
C) marginalrevenueislargerthanprice.
D) profitsaremaximizedwhenmarginalcostequalsmarginalrevenue.
E) thefirmhasnosupplycurve.
MarketDemandSchedule
Price
$8
Quantity 5

$7
6

$6
7

$5
8
TABLE10-12

$4
9

$3
10

$2
11

5) ReferringtoTable10-1,themarginalrevenueassociatedwithincreasingsalesfrom5to6unitsis
A) -4.

B) -2.

C) 0.

D) 2.

E) 4.

6) ReferringtoTable10-1,themarginalrevenueassociatedwithincreasingsalesfrom6to7unitsis
A) 0.

B) -4.

D) -2.

C) 4.

5)

E) 2.

6)

7) ReferringtoTable10-1,themarginalrevenueassociatedwithincreasingsalesfrom8to9unitsis
A) 2.

B) -4.

D) -2.

C) 4.

8) Inamonopolyfirm,therevenue-maximizinglevelofoutputoccurswhere

7)

E) 0.
8)

A) MC=AR.
B) MR=AC.
C) MC=P.
D) MR=MC.
E) MR=zero.
9) Whenamonopolistsetspricewherethepriceelasticityofdemandequals1,his

9)

A) totalrevenueisrising,althoughmarginalrevenueisfalling.
B) totalrevenueisatamaximum.
C) marginalrevenueisalwayspositive.
D) totalprofitsareatamaximum.
E) totalrevenueisfalling.
10) Aprofit-maximizingmonopolistsetspricewherethepriceelasticityofdemandis
A) inelastic.
B) elastic.
C) infinitelyelastic.
D) zero.
E) one.

10)

11) RefertoFigure10-2.Thepriceelasticityofdemandatq2 is

11)

A) zero.
B) lessthan1.
C) greaterthan1.
D) equalto1.
E) notdeterminablefromthediagram.
12) RefertoFigure10-2.Thepriceelasticityofdemandatq3 is

12)

A) equalto1.
B) lessthan1.
C) greaterthan1.
D) zero.
E) notdeterminablefromthediagram.
13) RefertoFigure10-2.Thepriceelasticityofdemandatq1 is
A) lessthan1.
B) zero.
C) equalto1.
D) greaterthan1.
E) notdeterminablefromthediagram.

13)

14) RefertoFigure10-2.Themarginalrevenueatq2 is

14)

A) equaltomarginalcost.
B) negative.
C) positive.
D) zero.
E) notdeterminablefromthediagram.
15) RefertoFigure10-2.Marginalrevenueatq3 is

15)

A) positive.
B) zero.
C) negative.
D) equaltomarginalcost.
E) notdeterminablefromthediagram.
16) Ifamonopolyispresentlyproducinganoutputatwhichmarginalrevenueislessthanmarginal
cost,itcanincreaseprofitsby

16)

A) reducingoutputandraisingprices.
B) expandingoutputandraisingprice.
C) reducingoutputandholdingpricesunchanged.
D) reducingbarrierstoentry.
E) expandingoutputandloweringprice.
17) Attheprofit-maximizinglevelofoutputforamonopolist,price

17)

A) exceedsmarginalcost.
B) equalsmarginalrevenue.
C) isbelowmarginalrevenue.
D) alwaysexceedsaveragetotalcost.
E) equalsmarginalcost.
18) AmonopolistiscurrentlyproducinganoutputlevelwhereP = $20,MR = $13,AVC=$12,ATC =
$15,andMC=$14.Inordertomaximizeprofits,thismonopolistshould
A) changepriceandletproductionadjusttothenewprice.
B) shutdown.
C) decreaseproductionandincreaseprice.
D) notchangehisoutputlevel,becauseheiscurrentlyattheprofit-maximizingoutputlevel.
E) increaseproductionandreduceprice.

18)

19) Economicprofitforamonopolisticfirmwillequalzerowhen

19)

A) marginalrevenueequalsmarginalcost.
B) averagetotalcostisminimized.
C) marginalrevenueequalsprice.
D) priceequalsmarginalcost.
E) averagetotalcostequalsprice.
20) IfamonopolistsmarginalrevenueisMR = 12- 2Q andmarginalcostisMC = 3,thenthe
profit-maximizingquantitythatthemonopolistshouldproduceis
A) 0.

B) 4.

C) 4.5.

D) 6.

20)

E) 12.

Yourfood-servicescompanyhasbeenawardedanexclusiverighttoprovidemealsatasmalluniversity.Thecostand
demandschedulesare:
Sold
per
Day
0
100
200
300
400
500
600
700

Price
per
Meal
$3.50
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75

Total
Total
Fixed Variable
Cost
Cost
$150
0
$150
$300
$150
$500
$150
$650
$150
$750
$150
$830
$150
$905
$150
$995
TABLE10-2

Total
Revenue
0
$325
$600
$825
$1000
$1125
$1200
$1225

21) RefertoTable10-2.Themarginalcostbetween100and200mealsis
A) $1.00..

B) $1.50.

C) $2.00.

D) $3.00

21)
E) $200.

22) RefertoTable10-2.Themarginalrevenueat200mealsis
A) $1.75.

B) $2.25.

C) $2.75.

22)
D) $3.25.

E) $275.

23) RefertoTable10-2.Theprofit-maximizingpriceandnumberofmealsis

23)

A) 300mealsat$2.75permeal.
B) 600mealsat$2.00permeal.
C) 500mealsat$2.25permeal.
D) 400mealsat$2.50permeal.
E) 700mealsat$1.75permeal.
24) RefertoTable10-2.Attheprofit-maximizinglevelofoutput,thefirmstotalprofitwillbe
A) $75.

B) $100.

C) $145.

D) $150.

E) $295.

24)

25) RefertoTable10-2.Ifyoudecidedtoprovide700mealsthetotalprofitswouldbe

25)

A) -$60.
B) $80.
C) $150.
D) $230.
E) impossibletocalculate.
26) RefertoTable10-2.Thebreak-evenlevelofoutputisbetween

26)

A) 0and100meals.
B) 100and200meals.
C) 200and300meals.
D) 300and400meals.
E) 300and500meals.

27) InFigure10-3,aprofit-maximizingsingle-pricemonopolistproducesthequantity
A) Q4 .

B) Q0 .

C) Q3 .

D) Q2 .

27)
E) Q1 .

28) InFigure10-3,aprofit-maximizingsingle-pricemonopolistchargestheprice
A) P2 .

B) P1 .

C) P0 .

D) P4 .

28)
E) P3 .

29) InFigure10-3,theaverageprofitearnedperunitbythissingle-pricemonopolistis
A) P4 -P3 .

B) P4 -P0 .

C) P4 - P1 .
6

D) P4 - P2 .

29)
E) P3 -P2 .

30) InFigure10-3,ifthesingle-pricemonopolistisproducingattheprofit-maximizingoutput,the
totalcostisrepresentedbythearea
A) 0P2 bQ0 .

B) 0P3 cQ3 .

C) 0P4 aQ0 .

D) 0P1 dQ1 .

E) 0P0 gQ5 .

31) InFigure10-3,ifthesingle-pricemonopolistisproducingattheprofit-maximizingoutput,the
totalrevenueisrepresentedbythearea
A) 0P0 gQ5 .

B) 0P4 aQ0 .

C) 0P2 bQ0 .

D) 0P3 cQ2 .

B) 0P4 aQ0 .

C) P3 ceP2 .

D) P4 abP2 .

B) P5 P2 b.

C) P5 P1 e.

D) P5 Q3 0.

B) Q4 .

C) Q2 .

D) Q3 .

33)

E) P5 P4 a.

34) InFigure10-3,thesingle-pricemonopolistmaximizestotalrevenuebyproducingthequantity
A) Q5.

32)

E) 0P2 bQ0 .

33) InFigure10-3,ifthesingle-pricemonopolistisproducingattheprofit-maximizingoutput,the
consumersurplusisrepresentedbythearea
A) P5 P0 g.

31)

E) 0P1 dQ1 .

32) InFigure10-3,ifthesingle-pricemonopolistisproducingattheprofit-maximizingoutput,the
totalprofitisrepresentedbythearea
A) 0P0 fQ0 .

30)

34)

E) Q1 .

35) SupposethefirminFigure10-3experiencesaparallelincreaseinthedemandforitsproduct.In
theshortrun,theprofit-maximizingmonopolistwill

35)

A) neitherraisepricenorchangeoutput.
B) increasepriceandoutput.
C) increaseprice,andproducethesameoutput.
D) increasepriceandreduceoutput.
E) lowerpriceandincreaseoutput.
36) Ifamonopolytookoveraviableperfectlycompetitiveindustrythefirmwouldproduce

36)

A) agreateroutputatahigherprice.
B) thesameoutputatahigherprice.
C) thesameoutputatthesameprice.
D) asmalleroutputatahigherprice.
E) asmalleroutputatthesameprice.
37) Ifamonopolyoperatedintheinelasticrangeofitsdemandcurve,
A) itsmarginalrevenuewouldbenegative.
B) itwouldbeoperatingatitsprofit-maximizingposition.
C) itsmarginalrevenuewouldbenegativealthoughitstotalrevenueswouldbeatamaximum.
D) itcouldraiseitstotalrevenuebyloweringitsprice.
E) itwouldbeoperatingwhereitsARisnegative.

37)

38) Supposethatamonopolistknowsthefollowinginformation:
Price

Quantity

$10.00

1500

TR

MR
$7.00

Fixed
Cost
$6000

TC

38)
ATC

MC

$5.00

$5.00

Themonopolistcouldmaximizeprofitsby
A) stayingatthecurrentpriceandoutput.
B) loweringpriceandincreasingoutput.
C) shutingdown.
D) loweringpriceandleavingoutputunchanged.
E) raisingpriceandleavingoutputunchanged.
39) Onedifferencebetweenmonopolyandperfectcompetitionisthat

39)

A) monopolisticfirmstendtomaximizerevenuewhileperfectlycompetitivefirmsmaximize
profit.
B) perfectlycompetitivefirmscannotmaintainpositiveeconomicprofitsinthelongrun.
C) perfectlycompetitivefirmscanneverearneconomicprofits;monopolisticfirmsalwaysearn
economicprofits.
D) monopolisticfirmsemphasizecostminimizationandperfectlycompetitivefirmsemphasize
profitmaximization.
E) monopolistsdonotconsiderconsumerdemandwhenchoosingpriceandoutputlevels.
40) Anumberoffirmsagreeingtogethertorestrictoutputandtherebyraisepricesisknownas
A) amonopoly.
B) perfectcompetition.
C) acartel.
D) abarriertoentry.
E) anaturalmonopoly.

40)

AnswerKey
Testname:MPPMONOPOLYSTUDYQUESTIONS

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C
D
E
B
D
A
B
E
B
B
D
B
D
D
C
A
A
C
E
C
C
C
B
C
B
C
B
D
D
A
B
D
E
D
B
D
A
B
B
C