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Exercise 5.

4
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

1.

(2 points) For

the single-price monopoly, marginal revenue is


more important than marginal cost
always more than marginal cost
always less than average cost
always less than the price of output
more significant than total revenue
2. (2 points) A non-discriminating monopolist's marginal revenue curve lies below its demand curve because
a. economists put it there by convention
b. in order to earn more profit, the monopolist must charge higher prices
c. a monopolist gouges its customers
d. in order to increase their profits, monopolists must produce in the inelastic range of the
demand curve
e. in order to increase the number of units sold, the firm must lower the price on all units sold
a.
b.
c.
d.
e.

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Figure 9-1
Demand Facing Friendly Stop Gas Station
Price per Gallon
Gallons per Day
$1.50
100
$1.40
110
$1.30
120
$1.20
130
$1.10
140
$1.00
150
$0.90
160
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____

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3.

(2 points) Figure

9-1 shows the demand schedule facing the only gas station in a small Midwestern town. The
station does not price discriminate. Which of the following statements is correct?
a. The demand curve facing Friendly Stop has a constant price elasticity.
b. If the station increases sales from 100 to 110 gallons, marginal revenue will equal $1.40.
c. If the station increases sales from 100 to 110 gallons, marginal revenue will equal $14.00.
d. Demand is price elastic throughout the demand schedule.
e. The owner of the station would be unwilling to charge either $1.00 or $0.90 per gallon.
4. (2 points) When a non-discriminating monopolist is maximizing profit, then
a. its price equals its marginal cost
b. its price equals its marginal revenue
c. it is producing all units for which marginal revenue exceeds marginal cost
d. its supply curve intersects the market demand curve
e. its marginal cost curve intersects the market demand curve
5. (2 points) For a monopoly,
a. price and output are closely-linked choices
b. marginal revenue always exceeds marginal cost
c. price always exceeds average total cost in the short run
d. price is set independently from the output decision
e. price is always the highest that the market will bear

____

6.

(2 points) A monopolist's

supply curve
is the upward-sloping portion of its marginal cost curve
is the portion of its marginal cost curve above AVC
is parallel to its long run ATC curve
does not exist because quantity supplied depends on the market demand curve
is derived from the average variable cost curve
7. (2 points) A monopolist will
a. never produce at an output level where marginal revenue is positive
b. never produce at an output level where marginal revenue is constant
c. never produce at an output level where marginal revenue is negative
d. never produce at an output level where marginal cost is positive
e. ignore marginal revenue as long as average revenue is positive
a.
b.
c.
d.
e.

____

____

8.

(2 points) Figure

9-4 depicts a monopoly that does not price discriminate. What are the equilibrium price and

output?
a. there is no equilibrium under monopoly
b. P' and Q'
c. P and Q
d. P' and Q
e. P and Q'
____ 9. (2 points) Which of the following is true for a monopolist that does not price discriminate?
a. P > MR because some revenue is lost from having to lower the price on all units sold
b. P < MR because the monopolist must lower price to sell more output
c. P = MR only at the profit-maximizing level of output
d. P = MR because there are no close substitutes for the good
e. P = MR because the firm faces a perfectly elastic demand curve
____ 10. (2 points) In the long run,
a. monopolies will not incur economic losses
b. the demand curve facing the firm is horizontal under monopoly
c. economic profit and loss determines entry and exit into monopoly markets
d. competition always destroys monopoly

e. government always regulates monopoly

____ 11.

(2 points) Figure

9-24 depicts a single-price monopoly. How much less output will it produce compared to a
perfectly competitive industry facing the same cost conditions?
a. Q'
b. Q
c. Q - Q'
d. the output would be the same
e. Q' + Q
____ 12. (2 points) Money that cigarette manufacturers spend on lobbying efforts in Washington, D.C., is an example of
a. economies of scale
b. rent seeking
c. advertising
d. government regulations
e. public relations

Exercise 5.4
Answer Section
MULTIPLE CHOICE
1. ANS:
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2. ANS:
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3. ANS:
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4. ANS:
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5. ANS:
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6. ANS:
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7. ANS:
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8. ANS:
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9. ANS:
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10. ANS:
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11. ANS:
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12. ANS:
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D
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
E
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
E
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
C
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
A
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
D
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
C
PTS: 2
DIF: 1
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
B
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
A
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Monopoly Price or Output Decision
A
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Short-Run Equilibrium
C
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Long-Run Equilibrium
B
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Why Monopolies Often Earn Zero Economic Profit

LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly
LOC: Monopoly