Question

1. A nondiscriminating monopolist earning positive short-run economic profit determines that its current marginal cost is $15 and its current marginal revenue is $20. To maximize profit, a firm should

		raise price and increase output
		raise price and decrease output
		maintain a constant price and increase output
		reduce price and increase output
		shut down

2.

A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total cost curve.

		True
		False

3.

A monopolist's demand curve

		is horizontal at the market price
		lies above its marginal revenue curve
		is the same as its marginal cost curve
		indicates that the firm must raise price to sell additional units
		lies above the marginal cost curve at all levels of output

4.

A monopolist faces an upward-sloping marginal cost curve. Its profit-maximizing quantity will be

		at the minimum point of the marginal cost curve
		less than the (total) revenue-maximizing quantity
		equal to the (total) revenue-maximizing quantity
		in the unit elastic segment of the demand curve
		in the inelastic segment of the demand curve

5.

A monopolist maximizes total revenue at the quantity where marginal revenue equals zero.

		True
		False

6.

A natural monopoly results when a firm has

		a license
		a patent
		official approval to produce a product
		decreasing average costs over the range of market demand
		exclusive use of a natural resource

7.

A monopolist has no supply curve because

		as demand changes, each output level can be consistent with more than one profit-maximizing price
		monopolists tend to restrict output
		monopolists have no marginal cost curve
		monopolists can charge any price they want
		as demand changes, the firm's profit-maximizing choice of output may change

8.

A profit-maximizing monopolist

		never produces on the inelastic portion of the demand curve because it can increase profit by increasing output
		never produces on the inelastic portion of the demand curve because marginal revenue exceeds marginal cost
		always produces on the inelastic portion of the demand curve
		never produces on the elastic portion of the demand curve because there are no substitutes for the good it produces
		never produces on the inelastic portion of the demand curve because marginal revenue is negative there

9.

A monopolist is

		one of a large number of small firms that produce a homogeneous good
		one of a small number of large firms that produce a differentiated good
		a single seller of a product with many close substitutes
		one of a small number of large firms that produce a homogeneous good
		a single seller of a product with no close substitutes

10.

A monopolist's marginal revenue curve is flatter than its demand curve.

		True
		False

11.

A monopolist's supply curve is the portion of its marginal cost curve above average variable cost.

		True
		False

12.

A perfectly discriminating monopolist converts every dollar of producer surplus into economic profit.

		True
		False

13.

A monopolist's demand curve is

		its marginal cost curve
		its marginal revenue curve
		identical to the market demand curve
		the same as the demand curve of a firm in perfect competition
		nonexistent

14.

A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's marginal revenue is

		$500
		more than $10 but less than $500
		$10
		less than $10
		zero

15.

A natural monopoly is based on economies of scale.

		True
		False

16.

A monopolist's short-run supply curve is

		its average fixed cost curve
		the part of the marginal cost curve above the average variable cost curve
		the part of the marginal cost curve below the average variable cost curve
		nonexistent
		its demand curve

17.

A monopolist maximizes profit at the quantity where its total revenue curve equals total cost.

		True
		False

18.

A monopolist price discriminates by

		charging different buyers different prices for different products
		charging different buyers different prices for the same product
		selling at a price below average total cost
		selling at a price below marginal cost
		selling at a price above marginal revenue

19.

A monopolist that engages in perfect price discrimination

		divides all buyers into two mutually exclusive groups
		refuses to sell to consumers of certain races, sexes, or creeds
		charges the same price for every unit sold
		charges a different price for every unit sold
		charges buyers who want a little of the good a low price and charges buyers who want a lot of the good a high price

20.

A monopolist has complete control over both price and quantity of output.

		True
		False

21.

The demand curve facing a monopolist

		is kinked at the market price
		is perfectly elastic
		lies above its marginal revenue curve
		lies below its marginal revenue curve
		is the same as its marginal revenue curve

22.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is a possible explanation for this failure?

		There was nothing to prevent the students from reselling the fruit juice to other consumers.
		The fruit juice manufacturer produced in a perfectly competitive market.
		The two groups of consumers probably have the same demand elasticity for fruit juice.
		The cost of producing the product is relatively high.
		Demand for fruit juice is probably inelastic.

23.

A monopolist

		can charge whatever price it wants
		charges more than almost any consumer is willing to pay
		is constrained by marginal cost in setting price
		is constrained by demand in setting price
		always earns an economic profit

24.

A price searcher is any firm that has no control over price and must accept the market price as given.

		True
		False

25.

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

		Raise price and lower output.
		Lower price and lower output.
		Raise price and raise output.
		Lower price and raise output.
		Lower output but leave price unchanged.

Answer 1

1. A non-discriminating monopolist earning positive short-run economic profit determines that its current marginal cost is $15 and its current marginal revenue is $20, here as marginal revenue is not equal to marginal cost, hence profit is not maximised. Hence, to maximise profit it should reduce price and increase the quantity because monopolist operates along an elastic portion of the demand curve. Hence the answer will be:

reduce price and increase output.

2. A monopolist maximizes profit at the quantity where the slope of the total revenue curve or the marginal revenue becomes equal to the slope of the total cost curve or the marginal cost. Hence the above statement is true.

3. A monopolist's downward sloping demand curve always lies above the marginal cost curve. Hence the answer will be:

lies above its marginal revenue curve

4. When monopolist maximises profit, it produces at a level where marginal revenue equals the marginal cost, it produces less than the total revenue maximising output. Hence the answer will be:

less than the (total) revenue maximising quantity.

5. A monopolist maximizes total revenue when the slope of the total revenue or marginal revenue becomes zero. Hence the above statement is true.

6. When the monopolist can produce along the portion of the average cost curve where as the level of output increases, the average cost falls, then natural monopoly arises. Hence the answer will be:

decreasing average costs over the range of market demand