Question

1) For a monopoly, marginal revenue is less than price because
A) the demand for the firm's output is downward sloping.
B) the firm has no supply curve.
C) the firm can sell all of its output at any price.
D) the demand for the firm's output is perfectly elastic.

2) The monopoly maximizes profit by setting
A) price equal to marginal cost.
B) price equal to marginal revenue.
C) marginal revenue equal to marginal cost.
D) marginal revenue equal to zero.

3) The ability of a monopoly to charge a price that exceeds marginal cost depends on A) the price elasticity of supply.
B) price elasticity of demand.
C) slope of the demand curve.
D) shape of the marginal cost curve.

Answer 1

Answer 1)

The correct option is A) the demand for the firm's output is downward sloping.

The demand curve is downward sloping due to the law of diminishing returns; as more workers are hired, the marginal product of labor begins declining, causing the marginal revenue product of labor to fall as well.

Answer 2)

The correct option is C) marginal revenue equal to marginal cost.

When marginal revenue equals marginal cost, it means that the additional revenue generated from selling 1 more unit (of whatever it is you're selling) exactly offsets the additional cost of producing that 1 unit.

Answer 3)

The correct option is B) price elasticity of demand.

Price elasticity of demand (PED) is an economic measurement of how quantity demanded of a good will be affected by changes in its price. In other words, it's a way to figure out the responsiveness of consumers to fluctuations in price.

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