Question

1. An activity’s marginal benefit is ________ at the optimal quantity.
   a.   zero
   b.   less than zero
   c.   greater than the marginal cost
   d.   greater than zero
   e.   equal to the marginal cost

2. Over the long run, a monopolist
a. can continue to make economic profits if it can maintain a monopoly and keep competitors from entering the market.
b. cannot continue to make profits and will earn a loss.
c. will not make a profit or a loss but will operate at zero economic profit.
d. will always face government regulation.

3. To maximize profits, firms expand output until
a. MR = MC
b. MR > MC
c. MR < MC
d. Either where MR > MC or MR < MC

Answer 1

1.

In case of an activity’s the marginal benefit is equal to the marginal cost at the optimal quantity.

This is because at this condition there is no incentive to deviate from this condition.

Hence option e is the correct answer.

2.

A monopoly firm is a single seller because there is barriers to entry. In a pure monopoly industry there is a single firm. The barriers to entry are those factors which lead to restriction of entry by the new firms. These are patent laws which restrict entry of new firms. License and copyrights are also example of barriers to entry.

A monopolist firm is a maker and profit-maximizing condition is

MR=MC

Corresponding to this condition quantity is determined and corresponding to this condition on the demand curve price will be determined.

The long-run condition of the monopoly will be same as it was short-run condition.

Hence it can be said that over the long run, a monopolist can continue to make economic profits if it can maintain a monopoly and keep competitors from entering the market.

Hence option a is the correct answer.

3.

A monopolist firm is a maker and profit-maximizing condition is

MR=MC

Hence it can be said that to maximize profits, firms expand output until MR=MC.

Hence option a is the correct answer.