Question

1.) As each extra unit is sold, what happens to a monopolist’s marginal revenue? ...... (A) A monopolist's marginal revenue decreases. (B) A monopolist's marginal revenue increases. (C) A monopolist's marginal revenue increases then increases again as even more units are sold. (D) A monopolist's marginal revenue remains static.

2.) When government price regulations paves a way for competitors to band together to reduce output, keep away competition and keep prices high it is known as ________....... (A) regulatory capture. (B) deregulatory limits. (C) deregulation policy.

3.) An example of a natural monopoly is a(n) ________ because the infrastructure has already been built so the marginal cost is relatively low....... (A) cereal producer (B) tire distributor (C) electric company

4.) Monopolists will earn the most profit by producing....... (A) where total revenue is farthest above total cost. (B) where total cost in the lowest. (C) where total revenue is highest.

5.) If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?........(A) The newly created firm is able to take advantage of additional trade barriers. (B) The newly created firm will benefit consumers by operating in the same manner as before. (C) Consumers can purchase better-quality goods or services at a lower price.

Answer 1

Answer 1.

Option (A) is correct because marginal revenue is the revenue which a monopoly get for selling each additional unit of good and there exists a price effect in case of monopoly i.e. a reduction in price is required to sell an additional unit of good. Each additional unit sold will generate lower total revenue as well as lower marginal revenue than the previous unit sold. Therefore, when each extra unit is sold , monopolist's marginal revenue decreases.

Option (B) is incorrect as for a monopolist marginal revenue is lesser than the price charged by monopolist and price decreases for each additional unit sold so, marginal revenue will not increase as each extra unit is sold but it will decrease.

Option (C) is incorrect as each extra unit is sold at a lesser price than the previous unit. Price decreases for each additional unit sold so marginal revenue for each extra unit sold will not increase.

Option (D) is incorrect as marginal revenue is static for perfectly competitive market and not for a monopolist.