Question

In: Economics

69. A monopolist faces ________. a. the market demand curve b. several close substitutes for its...

69. A monopolist faces ________.

a. the market demand curve

b. several close substitutes for its product or service

c. a horizontal demand curve at the market price

d. a vertical demand curve

Scenario: Mr. Olivander has a monopoly on supplying magic wands. The table below shows the demand schedule for magic wands per day.

Price Quantity Demanded
$100 0
$90 1
$65 2
$55 3
$35 5
$20 9
$15 12



70. Refer to the scenario above. What is Mr. Olivander's marginal revenue when he sells the third wand?

a. $35

b. $30

c. $130

d. $55

71. Marginal revenue is less than the price for a monopolist because ________.

a. None of these

b. there are no close substitutes for the firm's product

c. a monopolist must lower its price to sell another unit of output

d. the firm sets the price

72. A profit-maximizing monopolist produces the quantity at which ________.

a. Price = Average total cost

b. Marginal revenue = Marginal cost

c. Price = Marginal revenue

d. Price = Marginal cost

Solutions

Expert Solution

69. Answer

a. the market demand curve

The monopolist is himself is the industry. A monopolist’s demand curve is similar to industry demand curve.

70. Answer

Marginal Revenue at the 3rd unit will be = a) $35

MR = ∆TR ÷ ∆Output

TR at 3 unit = $55*3 = $165

TR at 2 unit = $65*2 = $130

MR = ($165 - $130) / (3 – 2) = $35

71. Answer

c. a monopolist must lower its price to sell another unit of output

A monopolist demand curve or AR curve is downward sloping indicating that the monopolist has to decrease the price to sell more. When the price or AR falls the MR falls more rapidly than the AR. Hence, the MR always a downward sloping curve and it lies below the AR curve.

72. Answer

b. Marginal revenue = Marginal cost

This is the first order condition of any form of market to get the profit maximizing output and price. The MR should be equal to the MC.


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