13. Which of the following statements is correct? A. If the monopolist is earning a positive...

13. Which of the following statements is correct?
A. If the monopolist is earning a positive economic profit, it must be producing where price is greater than
average variable cost.
B. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit
by selling fewer units at a higher price per unit.
C. When a monopolist produces where price equals the minimum of average total cost, it earns a positive
economic profit.
D. If the monopolist is earning a positive economic profit, it must be producing where MR = MC.
E. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit
by selling more units at a lower price per unit.

14. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5
per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about
this monopolist?
A. The monopolist is currently maximizing profits, and its total profits are $375.
B. The monopolist is currently maximizing profits, and its total profits are $300.
C. The monopolist is not currently maximizing profits; it should produce more units and charge a lower price
to maximize profits.
D. The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher
price to maximize profits.

15. which of the following statements is (are) correct?
(x) Deadweight loss measures monopoly inefficiency.
(y) The deadweight loss associated with a monopoly occurs because the monopolist produces an output
level less than the socially optimal level.
(z) The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly price is
equal to both average revenue and marginal revenue.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

Solutions

Expert Solution

13) option E is correct. Price should be greater than average total cost for profit generation. marginal revenue and marginal cost should be equal to each other and if marginal revenue is greater than marginal cost profit can be increased by increasing production and reducing the level of price

14) option D is correct. marginal revenue is less than marginal cost which means production should be decreased

15) option B is correct. Loss in the efficiency is measured by deadweight loss. Also note that when monopolist produces and output level which is different from socially optimal level there is a deadweight loss.

Rahul Sunny answered 2 years ago

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