Question

1. All of the following are examples of barriers to entry, except:

A: Legal restrictions

B: Many small firms

C: Patents

D: Licenses

2. When demand is inelastic, what can we infer about marginal revenue?

A: Marginal revenue is positive

B: Marginal revenue is constant.

C: Marginal revenue is zero.

D: Marginal revenue is negative.

3. A monopolist will stop producing when:

A: Marginal revenue equals marginal cost.

B: Total revenue exceeds total cost.

C: Marginal revenue is greater than marginal cost.

D: Marginal revenue is less than marginal cost.

4. All of the following are true statements comparing perfectly competitive markets and monopoly markets, except:

A: Monopoly markets produce less output than PC markets.

B: For PC markets MR = MC, and for Monopoly markets MR > MC.

C: For monopoly markets, P > MR, and for PC markets P = MC.

D: Monopoly markets charge a higher price than PC markets.

5. All of the following are conditions that must be met before a firm can exercise price discrimination, except:

A: Demand curve must be downward sloping.

B: At least two distinct groups of consumers with differing elasticities.

C: The firm must be very large in size.

D: The firm must be able to prevent re-sale of the product.

Answer 1

Q1 Answer is B. Many small firms.

All others will restrict the firm to enter the industry but small firms does not prevent the new firm.

Q2 Answer is C. marginal revenue is zero.

Inelastic demand means when prices changes there is no change in quantity.

Marginal revenue is the change in total revenue when one extra unit is sold. But quantity sold does not change in case of inelastic demand so marginal revenue is zero because total revenue does not change.

Q3 Answer is A.

Profit maximising output for monopolist is when MR=MC. So Monopolist will not produce more output. He will produce until MR becomes equal to MC.

Q4 Answer is B.

For any firm in any type of the market profit maximization occurs where MR=MC. So monopoly also have MR=MC.

Q5 Answer is C. Firm need not be large in order to price discriminate..

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All other conditions are necessary to practice price discrimination