MGEA01H3 Lecture : 10 Monopoly.doc

1. Which of the following is true under a monopoly?

• A. Monopolist chooses the highest possible price.
• B. Monopolist chooses a price that is always higher than marginal cost of production.
• C. Marginal revenue of a monopolist is price.
• D. None of the above are true for monopoly.

2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:

• A. 4
• B. 5
• C. 6
• D. 7

3. Which of the following is true?

• A. A monopolist produces on the inelastic portion of its demand.
• B. A monopolist always earns an economic profit.
• C. The more inelastic the demand, the closer marginal revenue is to price.
• D. In the short run a monopoly will shutdown if P < AVC.

4. In a competitive industry with identical firms, long rum equilibrium is characterized by:

• A. P = AC
• B. P = MC
• C. MR = MC
• D. All of the above

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q². Your firm's maximum profits are:

• A. 125
• B. 250
• C. 100
• D. 85

6. A perfectly competitive firm faces:

• A. A perfectly elastic demand function
• B. A perfectly inelastic demand function
• C. a demand function with unitary elasticity
• D. none of the above

Your monopoly company exhibits the following costs:

TC=60+6Q+Q² & MC=6+2Q

And the following market demand and marginal revenue functions:

Qd=598-P; MR=598-2Q

a)Find the profit maximizing level of output for the monopoly

b) At what price does the monopolist sell its good?

c)What are the monopolist profits

d)Is there any dead weight loss in the market? 

A. A competitive firm

1. can consider only its location in setting the price.
2. must base its competitive price on product differentiation.
3. has the ability to set its own price.
4. must accept the price determined by the intersection of the market supply and demand curves.
5. has no supply curve.

B. If a firm is making an economic profit, then

1. the factors of production are being paid their opportunity costs.
2. there will be no change in the number of firms if the industry is perfectly competitive.
3. the factors of production are being paid less than their opportunity costs.
4. the factors of production are being paid more than their opportunity costs.
5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

1. marginal revenue is greater than price.
2. the elasticity of demand is constant.
3. marginal revenue decreases when the price decreases.
4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

1. shut down because economic profits are negative.
2. continue to produce as long as P > AVC.
3. continue to produce because accounting profits are positive.
4. set a higher price for its output.
5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

1. the marginal revenue curve.
2. perfectly inelastic.
3. always equal to marginal cost.
4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

1. monopolistic
2. oligopolistic
3. monopolistically competitive
4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

1. total revenue will fall if the price increases.
2. total revenue will be unchanged if the price increases.
3. total revenue will rise if the price increases.
4. the total supply will increase by an equal amount if demand increases.
5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

1. monopoly.
2. perfect competition.
3. theories of consumer behavior.
4. imperfect competition.
5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

1. perfect competition
2. monopolistic competition
3. oligopoly
4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

1. economic profits are zero.
2. TR > TC.
3. TR < TC.
4. P = AVC.
5. normal profits are zero.