Example Questions: Monopoly

1. Example Questions: Monopoly 1. For the monopolist shown below, the profit maximizing level of output is: • Q1. • Q2. • Q3. • Q4. • Q5.

2. 2. When the demand curve is downward sloping, marginal revenue is • equal to price. • equal to average revenue. • less than price. • more than price. • 3. How much profit will the monopolist whose cost and demand curves are shown below earn at output Q1? • 0CDQ1. • 0BEQ1. • 0AFQ1. • ACDF. • BCDE.

3. 4. Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ______________ price and sell a ______________ quantity. • higher; larger • lower; larger • higher; smaller • lower; smaller • none of these 5. The monopolist has no supply curve because • the quantity supplied at any particular price depends on the monopolist's demand curve. • the monopolist's marginal cost curve changes considerably over time. • the relationship between price and quantity depends on both marginal cost and average cost. • there is a single seller in the market. • although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.

4. 6. Which of the following is NOT true for monopoly? • The profit maximizing output is the one at which marginal revenue and marginal cost are equal. • Average revenue equals price. • The profit maximizing output is the one at which the difference between total revenue and total cost is largest. • The monopolist's demand curve is the same as the market demand curve. • At the profit maximizing output, price equals marginal cost. 7. The Lerner index measures • a firm's potential monopoly power. • the amount of monopoly power a firm chooses to exercises when maximizing profits. • a firm's potential profitability. • an industry's potential market power.

5. 8. If the monopolist is not regulated, the price will be set at _____. • P1 B. P2 C. P3 D. P4 E. none of the above 9. Suppose that the government decides to limit monopoly power with price regulation. If the government sets the price at the competitive level, it will set the price at _____. A. P1 B.P2 C. P3 D. P4 E. none of the above

6. 10. In moving from the competitive level of output and price to the monopoly level of output and price, the deadweight loss is the area: • QmEHQc. • GEH. • GFH. • FEH. • none of the above.

7. Example Questions: Price Discrimination 1. Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm: • is trying to reduce its costs and therefore increase its profit. • is engaging in an illegal activity that is prohibited by the Sherman Antitrust Act. • is attempting to convert producer surplus into consumer surplus. • is attempting to convert consumer surplus into producer surplus. • both (a) and (c) are correct. 2. An electric power company uses block pricing for electricity sales. Block pricing is an example of • first-degree price discrimination. • second-degree price discrimination. • third-degree price discrimination. • Block pricing is not a type of price discrimination.

8. 3. Third-degree price discrimination involves • charging each consumer the same two part tariff. • charging lower prices the greater the quantity purchased. • the use of increasing block rate pricing. • charging different prices to different groups based upon differences in elasticity of demand. 4. Which of the following is NOT a condition for third degree price discrimination? • Monopoly power. • Different own price elasticities of demand. • Economies of scale. • Separate markets.

9. 5. McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any special meal. This practice is an example of: • collusion. • price discrimination. • two-part tariff. • bundling. • tying. 6. When a monopolist engages in perfect price discrimination, • the marginal revenue curve lies below the demand curve. • the demand curve and the marginal revenue curve are identical. • marginal cost becomes zero. • the marginal revenue curve becomes horizontal.

10. Example Questions: Perfect Competition 1. Which of following is a key assumption of a perfectly competitive market? • Firms can influence market price • Commodities have few sellers • It is difficult for new sellers to enter the market. • Each seller has a very small share of the market. • None of the above. • 2. Marginal revenue, graphically, is • the slope of a line from the origin to a point on the total revenue curve. • the slope of a line from the origin to the end of the total revenue curve. • the slope of the total revenue curve at a given point. • the vertical intercept of a line tangent to the total revenue curve at a given point. • the horizontal intercept of a line tangent to the total revenue curve at a given point.

11. 3. A firm maximizes profit by operating at the level of output where • average revenue equals average cost. • average revenue equals average variable cost. • total costs are minimized. • marginal revenue equals marginal cost. • marginal revenue exceeds marginal cost by the greatest amount. 4. If current output is less than the profit-maximizing output, which must be true? • Total revenue is less than total cost. • Average revenue is less than average cost. • Average revenue is greater than average cost. • Marginal revenue is less than marginal cost. • Marginal revenue is greater than marginal cost.

12. 5. The demand curve facing a perfectly competitive firm is • the same as the market demand curve. • downward-sloping and less flat than the market demand curve. • downward-sloping and more flat than the market demand curve. • perfectly horizontal. • perfectly vertical. 6. Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as • P = MR. • P = AVC. • AR = MR. • P = MC. • P = AC.

13. 7. If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is • raise prices. • lower prices to gain revenue from extra volume. • shut down immediately, but not liquidate the business. • shut down immediately and liquidate the business. • continue operating, but plan to go out of business. 8. The supply curve for a competitive firm is • its entire MC curve. • the upward-sloping portion of its MC curve. • its MC curve above the minimum point of the AVC curve. • its MC curve above the minimum point of the ATC curve. • its MR curve.

14. 9. Consider the above diagram where a perfectly competitive firm faces a price of $40. The profit-maximizing output is • 30. • 54. • 60. • 67. • 79.

15. 10. At the profit-maximizing level of output, ATC is • $26. • $30. • $31. • $40. • $44. 11. In a supply-and-demand graph, producer surplus can be pictured as the • vertical intercept of the supply curve. • area between the demand curve and the supply curve to the left of equilibrium output. • area under the supply curve to the left of equilibrium output. • area under the demand curve to the left of equilibrium output. • area between the equilibrium price line and the supply curve to the left of equilibrium output.

16. 12. What happens in a perfectly competitive industry when economic profit is greater than zero? • Existing firms may get larger. • New firms may enter the industry. • Firms may move along their LRAC curves to new outputs. • There may be pressure on prices to fall. • All of the above may occur.

17. 13. At P=$80, the profit-maximizing output in the short run is • 22. B. 34. C. 39.D. 50. • 64. 14. At P=$80, how much is profit in the short run? A. $88. B. $306. C. $351.D. $1000. E. $1024.