Module 6

Click the IMAGE? button on the right. The marginal revenue obtained from selling the third unit of output is: a) $5. b) $3. c) $6. d) $1.

b) $3.

What do economies of scale, the ownership of essential raw materials, and patents have in common? a) They must all be present before price discrimination can be practiced. b) They all help explain why a monopolist's demand and marginal revenue curves coincide. c) They all help explain why the long-run average cost curve is U-shaped d) They are all barriers to entry.

d) They are all barriers to entry.

The MR = MC rule: a) applies only to pure monopoly. b) does not apply to pure monopoly because price exceeds marginal revenue. c) applies only to pure competition. d) applies both to pure monopoly and pure competition.

d) applies both to pure monopoly and pure competition.

Refer to the diagram. This nondiscriminating monopolist will produce: M units at price A and make a profit. N units at price B and earn zero profits. M units at price C and incur a loss. Q units at price J and earn zero profits

M units at price A and make a profit.

The nondiscriminating pure monopolist's demand curve: a) is the industry demand curve. b) tends to be inelastic at high prices and elastic at low prices. c) is identical to its marginal revenue curve. d) shows a direct or positive relationship between price and quantity demanded.

a) is the industry demand curve.

A natural monopoly occurs when: a) long-run average costs decline continuously through the range of demand. b) long-run average costs rise continuously as output is increased. c) a firm owns or controls some resource essential to production. d) economies of scale are obtained at relatively low levels of output.

a) long-run average costs decline continuously through the range of demand.

Assuming no change in product demand, a pure monopolist: a) must lower price to increase sales. b) adds an amount to total revenue which is equal to the price of incremental sales. c) should produce in the range where marginal revenue is negative. d) can increase price and increase sales simultaneously because it dominates the market.

a) must lower price to increase sales.

With respect to the pure monopolist's demand curve it can be said that: a) price exceeds marginal revenue at all outputs greater than 1. b) the stronger the barriers to entry, the more elastic is the monopolist's demand curve. c) marginal revenue equals price at all outputs. d) demand is perfectly inelastic.

a) price exceeds marginal revenue at all outputs greater than 1.

Because the monopolist's demand curve is downsloping: a) price must be lowered to sell more output. b) its supply curve will also be downsloping. c) MR will equal price. d) the elasticity coefficient will increase as price is lowered.

a) price must be lowered to sell more output.

For a pure monopolist marginal revenue is less than price because: a) when a monopolist lowers price to sell more output, the lower price applies to all units sold. b) the monopolist's total revenue curve is linear and slopes upward to the right. c) the monopolist's demand curve is perfectly elastic. d) the monopolist's demand curve is perfectly inelastic.

a) when a monopolist lowers price to sell more output, the lower price applies to all units sold.

At a monopolist's current output, ATC = $10, P = $11, MC = $8 and MR = $7. This firm is realizing: an economic profit that could be increased by producing more output. an economic profit that could be increased by producing less output. an economic loss that could be reduced by producing more output. an economic loss than could be reduced by producing less output.

an economic profit that could be increased by producing less output.

Click th IMAGE? icon on the right. (Note: same diagram for questions 7-10.) This firm will maximize its profit by producing: a) 3 units. b) 4 units. c) 5 units. d) 6 units.

b) 4 units.

Pure monopoly refers to: a) a large number of firms producing a differentiated product. b) a single firm producing a product for which there are no close substitutes. c) any market in which the demand curve to the firm is downsloping. d) a standardized product being produced by many firms.

b) a single firm producing a product for which there are no close substitutes.

Click the IMAGE? button on the right. Demand is relatively elastic: a) in the P2P1 price range. b) in the P2P4 price range. c) only at price P2. d) in the 0P1 price range.

b) in the P2P4 price range.

When a firm is on the inelastic segment of its demand curve, it can: a) increase total revenue by reducing price. b) increase profits by increasing price. c) increase total revenue by more than the increase in total cost by increasing price. d) decrease total costs by decreasing price.

b) increase profits by increasing price.

If a pure monopolist is operating in a range of output where demand is elastic: a) total revenue will be declining. b) marginal revenue will be positive but declining. c) marginal revenue will be positive and rising. d) it cannot possibly be maximizing profits.

b) marginal revenue will be positive but declining.

Click th IMAGE? icon on the right. At its profit-maximizing output, this firm's total costs will be: a) $300. b) $126. c) $198. d) $248.

c) $198.

Click th IMAGE? icon on the right. At its profit-maximizing output, this firm's total profit will be: a) zero. b) $54. c) $82. d) $27.

c) $82.

The marginal revenue curve for a monopolist: a) is a straight line, parallel to the horizontal axis. b) rises at first, reaches a maximum, and then declines. c) becomes negative when output increases beyond some particular level. d) is a straight, upsloping curve.

c) becomes negative when output increases beyond some particular level.

In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: a) average variable cost. b) average total cost. c) marginal revenue. d) average cost.

c) marginal revenue.

Large minimum efficient scale of plant combined with limited market demand may lead to: a) government franchise monopoly. b) shared monopoly. c) natural monopoly. d) patent monopoly.

c) natural monopoly.

Compared with the situation that would result from perfect competition, the monopolist: a) sells more output at a higher price b) sells less output at a lower price. c) sells less output at a higher price d) sells more output at a lower price

c) sells less output at a higher price

Which of the following best approximates a pure monopoly? a) the soft drink market b) the foreign exchange market c) the only bank in a small town d) the Kansas City wheat market

c) the only bank in a small town

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue: a) may be either greater or less than $35. b) will also be $35. c) will be less than $35. d) will be greater than $35.

c) will be less than $35.

Click th IMAGE? icon on the right. At its profit-maximizing output, this firm's total revenue will be: a) $198. b) $180. c) $300. d) $280.

d) $280.

Click the IMAGE? button on the right. (Note: same image for questions 4 & 5.) This firm is selling in: a) a purely competitive market. b) a market in which there are an extremely large number of other firms producing the same product. c) a market in which demand is elastic at all prices. d) an imperfectly competitive market.

d) an imperfectly competitive market.

A purely monopolistic firm: a) produces a product or service for which there are many close substitutes. b) earns only a normal profit in the long run. c) has no entry barriers. d) faces a downsloping demand curve.

d) faces a downsloping demand curve.

Pure monopolists may obtain economic profits in the long run because: a) marginal revenue is constant as sales increase. b) of advertising. c) of rising average fixed costs. d) of barriers to entry.

d) of barriers to entry.

A nondiscriminating pure monopolist finds that it can sell its fiftieth unit of output for $50. We can surmise that the marginal: a) revenue of the fiftieth unit is also $50. b) revenue of the fiftieth unit is greater than $50. c) cost of the fiftieth unit is also $50. d) revenue of the fiftieth unit is less than $50.

d) revenue of the fiftieth unit is less than $50.

If a monopolist were to produce in the inelastic segment of its demand curve: a) marginal revenue would be positive. b) total revenue would be at a maximum. c) it would necessarily incur a loss. d) the firm would not be maximizing profits.

d) the firm would not be maximizing profits.

For an imperfectly competitive firm: a) the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. b) total revenue is a straight, upsloping line because a firm's sales are independent of product price. c) the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold. d) the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

d) the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be: a) the price at which that unit is sold plus the price increases which apply to all other units of output. b) indeterminate unless marginal cost data are known. c) equal to its price. d) the price at which that unit is sold less the price reductions which apply to all other units of output.

d) the price at which that unit is sold less the price reductions which apply to all other units of output.

Refer to the diagram. At output q2: marginal revenue exceeds marginal cost by the greatest amount. demand is inelastic. profit is maximized. marginal revenue is zero.

marginal revenue is zero.

In long run equilibrium, both competitive firms and a monopolistic firms that maximize profits: earn zero economic profits. set price equal to marginal revenue. produce at minimum average total cost. produce the output at which marginal revenue equals marginal cost.

produce the output at which marginal revenue equals marginal cost.