Prob Set 7

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that: A) demand is elastic at this price B) demand is inelastic at this price C) the firm is maximizing profits D) total revenue is at a maximum

A) demand is elastic at this price

Suppose that a monopolist is producing a level of output (Q) such that AVC = $8, AFC = $2, P = $12, MC = $10, and MR = $8. Based on this information, the firm is realizing: A) a profit which could be increased by producing more output B) a profit which could be increased by producing less output C) a loss which could be reduced by producing more output D) a loss which could be reduced by producing less output

B) a profit which could be increased by producing less output

If a monopolist successfully engages in perfect (first-degree) price discrimination, then: A) profits to increase and output to fall B) both profits and output to increase C) the demand curve will lie below the marginal revenue curve D) both profits and output to decrease

B) both profits and output to increase

Suppose that at 500 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. Given this information we: A) can say that the firm should close down in the short run B) can say that the firm is maximizing profit in the short run C) cannot determine whether the firm should produce or shut down in the short run D) can assume the firm is not using the most efficient technology

B) can say that the firm is maximizing profit in the short run

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output): A) if it discovered that it was producing where MC = MR B) if it discovered that it was producing where MC < MR C) under none of the above circumstances because a monopolist would never lower price D) if it discovered that it was producing where its MC curve intersects its demand curve

B) if it discovered that it was producing where MC < MR

What do economies of scale, the ownership of essential raw materials, and patents have in common? A) they all help explain why a monopolist's demand and marginal revenue curves are identical B) they are all barriers to entry C) they must all be present before a monopolist may practice price discrimination D) they all help explain why a firm's short run average total cost curve is U-shaped

B) they are all barriers to entry

For a pure monopolist the relationship between total revenue and marginal revenue is such that: A) marginal revenue is positive when total revenue is at a maximum B) total revenue is positive whenmarginal revenue isincreasing but turns negative whenmarginal revenue begins to decrease C) marginal revenue is positive when total revenue is increasing but turns negative when total revenue begins to decrease D) marginal revenue is positive as long as total revenue is positive

C) marginal revenue is positive when total revenue is increasing but turns negative when total revenue begins to decrease

For a monopolist, marginal revenue is less than price because: A) the monopolist's demand curve is perfectly inelastic B) the monopolist's demand curve is perfectly elastic C) when a monopolist lowers price to sell more output, the lower price applies to all units sold D) the monopolist's total revenue curve is linear and upward sloping

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

If the monopolist is operating on the inelastic segment of its demand curve, it can: A) raise total revenue by raising price B) reduce total costs by raising price C) raise profits by raising price D) A, B, and C

D) A, B, and C

Similar to a firm operating in a purely competitive industry, a monopolist that chooses to produce in the short-run: A) will produce that level of output where marginal cost exceeds marginal revenue by the greatest amount B) will produce that level of output where marginal revenue exceeds marginal cost by the greatest amount C) is always able to earn profits D) may incur losses

D) may incur losses