Transcript Economics for Today 2nd edition Irvin B. Tucker

Chapter 8
Practice Quiz Tutorial
Monopoly
©2004 South-Western
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1. A monopolist always faces a demand curve
that is
a. perfectly inelastic.
b. perfectly elastic.
c. unit elastic.
d. the same as the market demand curve.
D. A monopoly is the only seller, so there is no
distinction between the market demand
curve and the individual demand curve.
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2. A monopoly sets the
a. price at which marginal revenue equals
zero.
b. price that maximizes total revenue.
c. highest possible price on its demand curve.
d. price at which marginal revenue equals
marginal cost.
D. Profits are always maximized if the firm
produces at the point where MR = MC.
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P
$200
$175
$150
$125
$100
$75
$50
$25
MR=MC
MC
ATC
Profit
AVC
MR
D
1 2 3 4 5 6 7 8 9
Q
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3. A monopolist sets
a. the highest possible price.
b. a price corresponding to the minimum
average total cost.
c. a price equal to marginal revenue.
d. a price determined by the point on the
demand curve corresponding to the level
of output at which marginal revenue
equals marginal cost.
e. none of the above.
D. Demand determines price in all market
forms.
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4. Which of the following is true for the
monopolist?
a. Economic profit is possible in the long-run.
b. Marginal revenue is less than the price
charged.
c. Profit-maximizing or loss-minimizing
occurs when marginal revenue equals
marginal cost.
d. All of the above.
D. All of the above are characteristics of
a monopoly.
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P$40
Exhibit 8-8
MC
$30
ATC
$20
AVC
$10
MR
100
200 300
D
Q
400
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5. As shown in Exhibit 8-8 the profitmaximizing or loss-minimizing output
for this monopolist is
a. 100 units per day.
b. 200 units per day.
c. 300 units per day.
d. 400 units per day.
B. 200 units is the point at which MR = MC.
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6. As shown in Exhibit 8-8, this monopolist
a. should shut down in the short-run.
b. should shut down in the long-run.
c. earns zero economic profit.
d. earns positive economic profit.
D. At the point where MR = MC (on the
vertical line), P is greater than ATC;
therefore, total revenue is greater than total
cost and an economic profit is being made.
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7. To maximize profit or minimize loss, the
monopolist in Exhibit 8-8 should set its price at
a. $30 per unit.
b. $25 per unit.
c. $20 per unit..
d. $10 per unit.
e. $40 per unit.
B. Maximum profit or minimized losses are
found by drawing a vertical line where
MR = MC. This line intersects the
demand curve at $25.
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8. If the monopolist in Exhibit 8-8 operates
at the profit-maximizing output, it will
earn total revenue to pay about what
portion of its total fixed cost?
a. None.
b. One-half.
c. Two-thirds.
d. All total fixed costs.
D. Since the monopolist is making a
profit, it can pay all of its fixed costs.
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9. For a monopolist to practice effective price
discrimination, one necessary condition is
a. identical demand curves among groups of
buyers.
b. differences in the price elasticity of demand
among groups of buyers.
c. a homogeneous product.
d. none of the above.
B. Price discrimination takes place when a
monopolist is faced with buyers that are
widely different; therefore, the buyers
elasticity of demand for the product will
be different.
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10. What is the act of buying a commodity at a
lower price and selling it in at a higher price?
a. Buying short.
b. Discounting.
c. Tariffing.
d. Arbitrage.
D. The practice of earning a profit by
buying a good at a low price and reselling
the good at a higher price
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11. Under both perfect competition and
monopoly, a firm
a. is a price taker.
b. is a price maker.
c. will shut down in the short urn if price falls
short of average total cost.
d. always earns a pure economic profit.
e. sets marginal cost equal to marginal
revenue.
E. The profit maximizing output for any
firm is where MR = MC.
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END
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