Question 1

-Based on the graph above, the profit-maximizing price for a perfectly competitive firm would be:

Accepted Answer

A) 180 
B) 210 
C) 240 
D) Between 210 and 240 
A) 180 
B) 210 
C) 240 
D) Between 210 and 240

Question 2

To compute the optimal monopoly price with a linear demand curve, the monopolist:

Accepted Answer

A) should set MC = MR, which would determine the optimal quantity and price would equal MC and MR as well. 
B) should set MC = MR, which would determine the optimal quantity and price would be found by inserting the optimal quantity into the monopolist's demand curve. 
C) should set MC = MR, which would determine the optimal quantity and price would be found by doubling the marginal cost. 
D) should set output where total revenue would be the greatest. 
A) should set MC = MR, which would determine the optimal quantity and price would equal MC and MR as well. 
B) should set MC = MR, which would determine the optimal quantity and price would be found by inserting the optimal quantity into the monopolist's demand curve. 
C) should set MC = MR, which would determine the optimal quantity and price would be found by doubling the marginal cost. 
D) should set output where total revenue would be the greatest.

Question 3

Because monopoly price is above marginal cost and a monopoly earns positive economic profit, there are no benefits to consumers in the monopoly market.

Accepted Answer

A) True 
 B)False

Question 4

A monopsonist maximizes profit when:

Accepted Answer

A) marginal revenue equals marginal cost. 
B) marginal revenue product of labor equals marginal cost. 
C) marginal revenue product is set equal to zero. 
D) its marginal revenue product of labor equals its marginal expenditure on labor. 
A) marginal revenue equals marginal cost. 
B) marginal revenue product of labor equals marginal cost. 
C) marginal revenue product is set equal to zero. 
D) its marginal revenue product of labor equals its marginal expenditure on labor.

Question 5

Suppose a monopolist has a marginal cost of $25 and charges a price of $40. The monopolist's Lerner Index is:

Accepted Answer

A) 0.60 
B) 0.625 
C) 0.375 
D) 1.60 
A) 0.60 
B) 0.625 
C) 0.375 
D) 1.60

Question 6

Which of the following best explains why there is no meaningful supply curve for a monopolist?

Accepted Answer

A) The monopolist is the only supplier. 
B) Price is exogenous to the monopolist. 
C) The monopolist is already maximizing profits; thus, it doesn't need a supply curve. 
D) Price is endogenous. That is, the monopolist determines both quantity and price. Hence, there is no longer a unique association between price and quantity supplied. 
A) The monopolist is the only supplier. 
B) Price is exogenous to the monopolist. 
C) The monopolist is already maximizing profits; thus, it doesn't need a supply curve. 
D) Price is endogenous. That is, the monopolist determines both quantity and price. Hence, there is no longer a unique association between price and quantity supplied.

Question 7

In order to calculate the Lerner Index for a particular firm, you need to know _______ and ______ for that firm.

Accepted Answer

A) marginal cost; marginal revenue 
B) marginal cost; price 
C) price; quantity 
D) price; demand 
A) marginal cost; marginal revenue 
B) marginal cost; price 
C) price; quantity 
D) price; demand

Question 8

A monopolist faces inverse demand P = a - bQ. The monopolist's marginal revenue function is:

Accepted Answer

A)  $M R = a - b Q$. 
B)  $M R = a - Q$. 
C)  $M R = a - 2 b Q$. 
D)  $M R = a / Q - b$. 
A)  $M R = a - b Q$. 
B)  $M R = a - Q$. 
C)  $M R = a - 2 b Q$. 
D)  $M R = a / Q - b$.

Question 9

The inverse elasticity pricing rule tells us the monopolist's optimal mark-up of price over marginal cost. In general,:

Accepted Answer

A) the more price elastic the monopolist's demand, the smaller the mark-up will be. 
B) the less price elastic the monopolist's demand, the smaller the mark-up will be. 
C) price equals marginal revenue for the monopolist. 
D) marginal revenue equals average revenue for the monopolist. 
A) the more price elastic the monopolist's demand, the smaller the mark-up will be. 
B) the less price elastic the monopolist's demand, the smaller the mark-up will be. 
C) price equals marginal revenue for the monopolist. 
D) marginal revenue equals average revenue for the monopolist.

Question 10

For a monopolist:

Accepted Answer

A) selling price is greater than average revenue. 
B) selling price is equal to average revenue. 
C) selling price is less than average revenue. 
D) selling price may be above or below average revenue; it depends on the price buyers are willing to pay. 
A) selling price is greater than average revenue. 
B) selling price is equal to average revenue. 
C) selling price is less than average revenue. 
D) selling price may be above or below average revenue; it depends on the price buyers are willing to pay.

Question 11

IEPR applies to any firm facing a downward-sloping demand curve for its products, not just a monopolist.

Accepted Answer

A) True 
 B)False

Question 12

A monopolist will produce where:

Accepted Answer

A) demand is elastic. 
B) demand is perfectly elastic. 
C) demand is inelastic. 
D) demand is perfectly inelastic. 
A) demand is elastic. 
B) demand is perfectly elastic. 
C) demand is inelastic. 
D) demand is perfectly inelastic.

Question 13

A monopolist faces an inverse demand curve $P = 300 - 6 Q$ and has a constant marginal cost of 20. The monopolist's profit-maximizing output is:

Accepted Answer

A)  $46.67$ 
B)  $23.33$ 
C)  20 
D)  35 
A)  $46.67$ 
B)  $23.33$ 
C)  20 
D)  35

Question 14

Suppose that the perfectly competitive soybean industry in the United States is monopolized. Under perfect competition, the equilibrium price was $2 and quantity was 100,000. The monopolist raises price to $5 and restricts quantity to 70,000. Assume that the monopolist is maximizing profits and that the monopolist faces a linear, upward-sloping marginal cost curve that begins at the origin. Also assume that this marginal cost curve is the industry supply curve under perfect competition. What is the loss in consumer surplus that the monopolist captures in the form of profit?

Accepted Answer

A) $500,000 
B) $350,000 
C) $300,000 
D) $210,000 
A) $500,000 
B) $350,000 
C) $300,000 
D) $210,000

Question 15

A monopsony market is one with:

Accepted Answer

A) one buyer and one seller. 
B) one buyer and many sellers. 
C) many buyers and one seller. 
D) many buyers and many sellers. 
A) one buyer and one seller. 
B) one buyer and many sellers. 
C) many buyers and one seller. 
D) many buyers and many sellers.

Question 16

Suppose that the perfectly competitive soybean industry in the United States is monopolized. Under perfect competition, the equilibrium price was $2 and quantity was 100,000. The monopolist raises price to $5 and restricts quantity to 70,000. Assume that the monopolist is maximizing profits and that the monopolist faces a linear, upward-sloping marginal cost curve that begins at the origin. Also assume that this marginal cost curve is the industry supply curve under perfect competition. What is the loss in consumer surplus that corresponds to dead-weight loss?

Accepted Answer

A) $210,000 
B) $200,000 
C) $90,000 
D) $45,000 
A) $210,000 
B) $200,000 
C) $90,000 
D) $45,000

Question 17

A measure of monopoly power, the percentage markup of price over marginal cost (P-MC)/P is called:

Accepted Answer

A) The Inverse Elasticity Pricing Rule 
B) Lerner Index of market power 
C) Monopoly Midpoint Rule 
D) Market Power Rule 
A) The Inverse Elasticity Pricing Rule 
B) Lerner Index of market power 
C) Monopoly Midpoint Rule 
D) Market Power Rule

Question 18

Identify the false statement.

Accepted Answer

A) A monopolist and a perfectly competitive firm both maximize profits. 
B) A monopolist and a perfectly competitive firm both produce an output level where marginal revenue equals marginal cost. 
C) A monopolist and a perfectly competitive firm both produce where price equals marginal cost. 
D) A monopolist and a perfectly competitive firm both charge a price based on the demand curve facing the firm and the costs borne by the firm. 
A) A monopolist and a perfectly competitive firm both maximize profits. 
B) A monopolist and a perfectly competitive firm both produce an output level where marginal revenue equals marginal cost. 
C) A monopolist and a perfectly competitive firm both produce where price equals marginal cost. 
D) A monopolist and a perfectly competitive firm both charge a price based on the demand curve facing the firm and the costs borne by the firm.

Question 19

A monopolist maximizes profit, whereas a perfectly competitive firm cannot.

Accepted Answer

A) True 
 B)False

Question 20

For the monopolist, marginal revenue is less than average revenue.

Accepted Answer

A) True 
 B)False

-Based on the graph above, the profit-maximizing price for a perfectly competitive firm would be:

To compute the optimal monopoly price with a linear demand curve, the monopolist:

Because monopoly price is above marginal cost and a monopoly earns positive economic profit, there are no benefits to consumers in the monopoly market.

A monopsonist maximizes profit when:

Suppose a monopolist has a marginal cost of $25 and charges a price of $40. The monopolist's Lerner Index is:

Which of the following best explains why there is no meaningful supply curve for a monopolist?

In order to calculate the Lerner Index for a particular firm, you need to know _ and for that firm.

A monopolist faces inverse demand P = a - bQ. The monopolist's marginal revenue function is:

The inverse elasticity pricing rule tells us the monopolist's optimal mark-up of price over marginal cost. In general,:

For a monopolist:

IEPR applies to any firm facing a downward-sloping demand curve for its products, not just a monopolist.

A monopolist will produce where:

A monopolist faces an inverse demand curve $P = 300 - 6 Q$ and has a constant marginal cost of 20. The monopolist's profit-maximizing output is:

A monopsony market is one with:

A measure of monopoly power, the percentage markup of price over marginal cost (P-MC)/P is called:

Identify the false statement.

A monopolist maximizes profit, whereas a perfectly competitive firm cannot.

For the monopolist, marginal revenue is less than average revenue.

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 11: Monopoly and Monopsony

-Based on the graph above, the profit-maximizing price for a perfectly competitive firm would be:

To compute the optimal monopoly price with a linear demand curve, the monopolist:

Because monopoly price is above marginal cost and a monopoly earns positive economic profit, there are no benefits to consumers in the monopoly market.

A monopsonist maximizes profit when:

Suppose a monopolist has a marginal cost of $25 and charges a price of $40. The monopolist's Lerner Index is:

Which of the following best explains why there is no meaningful supply curve for a monopolist?

In order to calculate the Lerner Index for a particular firm, you need to know _______ and ______ for that firm.

A monopolist faces inverse demand P = a - bQ. The monopolist's marginal revenue function is:

The inverse elasticity pricing rule tells us the monopolist's optimal mark-up of price over marginal cost. In general,:

For a monopolist:

IEPR applies to any firm facing a downward-sloping demand curve for its products, not just a monopolist.

A monopolist will produce where:

A monopolist faces an inverse demand curve P=300−6QP = 300 - 6 QP=300−6Q and has a constant marginal cost of 20. The monopolist's profit-maximizing output is:

A monopsony market is one with:

A measure of monopoly power, the percentage markup of price over marginal cost (P-MC)/P is called:

Identify the false statement.

A monopolist maximizes profit, whereas a perfectly competitive firm cannot.

For the monopolist, marginal revenue is less than average revenue.

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

In order to calculate the Lerner Index for a particular firm, you need to know _ and for that firm.

A monopolist faces an inverse demand curve $P = 300 - 6 Q$ and has a constant marginal cost of 20. The monopolist's profit-maximizing output is: