Deck 10: Monopoly, Cartels, and Price Discrimination

Question 1

The marginal revenue curve facing a single-price monopolist

A) is the same as the average revenue curve facing the monopolist.
B) is the same as the demand curve facing the monopolist.
C) shows the change in the profit for the firm.
D) lies below the average revenue curve.
E) at first falls to a minimum and then rises as output is increased.

Answer 1

D

Question 2

One similarity between a monopolist and a perfectly competitive firm is that both

A) are large relative to their markets.
B) may have similarly shaped cost curves.
C) choose the price at which to sell their product.
D) can make economic profits in the long run.
E) need to know the shape of the market demand curve.

Answer 2

B

Question 3

TABLE 10-1
Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of demand is the price elasticity of demand equal to 1?

A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units

Answer 3

A

Question 4

TABLE 10-1
Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 5 to 6 units is

A) -4.
B) -2.
C) 0.
D) 2.
E) 4.

Question 5

A monopoly is distinguished from a firm operating under any other market structure in the following way: the monopoly

A) charges a price higher than its average revenue.
B) can choose its output level.
C) can choose its level of cost.
D) does not produce at a profit-maximizing level of output.
E) faces a demand curve which is identical to the market demand curve.

Question 6

If a single-price monopolist sets price where the price elasticity of demand exactly equals 1, its

A) total profits are at a maximum.
B) marginal revenue is always positive.
C) total revenue is rising, although marginal revenue is falling.
D) total revenue is falling.
E) total revenue is at its maximum.

Question 7

TABLE 10-1
Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 6 to 7 units is

A) -4.
B) -2.
C) 0.
D) 2.
E) 4.

Question 8

The figure below shows the demand schedule and demand curve for a product produced by a single -price monopolist.
FIGURE 10-1
Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 5 units at $8 each and then reduces the price of the product to $6. By making this change, the firm is giving up revenue of on the original number of units sold and gaining revenue of on the additional units sold. Its marginal revenue is therefore . All figures are dollars.)

A) 38; 40; 2
B) 8; 6; 2
C) 10; 12; 2
D) 14; 14; 0
E) 5; 7; -2

Question 9

For a single-price monopolist, marginal revenue falls faster than price as output rises) because

A) in order to sell additional units, the price must be lowered on all units.
B) profits are maximized when marginal cost equals marginal revenue.
C) the firm has no supply curve.
D) the cost of producing extra units of output increases as production is increased.
E) none of the above marginal revenue does not fall faster than price.

Question 10

Marginal revenue is less than price for a single-price monopolist because the

A) firmʹs output decisions do not affect the selling price.
B) firm must lower its price for all units if it wants to sell more of the product.
C) monopolist charges a price higher than the unit production cost.
D) monopolist must worry about how its price setting will lead to entry by other firms.
E) monopolist has achieved economies of scale.

Question 11

The demand curve facing a single-price monopolist slopes downward because

A) its average revenue equals its marginal revenue.
B) its demand curve is the market demand curve, which is generally downward sloping.
C) demand is perfectly inelastic.
D) it sells typically to only one consumer.
E) its supply curve is upward sloping.

Question 12

The average revenue curve for a single-price monopolist

A) is a horizontal line, equal to the price of its product.
B) lies below its demand curve.
C) coincides with its demand curve.
D) slopes upward to the right.
E) does not exist.

Question 13

The figure below shows the demand schedule and demand curve for a product produced by a single -price monopolist.
FIGURE 10-1
Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 9 units at $4 each and then reduces the price of the product to $3. By making this change, the firm is giving up revenue of on the original number of units sold and gaining revenue of on the additional units sold. Its marginal revenue is therefore . All figures are dollars)

A) 40; 27; -13
B) 30; 36; 6
C) 34; 28; -6
D) 9; 3; -6
E) 3; 9; 6

Question 14

A monopolistic firm faces a downward-sloping demand curve because

A) there are a large number of firms in the industry, all selling the same product.
B) the demand for its product is always inelastic.
C) the market price is affected by the amount sold by a monopolistic firm.
D) marginal revenue is negative throughout the feasible range of output.
E) the monopolistic firm can exploit economies of scale.

Question 15

TABLE 10-1
Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. Which of the following statements about price elasticity of demand is true?

A) demand is unit-elastic at a price of $4
B) demand is elastic at a price of $8
C) demand is elastic at a price of $5
D) demand is inelastic at a price of $8
E) demand is elastic at a price of $3

Question 16

TABLE 10-1
Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output is total revenue maximized for this firm?

A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units

Question 17

Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm sets price where the price elasticity of demand is

A) zero.
B) less than one.
C) one.
D) greater than one.
E) infinite.

Question 18

TABLE 10-1
Refer to Table 10-1. For a single-price monopolist producing and selling 9 units, the marginal revenue earned by selling the 9th unit is

A) -4.
B) -2.
C) 0.
D) 2.
E) 4.

Question 19

TABLE 10-1
Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output is marginal revenue equal to 0?

A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units

Question 20

The figure below shows the demand schedule and demand curve for a product produced by a single -price monopolist.
FIGURE 10-1
Refer to Figure 10-1. What is the level of output at which marginal revenue first becomes negative?

A) 5th unit
B) 6th unit
C) 7th unit
D) 8th unit
E) 9th unit

Question 21

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4. Suppose the firm is currently producing at point A on the demand curve, selling 100 units of output at a price of $60 per unit. If the firm moves to point B, the revenue the firm gives up on the units it was already selling is , and the revenue it gains on the additional units sold is .

A) $1000; $5000
B) $2000; $5000
C) $5000; $2000
D) $100; $200
E) $100; $500

Question 22

The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
Refer to Figure 10-3. The firmʹs marginal revenue at Q1 is

A) zero.
B) positive and rising.
C) positive but falling.
D) negative and falling.
E) not determinable from the diagram.

Question 23

If a single-price monopoly is presently producing an output at which marginal revenue is less than marginal cost, it can increase its profits by

A) reducing output and raising prices.
B) reducing output and holding prices unchanged.
C) expanding output and lowering price.
D) expanding output and raising price.
E) reducing barriers to entry.

Question 24

A monopolist faces a straight-line demand curve and is currently producing an output level of 2000 units receiving $10 000 in total revenue. At an output of 1000 units the marginal revenue for this firm would be

A) 0.
B) $2.50.
C) $5.00.
D) $10.00.
E) Impossible to tell with the given information.

Question 25

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4. What is the firmʹs marginal revenue per unit as it moves from point C to point D on the demand curve?

A) $0
B) $10
C) $50
D) $100
E) $3000

Question 26

Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm would not set a price at which demand is inelastic because

A) marginal revenue is zero in that range of output.
B) average revenue is zero in that range of output.
C) the marginal revenue would be negative in that range of output.
D) the average revenue would be negative in that range of output.
E) the marginal revenue and average revenue would be equal in that range of output.

Question 27

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2. For this single-price monopolist, the profit-maximizing level of output is

A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) not determinable from the diagram.

Question 28

A monopolist will be earning positive economic profits

A) at all times, since it controls the market.
B) when price equals marginal cost.
C) whenever marginal revenue equals marginal cost.
D) when price exceeds average total cost.
E) whenever marginal revenue is positive.

Question 29

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2. The price elasticity of demand at Q1 is

A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
E) not determinable from the diagram.

Question 30

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4. At what level of quantity does the marginal revenue curve for this firm intersect the horizontal axis?

A) 0
B) 250
C) 350
D) 500
E) 700

Question 31

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4. Suppose the firm is currently at point C on the demand curve, selling 300 units at $40 per unit. If the firm moves to point D, the revenue the firm gives up on the units it was already selling is and the revenue it gains on the additional units sold is .

A) $9000; $9000
B) $12 000; $12 000
C) $3000; 4000
D) $4000; $3000
E) $3000; $3000

Question 32

Consider a single-price monopolist that is operating in the inelastic range of its linear demand curve. This firm

A) would be operating where its AR is negative.
B) would have a marginal revenue curve that is negative.
C) would have a marginal revenue that is negative although its total revenues would be at a maximum.
D) could raise its total revenue by lowering its price.
E) would be operating at its profit-maximizing position.

Question 33

Which of the following statements about single-price monopolists is correct?

A) The profit-maximizing level of output is the same as the total revenue -maximizing level of output.
B) The average revenue curve lies above the demand curve.
C) AR is greater than MR.
D) Price elasticity of demand will be equal to one if the firm is profit-maximizing.
E) Price equals marginal cost at the profit-maximizing level of output.

Question 34

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4. What is the firmʹs marginal revenue per unit as it moves from point A to point B on the demand curve?

A) $0
B) $40
C) $50
D) $1000
E) $2000

Question 35

The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
Refer to Figure 10-3. The price elasticity of demand at Q3 is

A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
E) not determinable from the diagram.

Question 36

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2. If marginal costs were zero, the profit-maximizing output for this single-price monopolist would be

A) 0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.

Question 37

At the profit-maximizing level of output for a single-price monopolist, price

A) always exceeds average total cost.
B) equals marginal cost.
C) exceeds marginal cost.
D) equals marginal revenue.
E) is below marginal revenue.

Question 38

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2. The price elasticity of demand at Q2 is

A) zero.
B) greater than 1.
C) less than 1.
D) equal to 1.
E) not determinable from the diagram.

Question 39

For a monopolist, the profit-maximizing level of output occurs where

A) MR = MC.
B) MR = AC.
C) MC = 0.
D) MC = AR.
E) MC = price.

Question 40

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2. If marginal costs were positive and constant but less than A, the profit-maximizing output for this single-price monopolist would be

A) 0.
B) greater than zero, but less than Q1.
C) greater than zero, but less than Q2.
D) equal to Q2.
E) between Q2 and Q4.

Question 41

A single-price monopolist is currently producing an output level where P = $320, MR = $200, AVC = $327, and MC = $200. In order to maximize profits, this firm should

A) increase production and reduce prices.
B) decrease production and increase prices.
C) not change its output level, because the firm is currently at its profit maximizing level.
D) produce zero output.
E) There is insufficient information to make a recommendation.

Question 42

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, consumer surplus is represented by the area

A) P5P2b.
B) P5P4a.
C) P5P0g.
D) P5P1e.
E) P5Q30.

Question 43

Economic profit for a monopolistic firm will equal zero when

A) average total cost is minimized.
B) marginal revenue equals marginal cost.
C) marginal revenue equals price.
D) price equals marginal cost.
E) average total cost equals price.

Question 44

Suppose that a single-price monopolist calculates that at its present output, marginal revenue is $2 and marginal cost is $1. If the price of the product is $3, the monopolist could maximize its profits by

A) lowering price and raising output.
B) lowering price and leaving output unchanged.
C) raising price and leaving output unchanged.
D) doing nothing.
E) shutting down.

Question 45

If a monopolistʹs marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5, then the profit-maximizing quantity is

A) 0.
B) 5.
C) 7.5.
D) 10.
E) 15.

Question 46

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. A profit-maximizing single-price monopolist would produce the quantity

A) Q0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.

Question 47

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. This single-price monopolist would maximize total revenue by producing the quantity

A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) Q5.

Question 48

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. A profit-maximizing single-price monopolist would charge the price

A) P0.
B) P1.
C) P2.
D) P3.
E) P4.

Question 49

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. The average per unit profit earned by this profit-maximizing single-price monopolist is

A) P4 - P0.
B) P4 - P1.
C) P4 - P2.
D) P4 - P3.
E) P3 - P2.

Question 50

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. Suppose this firm experiences an increase in the demand for its product. In the short run, this profit-maximizing monopolist will

A) increase price and output.
B) increase price and produce the same output.
C) increase price and reduce output.
D) neither raise price nor change output.
E) lower price and increase output.

Question 51

If a single-price monopolistʹs price equals marginal cost, the firm

A) could increase its profits by lowering output and raising price.
B) should maintain its current price because it is a price taker.
C) will find it more profitable to produce a greater output.
D) is producing where MR = MC and thus is maximizing profits.
E) should definitely shut down.

Question 52

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, the total revenue is represented by the area

A) 0P4aQ0.
B) 0P3cQ2.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.

Question 53

A single-price monopolist is currently producing an output level where price equals marginal cost, and profits are positive. In order to maximize profits, this monopolist should

A) produce zero output.
B) increase production and reduce price.
C) decrease production and increase price.
D) not change his output level, because he is currently earning profits.
E) reduce price and let production adjust to the new price.

Question 54

If a monopolistʹs marginal revenue is MR = 12 - 2Q and its marginal cost is MC = 3, then the profit-maximizing quantity is

A) 0.
B) 4.
C) 4.5.
D) 6.
E) 12.

Question 55

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, the total profit is represented by the area

A) 0P4aQ0.
B) P4abP2.
C) P3ceP2.
D) 0P2bQ0.
E) 0P0fQ0.

Question 56

A single-price monopolist is currently producing an output level where P = $320, MR = $260, ATC = $280, and MC = $200. In order to maximize profits, this monopolist should

A) produce zero output.
B) increase production and reduce price
C) decrease production and increase price.
D) not change the output level because the firm is currently at the profit -maximizing output level.
E) There is insufficient information to make a recommendation.

Question 57

Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
Refer to Figure 10-5. If the single-price monopolist is producing at the profit-maximizing level of output, the total cost is represented by the area

A) 0P4aQ0.
B) 0P3cQ3.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.

Question 58

Monopolistic firms do not have supply curves because

A) they are not constrained by the marginal costs of production.
B) their output is a fixed quantity.
C) monopolists get to choose their price-quantity combination along the demand curve.
D) monopolists face a given market price.
E) their marginal costs cannot be calculated.

Question 59

The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
Refer to Figure 10-3. The profit-maximizing output for this single-price monopolist is

A) Q1
B) Q2.
C) Q3.
D) Q4.
E) not determinable from the diagram.

Question 60

A single-price monopolist is currently producing an output level where P = $20, MR = $13, ATC = $15, and MC
= $14. In order to maximize profits, this monopolist should

A) produce zero output.
B) increase production and reduce price.
C) decrease production and increase price.
D) not change the output level, because the firm is currently at the profit-maximizing output level.
E) There is insufficient information to make a recommendation.

Question 61

Suppose that a single-price monopolist knows the following information: The monopolist could maximize profits by

A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and leaving output unchanged.
E) producing zero output.

Question 62

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2. The marginal cost between 300 and 400 meals per day is

A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.

Question 63

Suppose that a single-price monopolist knows the following information: The monopolist could maximize its profits by

A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and lowering output.
E) producing zero output.

Question 64

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2. If the firm were to shut down in the short run its losses per day would be

A) zero.
B) $150.
C) equal to its average variable cost.
D) equal to its total revenue.
E) equal to its total cost.

Question 65

Suppose that a single-price monopolist knows the following information: The total profit being earned by this firm at the current level of output is

A) $1500.
B) $3000.
C) $6500.
D) $10 500.
E) $13 500.

Question 66

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2, and suppose that the firm is a single-price monopolist. If the firm provided 700 meals per day, total daily profits would be

A) -$60.
B) $80.
C) $150.
D) $230.
E) impossible to calculate given the information provided.

Question 67

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2, and suppose that the firm is a single-price monopolist. At the profit-maximizing level of output, the price elasticity of demand is

A) less than one.
B) one.
C) greater than one.
D) infinite.
E) impossible to know with the available information.

Question 68

Which one of the following is a natural barrier to firms entering an industry?

A) decreasing returns to scale
B) a positively sloped LRAC curve over the whole range of output
C) a negatively sloped LRAC curve over the whole range of output
D) threats of punitive price-cutting by existing producers
E) licensing and patent restrictions

Question 69

If an industryʹs demand conditions allow at most one firm to cover its costs while producing at its minimum efficient scale MES), this situation is known as

A) a discriminating monopoly.
B) a natural monopoly.
C) declining marginal revenue.
D) limited competition.
E) natural economic limits.

Question 70

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2. Assuming the firm is a single-price monopolist, the marginal revenue between 100 and 200 meals per day is

A) $1.75.
B) $2.25.
C) $2.75.
D) $3.25.
E) $0.

Question 71

Suppose that a single-price monopolist knows the following information: The monopolist could maximize profits in the short run by

A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and lowering output.
E) shutting down.

Question 72

Suppose that a single-price monopolist knows the following information:
The total profit being earned by this firm at the current level of output is which the maximum profit possible.

A) $3000; is not
B) $7500; is not
C) $15 000; is
D) $97 500; is not
E) $105 000; is

Question 73

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2, and suppose that the firm is a single-price monopolist. The level of output at which profits are zero is between

A) 0 and 100 meals.
B) 100 and 200 meals.
C) 200 and 300 meals.
D) 300 and 400 meals.
E) 300 and 500 meals.

Question 74

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2. For a single-price monopolist, the profit-maximizing price and number of meals per day is best approximated by

A) 650 meals at $1.87 per meal.
B) 550 meals at $2.12 per meal.
C) 450 meals at $2.37 per meal.
D) 350 meals at $2.62 per meal.
E) 250 meals at $2.87 per meal.

Question 75

Your food-services company has been named as the monopoly provider of meals at a small university. The cost and demand schedules are:
TABLE 10-2
Refer to Table 10-2. The marginal cost between 100 and 200 meals per day is

A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.

Question 76

Suppose the technology of an industry is such that the typical firmʹs minimum efficient scale is 8000 units per month at an average long-run cost of $5 per unit. If the total quantity demanded at a price of $5 per unit is 8500 units per month, the likely result would be

A) a cartel.
B) a concentrated oligopoly.
C) a natural monopoly.
D) price discrimination.
E) perfectly competitive firms.

Question 77

Suppose that a single-price monopolist knows the following information: The total profit being earned by this firm at the current level of output is

A) -$2000.
B) -$1000.
C) 0.
D) $1000.
E) $2000.

Question 78

A likely cause of a natural monopoly occurring in some industry is

A) scale economies.
B) patents.
C) licenses.
D) charters.
E) sabotage.

Question 79

Natural barriers to firms to entering an industry include

A) control or ownership of the entire supply of an essential raw material.
B) large economies of scale in the industry.
C) a government-awarded franchise.
D) a patent which allows production by only the patent holder.
E) increasing-cost production.

Question 80

Which of the following statements describes a major difference between monopoly and perfect competition?

A) Perfectly competitive firms cannot maintain positive economic profits in the long run, whereas monopolists can.
B) Monopolists do not consider consumer demand when choosing price and output levels.
C) Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit.
D) Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit maximization.
E) Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic profits.