Deck 8: Monopoly and Monopolistic Competition

Question 1

If price P,unit costs C,and quantity Q are known,the markup of markup-cost pricing is:

A) (PQ - CQ)/Q.
B) P - C/Q.
C) (P - C)/Q.
D) (P - C)/C.
E) 1 - (P - C)/Q.

Answer 1

D

Question 2

When producing 10 units,Jean has total variable costs of $100,total fixed costs of $100,and assets of $100.She wants a return of 10%.What price should she charge?

A) $11.
B) $21.
C) $30.
D) $210.
E) $300.

Answer 2

B

Question 3

Joe's T-shirts has costs given by TC = $100 + 3Q,where Q is the number of shirts.If Joe charges $5 each,the percentage markup for 100 shirts is:

A) 20%.
B) 25%.
C) 33%.
D) 50%.
E) 67%.

Answer 3

B

Question 4

The Frank Failing Company has an average variable cost of $8,average fixed cost of $16,marginal cost of $12,and elasticity of demand -3.Frank should:

A) shut down.
B) charge $8.
C) charge $16.
D) charge $18.
E) charge $36.

Question 5

Craig's Red Sea Restaurant is the only restaurant in Columbia,South Carolina,that sells Ethiopian food.The demand for Ethiopian food is given by Q = 25 - P.Craig's costs are given by TC = 25 + Q + 5Q².Its maximum monopoly profit is:

A) -$1.
B) $21.
C) $22.
D) $24.
E) $26.

Question 6

If a monopolist faces a constant-elasticity demand curve given by Q = 202,500P ^-3 and has total costs given by TC = 10Q,its profit-maximizing level of output is:

A) 50.
B) 60.
C) 75.
D) 100.
E) 120.

Question 7

For the Minnie Mice Company,the elasticity of demand is -6,and the profit-maximizing price is 30.If MC is marginal cost and AVC is average variable cost,then:

A) MC = 25.
B) AVC = 25.
C) MC = 30.
D) AVC = 36.
E) MC = 36.

Question 8

Bathworks has exclusive rights to sell its perfumes.The demand for its perfumes faced by Bathworks is given by Q = 250 - 0.5P.Bathworks's costs are given by TC = 50Q + 5.5Q².Its maximum monopoly profit is:

A) $6,750.
B) $7,050.
C) $7,500.
D) $7,750.
E) $8,750.

Question 9

In the model of monopoly,there:

A) are many firms producing differentiated products.
B) are a few firms producing undifferentiated products.
C) are a few firms producing differentiated products.
D) are many firms producing undifferentiated products.
E) is one firm producing a highly differentiated product.

Question 10

My Big Banana (MBB)has a monopoly in Middletown on large banana splits.The demand for this delicacy is given by Q = 80 - P.MBB's costs are given by TC = 40 + 2Q + 2Q².Its maximum monopoly profit is:

A) $267.
B) $467.
C) $627.
D) $672.
E) $674.

Question 11

If Harry Doubleday's price elasticity of demand is -2,and its profit-maximizing price is $6,then its:

A) average cost is $3.00.
B) average cost is $0.33.
C) marginal cost is $3.00.
D) marginal cost is $0.33.
E) average cost is $5.67.

Question 12

A firm with no costs producing Q units and charging price P gets a return of r on total assets of A if P equals:

A) rA.
B) (1 + r)A.
C) (1 + r)A/Q.
D) rA/Q.
E) rAQ.

Question 13

At the profit-maximizing level of output for the monopolist:

A) total revenue is equal to total cost.
B) total costs are minimized.
C) total revenue is maximized.
D) marginal revenue is equal to marginal cost.
E) average revenue is equal to average cost.

Question 14

For the Mickey Mice Company,the price elasticity of demand is -3,average cost is $15,and marginal cost is $30.Mickey's profit-maximizing price is:

A) $10.00.
B) $20.00.
C) $22.50.
D) $30.00.
E) $45.00.

Question 15

Harriet Quarterly wants a 25% return on the $100 of assets she has in her company.Her average variable costs are $50 per unit,and she has no fixed costs.If she sells 10 units,what price should she charge?

A) $52.50.
B) $62.50.
C) $75.00.
D) $87.50.
E) $125.00.

Question 16

In the model of monopoly,firms produce a:

A) standardized product with considerable control over price.
B) differentiated product with considerable control over price.
C) standardized product with no control over price.
D) differentiated product with no control over price.
E) standardized or differentiated product with some control over price.

Question 17

So long as price exceeds average variable cost,in the model of monopoly,the firm maximizes profits by producing where:

A) the difference between marginal revenue and marginal cost is maximized.
B) marginal revenue equals price.
C) the difference between price and marginal cost is maximized.
D) price equals marginal cost.
E) marginal cost equals marginal revenue.

Question 18

If a monopolist faces a constant-elasticity demand curve given by Q = 400P ^-2 and has total costs given by TC = 0.625Q²,its profit-maximizing level of output is:

A) 0.
B) 2.
C) 4.
D) 6.
E) 8.

Question 19

If C is total cost,Q is quantity,P is price,and A is total assets,the target return r is defined by:

A) (PQ - C)/A.
B) [1 - (P - C)/Q]A.
C) [1 - (P - C)Q]A.
D) (P - C)Q/A.
E) 1 - (P - C)Q/A.

Question 20

Cal's Cab Company (CCC)has a taxi monopoly in Wen Kroy.The demand for taxi services in Wen Kroy is given by Q = 1,500 - P.CCC's costs are given by TC = 100 - Q² + 5Q³.Its maximum monopoly profit is:

A) $0.
B) $5,500.
C) $6,600.
D) $7,700.
E) $9,900.

Question 21

For a producer of joint products X and Y with total revenue and R_Y,an isorevenue curve:

A) isolates R_X and R_Y separately.
B) shows points where R_X = R_Y .
C) shows points where revenue curves are tangent.
D) shows points where R_X /R_Y is constant.
E) shows points where R_X + R_Y is constant.

Question 22

A producer of two fixed proportion outputs A and B,producing Q_A = Q_B with marginal revenues MR_A and MR_B,should equate marginal cost to:

A) the maximum (MR_A, MR_B).
B) the minimum (MR_A, MR_B).
C) MR_A, which should equal MR_B.
D) the horizontal sum of MR_A and MR_B.
E) the vertical sum of MR_A and MR_B.

Question 23

For a producer of joint products X and Y with total costs C_X and C_Y,an isocost curve:

A) isolates C_X and C_Y separately.
B) shows points where C_X = C_Y .
C) shows points where cost curves are tangent.
D) shows points where C_X /C_Y is constant.
E) shows points where C_X + C_Y is constant.

Question 24

A monopsonist faces a market labor supply curve w = 40 + 2L,where w is the wage rate and L is the number of workers employed.If the firm's labor demand curve is w = 200 - L,what is the optimal wage rate and quantity of labor employed?

A) w = 146.7 and L = 53.3.
B) w = 168 and L = 32.
C) w = 104 and L = 32.
D) w = 40 and L = 160.
E) w = 32 and L = 168.

Question 25

If the profit-maximizing markup price is marginal cost times 2,the elasticity of demand must be:

A) -0.
B) -1/2.
C) -1.
D) -4/3.
E) -2.

Question 26

A monopsonist faces a market labor supply curve w = 20 + L,where w is the wage rate and L is the number of workers employed.If the firm's labor demand curve is w = 200 - 4L,what is the optimal wage rate and quantity of labor employed?

A) w = 50 and L = 30.
B) w = 56 and L = 36.
C) w = 80 and L = 30.
D) w = 104 and L = 32.
E) None of the above.

Question 27

To maximize profit,the firm must:

A) mark up average variable costs.
B) mark up marginal costs.
C) mark up average fixed costs.
D) set the markup equal to -1/( $\eta$ + 1).
E) b and d

Question 28

If revenues from selling quantities x and y of jointly produced goods X and Y were TR_X = 300 - xy + 50x and TR_Y = 1,000 - xy + 2y,and 10 units of y were produced,then marginal revenue with respect to X would be:

A) $10.
B) $20.
C) $30.
D) $40.
E) $50.

Question 29

A producer of fixed proportion goods X and Y (Q = Q_X = Q_Y)has marginal costs and revenues of MC = 12Q,MR_X = 54 - 6Q_X,MR_Y = 126 - 12Q_Y .The producer should produce how many units?

A) 3.
B) 5.25.
C) 6.
D) 8.25.
E) 10.

Question 30

If the demand curve is horizontal,the price elasticity used to calculate the profit-maximizing price is:

A) -10.
B) -5.
C) -0.
D) -1.
E) infinity.

Question 31

If John produces joint products A and B and refuses to sell all the A he produces,then:

A) A is a high-demand good.
B) A is a low-demand good.
C) A is a high-cost good.
D) A is a low-cost good.
E) John is definitely not profit maximizing.

Question 32

When a producer of joint goods refuses to sell all of one good,the producer:

A) is not rational.
B) must destroy some of the high-demand good.
C) must destroy some of the low-demand good.
D) must give away some of the high-demand good.
E) must give away some of the low-demand good.

Question 33

Jack O.Trades produces joint products A and B with linear demands D_A > D_B.Given MR_B is marginal revenue for B and MC_B is marginal cost of B,Jack's total marginal revenue curve changes slope at the quantity where:

A) MR_B = MC_B.
B) D_B = MC_B.
C) MR_B = D_B.
D) MR_B = 0.
E) D_B = 0.

Question 34

If elasticity of demand is -2,marginal cost is $4,and average cost is $6,a profit-maximizing markup price is:

A) $4.
B) $6.
C) $8.
D) $10.
E) $12.

Question 35

In the model of monopolistic competition,there can be short-run:

A) losses or profits, but there must be profits in long-run equilibrium.
B) profits, but there must be losses in long-run equilibrium.
C) losses or profits, but there must be losses in long-run equilibrium.
D) losses or profits, but there must be neither profits nor losses in long-run equilibrium.
E) losses, but there must be profits in long-run equilibrium.

Question 36

In the model of monopolistic competition,firms produce a:

A) standardized product with considerable control over price.
B) differentiated product with considerable control over price.
C) standardized product with no control over price.
D) differentiated product with no control over price.
E) differentiated product with some control over price.

Question 37

A producer refuses to sell some of one joint product.MR_A is the marginal revenue for a low-demand good.If the producer were to sell all its production,what would be true of MR_A?

A) MR_A = demand for A.
B) MR_A = 0.
C) MR_A = marginal cost of A.
D) MR_A < 0.
E) MR_A = 1.

Question 38

Fred Stickwick produces fixed proportion goods A and B,with Q_A = Q_B,marginal costs MC,and marginal revenues MR_A and MR_B.If demand for A is greater than demand for B,Fred should only:

A) produce B to the quantity where MR_B = 0.
B) sell B to the quantity where MR_B = 0 if MR_A is still > MC.
C) produce B to the quantity where MR_B = MC.
D) sell B to the quantity where MR_B = MC.
E) produce B to the quantity where MR_B = MR_A.

Question 39

If ç is the elasticity of demand,a profit maximizer sets a markup price of:

A) MC[1/(1 + 1/ $\eta$ )].
B) MC[1/(1 - 1/ $\eta$ )].
C) AC[1/(1 - $\eta$ )].
D) AC[1/(1 - 1/ $\eta$ )].
E) 1/(1 - $\eta$ ).

Question 40

If revenues from selling quantities x and y of jointly produced goods X and Y were TR_X = 100 - xy + 2x and TR_Y = 500 - xy + 3y,then marginal revenue with respect to X would be:

A) -2 - y.
B) -y.
C) -x(2y + 5).
D) -(2y + 5).
E) 2(1 - y).

Question 41

So long as price exceeds average variable cost,in the model of monopolistic competition,a firm maximizes profits by producing where:

A) the difference between marginal revenue and marginal cost is maximized.
B) marginal cost equals marginal revenue.
C) marginal revenue equals price.
D) the difference between price and marginal cost is maximized.
E) price equals marginal cost.

Question 42

If a firm in a monopolistically competitive industry is profit maximizing,it should choose its level of advertising such that the marginal revenue of an additional dollar of advertising:

A) is equal to the elasticity of its demand curve minus 1.
B) is exactly $1.
C) increases revenues by $1.
D) is equal to 1 plus the elasticity of its demand curve.
E) is equal to the elasticity of its demand curve.

Question 43

Firms that produce similar,slightly differentiated products are called a(n):

A) oligarchy.
B) oligopoly.
C) cabal.
D) cartel.
E) product group.

Question 44

Firms advertise in order to:

A) build brand loyalty.
B) appeal to the price-sensitive consumers.
C) increase the demand elasticities of their loyal customers.
D) shift the market supply curve to the left.
E) shift the market demand curve to the left.

Question 45

The ABC Company estimates that a newspaper advertising campaign would cost $25,000 and would generate $35,000 in new revenues.The firm should begin this campaign as long as:

A) price elasticity of demand is at least 2.5 (in absolute value).
B) price elasticity of supply is 1.
C) price elasticity of demand is at least 1.4 (in absolute value).
D) marginal cost of production is no more than $25,000.
E) price elasticity of supply is 1.4.

Question 46

A supplier of fur coats estimates that the price elasticity of demand for its coats is -3.75.The firm has determined that an additional $100,000 in advertising would generate $275,000 in additional revenues.You would advise the firm to:

A) advertise, because the marginal revenues are greater than the cost of advertising.
B) spend only $50,000 on advertising, because the marginal revenue from an additional dollar of advertising is less than $3.75.
C) abandon the advertising plan, because the demand elasticity is greater than 1 (in absolute value).
D) abandon the advertising plan, because the marginal revenue from an additional dollar of advertising is less than $3.75.
E) advertise, because the fur coats are a luxury item.

Question 47

Firms offer promotions in order to:

A) build brand loyalty.
B) appeal to the price-sensitive consumers.
C) increase the demand elasticities of their loyal customers.
D) shift the market supply curve to the left.
E) shift the market demand curve to the left.