Deck 12: Managerial Decisions for Firms With Market Power

Question 1

The following figure shows the demand and cost curves facing a firm with market power in the short run. The firm will sell its output at a price of

A)$2.
B)$3.
C)$3.75.
D)$5.
E)$6.

Answer 1

D

Question 2

The above graph shows the demand and cost conditions facing a price-setting firm.When output is 50 units,what will happen to total revenue if the firm sells another unit of output?

A)Total revenue will increase $13.50.
B)Total revenue will increase $11.00.
C)Total revenue will increase $9.00.
D)Total revenue will increase $6.00.
E)none of the above

Answer 2

D

Question 3

Which of the following is a characteristic of a monopoly market?

A)one firm is the only supplier of a product for which there are no close substitutes
B)entry into the market is blocked
C)the firm can influence market price
D)all of the above

Answer 3

D

Question 4

The above graph shows the demand and cost conditions facing a price-setting firm. The firm will produce _____ units of output and charge a price of _____.

A)40,$8
B)50,$9
C)60,$10
D)50,$6
E)none of the above

Question 5

a monopoly market,

A)other firms have no incentive to enter the market.
B)profits will always be positive because the firm is the only supplier in the market.
C)the demand facing the firm is downward-sloping because it is the market demand.
D)a and b
E)none of the above

Question 6

Which of the following would indicate a relatively large amount of market power?

A)Highly price elasticity demand
B)Low cross-price elasticity with other products
C)Low Lerner index
D)all of the above
E)none of the above

Question 7

monopolist

A)can raise its price without losing any sales because it is the only supplier in the market.
B)can earn a greater than normal rate of return in the long run.
C)always charges a price that is higher than marginal revenue.
D)both a and b
E)both b and c

Question 8

Monopolistic competition is similar to perfect competition in that:

A)there are a large number of firms
B)firms earn economic profits in the long run
C)firms face downward-sloping demand curves
D)both a and b
E)all of the above

Question 9

The following figure shows the demand and cost curves facing a firm with market power in the short run. The firm earns profits of

A)$ 75.
B)$120.
C)$150.
D)$180.
E)$300.

Question 10

firm with market power

A)can increase price without losing all sales.
B)faces a downward-sloping demand curve.
C)is the only seller in a market.
D)both a and b
E)all of the above

Question 11

method of measuring the extent of a firm's market power is

A)the Lerner index.
B)price elasticity of demand for the firm's product.
C)income elasticity of demand for the firm's product.
D)both a and b
E)all of the above

Question 12

A monopoly is producing a level of output at which price is $80,marginal revenue is $40,average total cost is $100,marginal cost is $40,and average fixed cost is $10.In order to maximize profit,the firm should

A)produce more.
B)keep output the same.
C)produce less.
D)shut down.

Question 13

Refer to the following figure showing demand and marginal revenue for a monopoly. At any price above $______ demand is elastic.

A)$5
B)$10
C)$15
D)$20
E)zero

Question 14

Refer to the following table showing a monopolist's demand schedule: What is marginal revenue for a price decrease from $50 to $40?

A)$9,000
B)$24,000
C)$30
D)$20
E)$40

Question 15

monopolistic competitor is similar to a monopolist in that

A)both have market power.
B)both earn positive economic profit in the long run.
C)both produce the output at which long-run average cost is at a minimum.
D)a and b
E)all of the above

Question 16

Refer to the following table showing a monopolist's demand schedule: If price falls from $20 to $10,then

A)MR = -$10,and demand is inelastic.
B)MR = $10,and demand is elastic.
C)MR = $30,and demand is elastic.
D)MR = -$30,and demand is inelastic.
E)none of the above

Question 17

a monopolistically competitive market,

A)firms are small relative to the total market.
B)no firm has any market power.
C)there is easy entry and exit in the market.
D)a and b
E)a and c

Question 18

Refer to the following figure showing demand and marginal revenue for a monopoly. If production costs are constant and equal to $10 i.e.,LAC = LMC = $10),what price will the monopoly charge?

A)$5
B)$10
C)$15
D)$20
E)$25

Question 19

The following figure shows the demand and cost curves facing a firm with market power in the short run. The profit-maximizing level of output is

A)60 units.
B)70 units
C)80 units
D)90 units.
E)100 units.

Question 20

In a monopolistically competitive market,

A)a firm has market power because it produces a differentiated product.
B)a firm earns economic profits in the long run because it has market power.
C)there are a large number of firms.
D)both a and b
E)both a and c

Question 21

The figure above shows the demand and cost curves facing a price-setting firm.At what output is marginal revenue $20?

A)100 units
B)200 units
C)300 units
D)400 units
E)500 units

Question 22

Which of the following is true of a monopolist in the long run?

A)The firm will charge a price that is higher than long-run marginal cost.
B)The firm will charge a price that is equal to or greater than long-run average cost.
C)The firm will produce that level of output at which long-run average cost is minimum.
D)both a and b
E)both b and c

Question 23

A monopolist is currently hiring 5,000 units of labor.At this level,the marginal revenue of output is $10,the fixed)wage rate is $300,and the marginal product of labor is 50.In order to maximize profit,the firm should

A)keep the level of employment the same because the firm is earning a profit of $100,000.
B)hire more labor because the next unit of labor increases profit by $500.
C)hire more labor because the next unit of labor increases profit by $200.
D)hire less labor because the last unit of labor added more to total cost $300)than to total revenue $10).

Question 24

Refer to the following table which gives the demand and cost data for a price-setting firm: What is the profit-maximizing price?

A)$19
B)$18
C)$17
D)$16
E)$15

Question 25

A monopolist will maximize profit by producing the level of output at which

A)the firm's total revenue exceeds total cost by the largest amount.
B)marginal revenue equals marginal cost.
C)the last unit of output produced adds the same amount to total revenue as to total cost.
D)both a and b
E)all of the above

Question 26

The figure above shows the demand and cost curves facing a price-setting firm.The profit-maximizing or loss-minimizing)level of output is

A)100
B)200
C)300
D)400
E)450

Question 27

Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input,labor.Columns 2 and 3 represent the demand function facing the monopolist over this range of output: How much does the fifth unit of labor add to the firm's total revenue?

A)$1.875
B)$80
C)$150
D)$4,560
E)none of the above

Question 28

Refer to the following table which gives the demand and cost data for a price-setting firm: What is the maximum amount of profit that this firm can earn?

A)$104
B)$105
C)$106
D)$107
E)$108

Question 29

The figure above shows the demand and cost curves facing a price-setting firm.What is marginal revenue when output is 100 units?

A)$10
B)$20
C)$25
D)$30
E)$35

Question 30

A monopolist is producing a level of output at which price is $65,marginal revenue is $35,average total cost is $35,and marginal cost is $50.In order to maximize profit,the firm should

A)keep output the same.
B)produce less.
C)produce more.
D)decrease price.
E)both c and d

Question 31

Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input,labor.Columns 2 and 3 represent the demand function facing the monopolist over this range of output: If an increase in consumers' income increases product price by $2 at each level of output,how many units of labor will the firm employ at a wage rate of $300?

A)3
B)4
C)5
D)6
E)7

Question 32

A firm with market power is producing a level of output at which price is $8,marginal revenue is $5,average variable cost is $6,and marginal cost is $10.In order to maximize profit,the firm should

A)decrease price.
B)increase price.
C)keep price the same.
D)increase output.
E)shut down.

Question 33

A firm facing a downward sloping demand curve is producing a level of output at which price is $7,marginal revenue is $5,and average total cost,which is at its minimum value,is $3.In order to maximize profit,the firm should

A)decrease price.
B)keep price the same.
C)decrease output.
D)increase price.
E)both c and d

Question 34

A firm with market power will maximize profit by hiring the amount of an input at which the

A)last unit of the input hired adds the same amount to total revenue as to total cost.
B)additional revenue from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
C)last unit of the input hired adds the same amount to total output as to total cost.
D)additional output from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.

Question 35

A profit-maximizing firm with market power will always produce a level of output where

A)demand is elastic.
B)demand is inelastic.
C)price is greater than average total cost.
D)marginal revenue is greater than average total cost.

Question 36

The figure above shows the demand and cost curves facing a price-setting firm.In profit-maximizing or loss-minimizing)equilibrium,the price-setting firm earns $______ in total revenue,which is ___________ the maximum possible total revenue of $________.

A)$7,500; equal to; $7,500
B)$8,000; more than; $7,500
C)$7,650; less than; $8,000
D)$8,000; equal to; $8,000
E)$7,500; less than; $8,000

Question 37

Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input,labor.Columns 2 and 3 represent the demand function facing the monopolist over this range of output: If the monopolist faces a fixed wage rate of $300,how many units of labor will the firm employ?

A)3 units
B)4 units
C)5 units
D)6 units
E)7 units

Question 38

The above graph shows the demand and cost conditions facing a price-setting firm. What is the maximum amount of profit the firm can earn?

A) -$180
B)-$80
C)$60
D)$120
E)none of the above

Question 39

Suppose that a profit-maximizing monopolist has a plant of optimal size and is producing a level of output at which price is $30,average total cost is $55,and average fixed cost is $40.The firm should

A)operate in the short run.
B)shut down in the short run.
C)exit the market in the long run.
D)continue to operate in the long run.
E)both a and c

Question 40

A monopolist which suffers losses in the short run will

A)continue to operate as long as total revenue covers fixed cost.
B)raise price in order to eliminate losses.
C)exit in the long run if there is no plant size that will result in economic profit that is greater than or equal to zero.
D)both a and b
E)both a and c

Question 41

A monopolistic competitor is producing a level of output at which price is $200,marginal revenue is $100,average total cost is $210,marginal cost is $100,and average variable cost is $180.In order to maximize profit,the firm should

A)increase output.
B)keep output the same.
C)decrease output.
D)shut down.

Question 42

The graph above shows the demand and cost conditions facing a monopolist.What is the maximum profit the monopolist can earn?

A)$10
B)$30
C)$800
D)$1,800
E)$2,400

Question 43

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,suppose the weekly wage rate increases to $1,400 per worker.The firm would hire _______ workers and earn a profit of _______ per week.

A)6 ; $8,400
B)6 ; $6,000
C)6 ; -$2,400
D)6 ; $4,800
E)0 ; -$1,800

Question 44

The figure above shows the demand and cost curves facing a price-setting firm.In profit-maximizing or loss-minimizing)equilibrium,the Lerner index is _____,and the elasticity of demand is ______.

A)1 ;-1
B)0.6; -1.667
C)0.5; -2.0
D)0.667; -1.5
E)1.33; -0.75

Question 45

All of the following could be a barrier to entry EXCEPT:

A)a government franchise.
B)decreasing long-run average cost.
C)patents.
D)switching costs.
E)rising LMC.

Question 46

Refer to the following table that gives the demand facing a monopolist: If a firm earns profits of $250 by producing 40 units of output,the firm charges a price of _____ and has total costs of ______.

A)$15,$250
B)$15,$350
C)$20,$150
D)$600,$450
E)none of the above

Question 47

Refer to the following table that gives the demand facing a monopolist: Demand is __________ between 65 and 70 units of output because marginal revenue in that range is ______.

A)elastic,$50
B)elastic,$100
C)inelastic,negative
D)inelastic,positive

Question 48

Refer to the following table that gives the demand facing a monopolist: How much does the 28th unit of output add to total revenue?

A)$2
B)$10
C)$20
D)$200
E)none of the above

Question 49

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,the maximum profit the firm can earn is _____________.

A)$4,800 per week.
B)$3,000 per week.
C)$2,400 per week.
D)$1,800 per week.
E)-$1,800 per week.

Question 50

If a monopolistically competitive market is in long-run equilibrium,each firm

A)charges a price which is higher than long-run marginal cost.
B)earns economic profits.
C)produces that level of output at which long-run average cost is minimum.
D)all of the above
E)none of the above

Question 51

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,the 14^th worker hired adds $_______ to the firm's total revenue each week.

A)$200 per week
B)$400 per week
C)$500 per week
D)$700 per week
E)$900 per week

Question 52

The graph above shows the demand and cost conditions facing a monopolist.What price will the monopolist set?

A)$20
B)$30
C)$40
D)$50
E)$60

Question 53

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,in order to maximize profit,the manager should hire ________ workers per week.

A)9
B)10
C)12
D)18

Question 54

A monopolist will

A)always charge a price higher than average cost.
B)always charge a price higher than marginal cost.
C)always produce a level of output at which marginal revenue equals marginal cost.
D)both b and c
E)all of the above

Question 55

In a monopolistically competitive industry in long-run equilibrium

A)each firm is making a normal profit.
B)each firm is producing the output at which long-run average cost is at its minimum point.
C)price equals marginal cost for each firm.
D)all of the above
E)none of the above

Question 56

If a monopolist is producing a level of output at which demand is inelastic,then

A)the firm is not maximizing profit.
B)marginal revenue is positive.
C)total revenue will decrease if the firm produces more output.
D)both a and b
E)both a and c

Question 57

A monopolistic competitor is currently producing 2,000 units of output; price is $100,marginal revenue is $80,average total cost is $130,marginal cost is $60,and average variable cost is $60.The firm should

A)raise price because the firm is losing money.
B)keep the price the same because the firm is producing at minimum average variable cost.
C)raise price because the last unit of output decreased profit by $30.
D)lower price because the next unit of output increases profit by $20.

Question 58

A monopolistically competitive industry is in the process of moving toward long-run equilibrium.This period the product of a typical firm has more substitutes than last period.This means that

A)there was entry into the industry.
B)a typical firm will produce more this period.
C)a typical firm's profits will fall this period.
D)both a and c
E)all of the above

Question 59

The figure above shows the demand and cost curves facing a price-setting firm.The maximum profit the firm can earn is $________.

A)-$4,500
B)-$1,500
C)$7,500
D)$7,650
E)$8,000

Question 60

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,in profit-maximizing or loss-minimizing)equilibrium,the firm's total variable costs are

A)$12,000.
B)$6,000.
C)$600.
D)$400.
E)none of the above

Question 61

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.What is the estimated marginal revenue function for the firm?

A)MR = 48 - 0.002Q
B)MR = 78 - 0.002Q
C)MR = 78 - 0.004Q
D)MR = 48 - 0.004Q

Question 62

If demand is estimated to be = 240 - 6P,the marginal revenue function is

A)MR = 40 - 0.33Q.
B)MR = 240 - 2Q.
C)MR = 40 - 2P.
D)MR = 240 - 12P.
E)MR = 240 -6P.

Question 63

If demand is estimated to be = 240 - 6P,the inverse demand function is

A)P = 40- 0.1667Q.
B)P = 240 - Q.
C) = 40 - P.
D) = 240 - 12P.
E) = 240 -3P.

Question 64

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.For 2016,the forecasted demand function is

A) = 300,000- 500P
B) = 100,000- 100P
C) = 600,000- 100P
D) = 200,000- 500P
E)none of the above

Question 65

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.What is the profit-maximizing choice of output?

A)8,000 units
B)10,000 units
C)12,000 units
D)16,000 units
E)0 units,the firm shuts down

Question 66

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.What price should the firm charge in order to maximize profit?

A)$42.50
B)$48
C)$50
D)$62
E)$70

Question 67

If firms in a monopolistically competitive industry are making an economic profit,

A)new firms will enter the industry.
B)economic profit will fall in future periods.
C)price is higher than marginal cost.
D)all of the above
E)none of the above

Question 68

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.For 2016,the marginal revenue function is

A)MR = 290 - 0.5P.
B)MR = 580 - 0.001Q.
C)MR = 290- 0.002Q.
D)MR = 600 - 0.004Q.
E)none of the above

Question 69

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.The average variable cost function is estimated to be Total fixed cost in 2016 is expected to be $4 million.The estimated marginal cost function is

A)SMC = 260 - 0.03Q + 0.000015Q².
B)SMC = 520-0.06Q + 0.000003Q².
C)SMC = 520 - 0.03Q + 0.000002Q².
D)SMC = 260 - 0.015Q + 0.000005Q².
E)none of the above

Question 70

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.The average variable cost function is estimated to be Total fixed cost in 2016 is expected to be $4 million.The firm's profit is

A)$100,000.
B)$200,000.
C)$375,000.
D)-$182,000.
E)$800,000.

Question 71

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.For 2016,the inverse demand function is

A)Q = 300- 0.005P.
B)P = 600 -0.001Q.
C)P = 300 - 0.002Q.
D)P = 600- 0.004Q.
E)none of the above

Question 72

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.The average variable cost function is estimated to be Total fixed cost in 2016 is expected to be $4 million.The profit-maximizing price for 2016 is

A)$80.
B)$100.
C)$260.
D)$520.
E)$560.

Question 73

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.The firm should ______________ because _______________.

A)shut down,P = $62 < TVC = $229.50
B)operate,P = $62 > AVC = $17.50
C)operate,P = $62 > AVC = $22
D)operate,P = $60.50 > AVC = $25.50

Question 74

Using time-series data,the demand function for a profit-maximizing monopolist has been estimated as where is the amount sold,P is price,M is income,and is the price of a related good.The estimated values for M and in 2014 are $25,000 and $200,respectively.The short-run marginal cost curve for this firm has been estimated as: Total fixed cost is forecast to be $500,000 in 2016.The forecasted marginal revenue function for 2016 is:

A)MR = 200,000- 0.004Q
B)MR = 424- 0.002Q
C)MR = 110 - 0.002Q
D)MR = 424 - 0.004Q
E)MR = 120 -0.002Q

Question 75

Using time-series data,the demand function for a profit-maximizing monopolist has been estimated as where is the amount sold,P is price,M is income,and is the price of a related good.The estimated values for M and in 2014 are $25,000 and $200,respectively.The short-run marginal cost curve for this firm has been estimated as: Total fixed cost is forecast to be $500,000 in 2016.What is the average variable cost function?

A)AVC = 200 -0.012Q + 0.000002Q²
B)AVC = 200 - 0.048Q + 0.000012Q²
C)AVC = 200 - 0.048Q + 0.000036Q²
D)AVC = 200 -0.012Q + 0.000018Q²

Question 76

Using time-series data,the demand function for a profit-maximizing monopolist has been estimated as where is the amount sold,P is price,M is income,and is the price of a related good.The estimated values for M and in 2014 are $25,000 and $200,respectively.The short-run marginal cost curve for this firm has been estimated as: Total fixed cost is forecast to be $500,000 in 2016.The forecasted demand function for 2016 is:

A) = 212,000- 500P
B) = 200,000 - 2,000P
C) = 80,000 - 500P
D) = 150,000 - 2,000P
E) = 110,000 - 500P

Question 77

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.The average variable cost function is estimated to be Total fixed cost in 2016 is expected to be $4 million.The profit-maximizing level of output for 2016 is

A)1,000 units.
B)4,000 units.
C)5,000 units.
D)10,000 units.
E)20,000 units.

Question 78

The market demand for a monopoly firm is estimated to be: where is quantity demanded,P is price,M is income,and is the price of a related good.The manager has forecasted the values of M and will be $50,000 and $20,respectively,in 2016.The average variable cost function is estimated to be Total fixed cost in 2015 is expected to be $4 million.The manager should ________________ because_____________.

A)shut down; P = $520 < TVC = $320
B)shut down; P = $480 < AVC = $500
C)operate; P = $560 > AVC = $320
D)operate; P = 480 > AVC = $300

Question 79

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.What is the firm's profit?

A)$147,000
B)$120,000
C)$220,000
D)$335,000

Question 80

A firm with market power faces the following estimated demand and average variable cost functions: where is quantity demanded,P is price,M is income,and is the price of a related good.The firm expects income to be $40,000 and to be $2.Total fixed cost is $100,000.What is the estimated demand function for the firm?

A) = 71,000 -500P
B) = 39,000 -200P
C) = 39,000 - 500P
D) = 40,000 - 200P