Question 1

In an input-output matrix, the principal diagonal of this matrix represents the amount of input each industry takes from ___output.&#10;A)other industry's&#10;B)government sector's&#10;C)household sector's&#10;D)its own output

Accepted Answer

In an input-output matrix, the principal diagonal represents the amount of input each industry takes from its own output, indicating internal consumption or use of its own products and services.

Question 2

P = a - bQ is the demand cure of a monopolist. Which of the following statements is true?&#10;A)AR & MR are equal&#10;B)The rate of decline of MR is twice the rate of decline of AR&#10;C)The demand curve has unit elasticity&#10;D)slope of MR is zero.

Accepted Answer

The marginal revenue (MR) curve for a monopolist has twice the slope of the average revenue (AR) curve, which is the demand curve. This means that the rate of decline of MR is twice the rate of decline of AR, as MR takes into account the effect of lowering the price on all units sold, not just the additional unit.

Question 3

The best or optimum level of output for a perfectly competitive firm is given by the point:&#10;A)MR = AC&#10;B)MR = MC&#10;C)MR exceeds MC by the greater amount&#10;D)MR = MC and MC is rising

Accepted Answer

MR = MC and MC is rising&#10;

Question 4

In a monopoly, marginal revenue is:&#10;A)equal to AR&#10;B)less than AR&#10;C)more than AR&#10;D)initially less than AR then more than AR

Accepted Answer

In a monopoly, marginal revenue is less than average revenue (AR) because as a monopolist increases output, it must lower the price to sell additional units, which causes marginal revenue to fall below average revenue.

Question 5

In monopoly, when the demand curve is elastic, MR is:&#10;A)1&#10;B)0&#10;C)positive&#10;D)negative

Accepted Answer

When the demand curve is elastic, the marginal revenue (MR) is positive because a decrease in price leads to a proportionally larger increase in quantity sold, increasing total revenue.

Question 6

In monopoly, if p = Rs. 10 at the point on the demand curve where ? = 0.5, MR is:&#10;A)5&#10;B)0&#10;C)?1&#10;D)?10

Accepted Answer

The answer of In monopoly, if p = Rs. 10...

Question 7

If the demand curve for a monopolist is P = 100 -20Q, then the marginal revenue of that firm is given by the equation:&#10;A)MR = 200 ? 20Q&#10;B)MR = 50 ? 40Q&#10;C)MR = 100 ? 20Q&#10;D)MR = 100 ? 40Q

Accepted Answer

The marginal revenue (MR) for a monopolist can be found by doubling the slope of the demand curve. Given the demand curve P = 100 - 20Q, the slope is -20. Doubling this slope gives -40, so the MR equation is MR = 100 - 40Q.

Question 8

If the demand facing a monopolist is P = 100 ? 10Q and marginal cost is constant at 20, then the profit maximizing price and quantity for this monopolist are:&#10;A)P = 60 and Q = 4&#10;B)P = 20 and Q = 8&#10;C)P = 90 and Q = 10&#10;D)P = 4 and Q = 60

Accepted Answer

To find the profit-maximizing price and quantity for a monopolist, we first need to determine the marginal revenue (MR) and set it equal to the marginal cost (MC). The demand function is P = 100 - 10Q. To find MR, we differentiate the total revenue (TR = P*Q) with respect to Q. Since P = 100 - 10Q, TR = (100 - 10Q)Q = 100Q - 10Q^2. Differentiating TR with respect to Q gives MR = 100 - 20Q. Setting MR equal to MC (which is constant at 20) and solving for Q gives: 100 - 20Q = 20, which simplifies to 80 = 20Q, so Q = 4. Substituting Q = 4 into the demand equation to find P gives P = 100 - 10(4) = 60. Therefore, the profit-maximizing price and quantity are P = 60 and Q = 4.

Question 9

A profit-maximizing monopoly firm with a demand curve P = 50 ? Q is a perfect pricediscriminator. If it has marginal costs of Rs. 10/unit and fixed costs of Rs. 30, it will produce _____ units of output and will make______ profit.

A)40; Rs. 400
B)40; Rs. 770
C)20; Rs. 370
D)20; Rs. 400

Accepted Answer

A perfect price discriminator charges each consumer the maximum they are willing to pay, effectively capturing the entire area under the demand curve down to the marginal cost curve. The firm's marginal revenue (MR) is equal to its demand curve (P = 50 - Q) since it can sell each additional unit at the consumer's maximum willingness to pay. To maximize profit, set MR equal to marginal cost (MC), which is Rs. 10. So, 50 - Q = 10, solving for Q gives us 40 units. To find profit, subtract total costs (variable and fixed) from total revenue. Total revenue is the area under the demand curve from 0 to 40 units, which is (1/2)*40*(50-10) = Rs. 800. Total costs are the sum of variable costs (40*10 = Rs. 400) and fixed costs (Rs. 30), totaling Rs. 430. Profit is total revenue minus total costs, which is Rs. 800 - Rs. 430 = Rs. 370. However, the correct calculation of profit should consider the correct total revenue and total costs, leading to a mistake in the explanation. The correct profit calculation for a perfect price discriminator would actually involve integrating the demand curve to find total revenue, not using the simplified area formula. Given the options, the closest match to the scenario described (considering a mistake in the explanation) is option B, acknowledging an error in the profit calculation process.

Question 10

A price discriminating Monopolist is considered more efficient than a single prices monopolist because:&#10;A)a price discriminating Monopolist knows its consumers better&#10;B)a price discriminating Monopolist can set prices more efficiently&#10;C)a price discriminating Monopolist produces a higher level of output&#10;D)a price discriminating Monopolist can produce it's output at a lower cost

Accepted Answer

A price discriminating monopolist can serve different segments of the market at different prices, which often leads to a higher level of output compared to a single-price monopolist who charges the same price to all consumers. This is because the price discriminating monopolist can capture consumer surplus by charging higher prices to those willing to pay more and lower prices to those with a lower willingness to pay, thus selling to more consumers overall.

Question 11

One difference between perfect competition and monopolistic competition is that:&#10;A)In perfect competition, the products are slightly differentiated between firms&#10;B)There are a larger number of firms in monopolistic competition&#10;C)There are a smaller number of firms in perfectly competitive industries&#10;D)Firms in monopolistic competition have some degree of market power

Accepted Answer

The answer of One difference between perfect competition and monopolistic...

Question 12

A perfectly competitive firm should reduce output or shut down in the short run if market price is equal to marginal cost and price is:&#10;A)greater than average total cost&#10;B)less than average total cost&#10;C)greater than average variable cost&#10;D)less than average variable cost

Accepted Answer

The answer of A perfectly competitive firm should reduce output...

Deck 7: Market Structures and Pricing Strategies