Question 1

Which of the following is not true of a pure monopoly?

Accepted Answer

A pure monopoly is not a price taker, as it has control over the price it charges due to being the sole producer in the market. In contrast, a price taker is a firm in a perfectly competitive market that has no control over the price and must accept the market price.

Question 2

Exhibit 9-11 
-Total cost for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 will be

Accepted Answer

The profit-maximizing quantity for a monopoly is where marginal revenue equals marginal cost. In Exhibit 9-11, the marginal cost is constant at $20 per unit. To find the marginal revenue, we can observe that the demand curve is given as P = 200 - Q. Rearranging this equation to solve for Q, we get Q = 200 - P. This means that the total revenue of the monopoly is TR = P x Q = P(200 - P) = 200P - P^2.

To find the marginal revenue, we take the derivative of total revenue with respect to quantity:

MR = dTR/dQ = 200 - 2P

Setting this equal to the marginal cost, we have:

200 - 2P = 20

Solving for P, we get P = 90. This means that the profit-maximizing quantity is Q = 200 - P = 110.

The total cost for producing 110 units is:

Total cost = 20 x 110 = $2,200

Therefore, the total cost for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 is $2,200 x 35 = $77,000.

Question 3

Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should

Accepted Answer

The answer of Suppose Arf n' Barf restaurant has a...

Question 4

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 engages in perfect price discrimination, price would be

Accepted Answer

In perfect price discrimination, the monopolist charges each consumer the maximum price they are willing to pay for each unit, which means the price for the 884th unit would be $120, as it reflects the consumer's willingness to pay for that specific unit.

Question 5

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 engages in perfect price discrimination, total revenue would be

Accepted Answer

In perfect price discrimination, the monopolist charges each consumer the maximum price they are willing to pay, capturing all consumer surplus as revenue. This makes total revenue equal to the area under the demand curve up to the quantity sold.

Question 6

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 engages in perfect price discrimination, price would

Accepted Answer

The answer of Exhibit 9-11 
-If the monopolist in Exhibit...

Question 7

Exhibit 9-11 
-In Exhibit 9-11, which level of output maximizes profit for this nondiscriminating monopolist?

Accepted Answer

The answer of Exhibit 9-11 
-In Exhibit 9-11, which level...

Question 8

Exhibit 9-11 
-In Exhibit 9-11, the level of output that would achieve allocative efficiency is

Accepted Answer

Allocative efficiency occurs at the point where marginal cost and marginal benefit are equal. In the exhibit, this occurs at a quantity of 884 units where the marginal cost curve intersects the demand curve. At this point, the price consumers are willing to pay (marginal benefit) is equal to the cost of producing the additional unit (marginal cost), resulting in an efficient allocation of resources.

Question 9

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 does not price discriminate, the total amount consumers will spend on its profit-maximizing quantity of output is

Accepted Answer

The correct answer is A because the total amount consumers will spend on the profit-maximizing quantity of output is equal to the area under the demand curve up to the profit-maximizing quantity. In this case, the profit-maximizing quantity is 4,000 units, and the area under the demand curve up to 4,000 units is $95,200.

Question 10

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 engages in perfect price discrimination, profit-maximizing output would be

Accepted Answer

Perfect price discrimination occurs when the monopolist charges each customer their maximum willingness to pay. In this case, the monopolist's marginal revenue curve is the same as the demand curve. We can see from the graph that at an output of 884 units, the marginal revenue (MR) equals the marginal cost (MC). At any output level above or below 884 units, the MR is either greater or less than MC, respectively. Therefore, 884 units is the profit-maximizing output level for a monopolist engaging in perfect price discrimination.

Question 11

Exhibit 9-11 
-Maximum profit for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 will be

Accepted Answer

The answer of Exhibit 9-11 
-Maximum profit for the profit-maximizing...

Question 12

For a monopolist that produces in the short run and does not price discriminate, price always has to be

Accepted Answer

A monopolist that does not price discriminate produces where marginal revenue equals marginal cost to maximize profits. Since the price is set at the profit-maximizing quantity, which is less than the quantity produced under perfect competition, the monopolist charges a higher price than the marginal cost. Therefore, price is greater than marginal cost at the profit-maximizing quantity.

Question 13

A profit-maximizing monopolist that produces in the short run will

Accepted Answer

A profit-maximizing monopolist will produce the level of output where marginal revenue (MR) equals marginal cost (MC) in the long run. In the short run, however, the firm will produce the level of output where MR exceeds MC, as long as the marginal revenue is higher than the minimum average variable cost (AVC) necessary to produce that unit. This is because, in the short run, the firm cannot change its fixed costs and can only adjust its variable costs to produce more or less output. Thus, producing a unit where MR exceeds MC but is less than the price would result in a positive contribution to fixed costs and profits. Therefore, choice B is the correct answer.

Question 14

Exhibit 9-11 
-If the monopolist in Exhibit 9-11 chooses to produce 1,000 units and does not price discriminate, its profit will be

Accepted Answer

The answer of Exhibit 9-11 
-If the monopolist in Exhibit...

Question 15

Exhibit 9-11 
-What price will be charged by the profit-maximizing monopolist in Exhibit 9-11 that does not price discriminate?

Accepted Answer

The answer of Exhibit 9-11 
-What price will be charged...

Question 16

Exhibit 9-11 
-In Exhibit 9-11, for a monopolist that does not price discriminate, consumer surplus at the profit-maximizing level of output is

Accepted Answer

Consumer surplus is calculated as the area under the demand curve and above the price paid by consumers. Since a monopolist that does not price discriminate charges a price higher than the marginal cost, the price charged will be higher than the average total cost. Therefore, option B is incorrect. The monopolist's marginal revenue curve lies below the demand curve, so option C is incorrect. Since the monopolist produces where marginal cost equals marginal revenue, the price charged will be higher than the marginal cost, resulting in a deadweight loss and zero consumer surplus. Therefore, option D is incorrect. Finally, consumer expenditure is equal to the price times the quantity demanded, which is not the same as consumer surplus, so option E is incorrect. The correct answer is therefore option A.

Question 17

You are hired as a production analyst at Monopoly-R-Us and you estimate that, at current output, demand is inelastic and marginal cost is positive. You advise your superiors that they can increase profit by

Accepted Answer

Since demand is inelastic, raising the price until it is unit elastic will result in a relatively small decrease in quantity demanded. This means that revenue will increase as price increases (since price and quantity move together in an inelastic market). Additionally, since marginal cost is positive, producing more units would increase costs and reduce profit. Therefore, raising the price into the elastic range will result in the greatest increase in profit.

Question 18

Gilligan runs the only dry-cleaning business on a desert isle. If the cost of cleaning fluid falls, he can increase profit by

Accepted Answer

The answer of Gilligan runs the only dry-cleaning business on...

Question 19

In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

Accepted Answer

A profit-maximizing monopolist will restrict output if its marginal cost suddenly increases because this will increase its marginal revenue and allow it to maintain a higher price from customers. Decreasing price to expand revenue possibilities would not make sense as it will decrease the monopolist's profits. Maintaining the current price is only valid if the profit is still positive, but given that there is a sudden increase in marginal cost, the profit may not remain positive. Increasing plant size to lower marginal cost would require a long-run perspective, and decreasing the plant size is also not a solution since it will negatively affect the long-run profitability of the monopolist. Therefore, the best choice in the short run is to restrict output.

Question 20

Exhibit 9-11 
-Total revenue for the profit-maximizing monopoly in Exhibit 9-11 that does not price discriminate will be

Accepted Answer

Total revenue is maximized when marginal revenue equals marginal cost. In Exhibit 9-11, marginal revenue is $42,000 when output is 2,000 units. Therefore, total revenue is maximized when output is 2,000 units and price is $47.60 (from the demand curve). Total revenue is then $47.60 x 2,000 = $95,200.

Quiz 9: A: monopoly

Which of the following is not true of a pure monopoly?

Exhibit 9-11 -Total cost for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 will be

Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should

Exhibit 9-11 -If the monopolist in Exhibit 9-11 engages in perfect price discrimination, price would be

Exhibit 9-11 -If the monopolist in Exhibit 9-11 engages in perfect price discrimination, total revenue would be

Exhibit 9-11 -If the monopolist in Exhibit 9-11 engages in perfect price discrimination, price would

Exhibit 9-11 -In Exhibit 9-11, which level of output maximizes profit for this nondiscriminating monopolist?

Exhibit 9-11 -In Exhibit 9-11, the level of output that would achieve allocative efficiency is

Exhibit 9-11 -If the monopolist in Exhibit 9-11 does not price discriminate, the total amount consumers will spend on its profit-maximizing quantity of output is

Exhibit 9-11 -If the monopolist in Exhibit 9-11 engages in perfect price discrimination, profit-maximizing output would be

Exhibit 9-11 -Maximum profit for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 will be

For a monopolist that produces in the short run and does not price discriminate, price always has to be

A profit-maximizing monopolist that produces in the short run will

Exhibit 9-11 -If the monopolist in Exhibit 9-11 chooses to produce 1,000 units and does not price discriminate, its profit will be

Exhibit 9-11 -What price will be charged by the profit-maximizing monopolist in Exhibit 9-11 that does not price discriminate?

Exhibit 9-11 -In Exhibit 9-11, for a monopolist that does not price discriminate, consumer surplus at the profit-maximizing level of output is

You are hired as a production analyst at Monopoly-R-Us and you estimate that, at current output, demand is inelastic and marginal cost is positive. You advise your superiors that they can increase profit by

Gilligan runs the only dry-cleaning business on a desert isle. If the cost of cleaning fluid falls, he can increase profit by

In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

Exhibit 9-11 -Total revenue for the profit-maximizing monopoly in Exhibit 9-11 that does not price discriminate will be