Question 1

An important difference between perfect competition and monopoly is

Accepted Answer

The key difference between perfect competition and monopoly is the shape of the demand curve faced by the firm. A monopoly faces a downward sloping demand curve because it is the only supplier in the market, meaning that it has some control over the price of its product. On the other hand, a perfectly competitive firm faces a horizontal demand curve because it is a price-taker, meaning that it has no control over the price and must accept the market price.

Question 2

Which of the following is NOT true about the demand curve faced by a monopolist?

Accepted Answer

The demand curve faced by a monopolist is downward sloping but not perfectly elastic. In fact, it is always less elastic than the market demand curve because the monopolist has market power to influence prices. Hence, the correct statement is that the demand curve is NOT perfectly elastic.

Question 3

If a firm sells 50 units of output at $9 per unit and 60 units of output when price is reduced to $8, its marginal revenue from selling the sixth unit is

Accepted Answer

Marginal revenue is the change in total revenue from selling one more unit. The total revenue from selling 50 units at $9 is $450, and from selling 60 units at $8 is $480. The change in revenue from selling the additional 10 units is $480 - $450 = $30. Thus, the marginal revenue from selling the sixth unit is $30.

Question 4

A monopolist wishing to increase its profit has just discovered that lowering its price and selling more output yielded the desired result. Profit increased. Based on this, we can conclude that the cost of the additional production is

Accepted Answer

If the monopolist was able to increase profit by selling more output at a lower price, it means that the revenue from the additional production (the additional units sold) outweighed the cost of producing those units. Therefore, the cost of the additional production is less than the revenue from the additional production.

Question 5

Successive downward movements along the demand curve for the product of a monopolist always generate successive

Accepted Answer

Successive downward movements along the demand curve for a monopolist's product result in lower prices for each unit sold. Therefore, the additional per-unit revenue earned by the monopolist will decrease with each successive movement along the demand curve. This is because the monopolist must lower the price for all units sold, not just the additional unit. Therefore, choice D is correct. A and C are incorrect because marginal revenue and per-unit costs are not affected by movements along the demand curve. B is incorrect because successive movements along the demand curve do not necessarily affect the monopolist's average total costs.

Question 6

-Refer to the above figure. Which of the following statements is TRUE about the demand curves for an individual firm in a perfectly competitive industry and a monopoly?

Accepted Answer

In a perfectly competitive market, an individual firm faces a perfectly elastic demand curve, meaning it can sell any quantity of its product at the prevailing market price, represented by a horizontal line as in Panel C. A monopoly, on the other hand, faces the market demand curve, which is downward sloping, indicating that it can influence the market price by altering the quantity supplied, as shown in Panel B.

Question 7

If a monopolist wants to increase the amount it sells, it

Accepted Answer

In order for a monopolist to increase the amount it sells, it must lower the price on all units. This is because, as the only seller in the market, the monopolist has control over the price and can manipulate it to increase demand. By lowering the price, more consumers are willing to purchase the product, resulting in an increase in quantity sold. However, this also means that the monopolist will be earning less profit per unit, which they must accept as a tradeoff. Keeping the price the same or lowering the cost of production may not necessarily result in an increase in quantity sold.

Question 8

The monopolist's marginal revenue is less than price since

Accepted Answer

The monopolist's marginal revenue is less than price because in order to sell additional units, the monopolist must lower the price on all units sold, resulting in a lower marginal revenue. This is because the monopolist has market power and can set the price for their product.

Question 9

If a firm sells 200 units of output at $15 per unit and 210 units of output when price is reduced to $14, its marginal revenue from selling the last unit is

Accepted Answer

Marginal revenue is the change in total revenue from selling one more unit. The total revenue at 200 units is $3000 (200*$15) and at 210 units is $2940 (210*$14). The change in revenue is $2940 - $3000 = -$60.

Question 10

For a firm facing a downward sloping demand curve, marginal revenue

Accepted Answer

Marginal revenue is greater at higher prices than at lower prices for a firm facing a downward sloping demand curve because as price decreases, the additional revenue gained from selling one more unit (marginal revenue) decreases due to the price effect outweighing the volume effect.

Question 11

If a firm sells 10 units of output at $100 per unit and 11 units of output when price is reduced to $99, its marginal revenue for the last unit sold is

Accepted Answer

The marginal revenue for the last unit sold is calculated by the total revenue change divided by the change in quantity sold. Initially, revenue is 10 units * $100 = $1000. After the price drop, revenue is 11 units * $99 = $1089. The change in revenue is $1089 - $1000 = $89, and the change in quantity sold is 1 unit, making the marginal revenue for the last unit $89.

Question 12

For a monopolist, the marginal revenue gained when one more unit of output is sold is

Accepted Answer

As a monopolist, selling one more unit of output would require the monopolist to either decrease the price of all units sold or sell the extra unit at a lower price. This results in a loss of revenue on previously sold units. Therefore, the marginal revenue gained is the price at which the extra unit is sold minus the loss in revenue from the previously sold units.

Question 13

If a monopolist lowers its price

Accepted Answer

When a monopolist lowers its price, the quantity demanded usually increases. This is because demand is generally more elastic in a monopolistic market, meaning that consumers are more sensitive to changes in price. As a result, a lower price can encourage more people to buy the product or service, resulting in an increase in quantity demanded. However, it is possible that the quantity demanded could remain the same or even decrease if the lower price does not significantly affect consumer behavior.

Question 14

A monopolist faces

Accepted Answer

A monopolist faces the market demand curve, which shows the quantity of a good or service that consumers are willing and able to purchase at different prices. They are able to set their own price based on their market power, but they must consider the market demand curve in order to maximize profits. A perfectly elastic demand curve means that consumers will not buy the product at any price higher than a certain level, and a perfectly inelastic demand curve means that consumers will pay any price for the product. These scenarios do not apply to a monopolist. A two-tiered demand curve is a theoretical concept that does not apply to most real-world monopolies.

Question 15

The demand curve facing a monopolist is

Accepted Answer

The demand curve facing a monopolist is downward sloping, which means that as the price of the good or service increases, the quantity demanded decreases. This is because the monopolist is the only producer of the good or service, and consumers have no choice but to buy from them at the price they set. As such, the monopolist can charge a higher price and sell fewer units, or lower the price to sell more units, but they cannot set the price and quantity independently from each other like a perfectly competitive market.

Question 16

If a monopolist raises its price

Accepted Answer

When a monopolist raises its price, the quantity demanded typically decreases. This is because the monopolist has market power and no close substitutes, so consumers are forced to either accept the higher price or buy less of the good. This reduction in quantity demanded can potentially lead to a decrease in the monopolist's revenue, as they are no longer selling as much of the good despite charging a higher price.

Question 17

For the monopolist, marginal revenue is

Accepted Answer

Marginal revenue for a monopolist is less than the price because to sell additional units, the monopolist must lower the price on all units sold, not just the additional units, which makes the marginal revenue less than the price per unit.

Question 18

To induce an increase in the quantity demanded of its product, a monopolist must reduce the

Accepted Answer

In order to induce an increase in quantity demanded, the monopolist must decrease the price of its product, leading to a movement along the demand curve. This is the only option that correctly identifies this concept. A reduction in product quality may actually decrease the quantity demanded, while a shift in the ATC curve would not necessarily lead to an increase in quantity demanded.

Question 19

Which of the following statements is TRUE about the relationship between a firm's demand curve under perfect competition and monopoly?

Accepted Answer

Under perfect competition, the demand curve of a firm is perfectly elastic, meaning that the firm cannot sell their output at a higher price than the market equilibrium price. Under monopoly, the demand curve has elastic, unit-elastic, and inelastic portions because the firm has some degree of control over the price due to the absence of close substitutes. Therefore, Choice A is the correct statement. Choice B is incorrect because it wrongly states that the demand curve is perfectly elastic under monopoly. Choice C is a false statement because elasticity of demand depends on the degree of monopoly power and market structure. Choice D is also incorrect because we can define the demand curve under monopoly as the relationship between the price and the quantity demanded by consumers.

Question 20

For a monopolist

Accepted Answer

For a monopolist, the marginal revenue (the change in revenue from selling one more unit) is less than the price because to sell one more unit, the monopolist must lower the price on all units sold, not just the one additional unit. This means that the price of the additional unit is lower than the average price of all units sold, leading to a lower marginal revenue.

Quiz 24: Monopoly