Question 1

Suppose the only professional hockey team within 500 miles is the Salt Lake City Slappers team.If the State of Utah imposes a profits tax on sports teams, the Slappers will

Accepted Answer

The answer of Suppose the only professional hockey team within...

Question 2

Suppose that the demand for my new book, Spatulas From Around the World, is such that the demand curve lies everywhere below the average variable cost of producing it.To maximize profits or minimize losses, I should

Accepted Answer

Since the demand curve lies everywhere below the average variable cost, it means that the revenue from selling the book is not sufficient to cover the variable production costs, let alone fixed costs. Therefore, continuing to produce the book will result in losses. The best option in this case is to shut down the presses and halt production, minimizing losses.

Question 3

Suppose that at an output of 1, 000 units, a monopolist has marginal cost of $40, marginal revenue of $30, average variable cost of $30, and average total cost of $50.In order to maximize profit or minimize loss in the short run, the firm should

Accepted Answer

The answer of Suppose that at an output of 1,...

Question 4

Exhibit 9-12  The total revenue for the nondiscriminating monopolist in Exhibit 9-12 is

Accepted Answer

The total revenue for a nondiscriminating monopolist can be found by multiplying the price per unit (which in this case is $0d) by the quantity sold (which is 0f). Therefore, the total revenue for the monopolist in Exhibit 9-12 is $0d ´ 0f.

Question 5

A profit-maximizing monopolist produces an output level at which

Accepted Answer

A profit-maximizing monopolist produces at the output level where its marginal revenue equals its marginal cost, because this is where the additional revenue from producing one more unit of output is exactly equal to the additional cost of producing that unit. At any other output level, the marginal revenue would either be greater or lesser than the marginal cost, which would not result in maximizing profits.

Question 6

If a nondiscriminating monopolist is operating at an output level where price equals average total cost, we can conclude that

Accepted Answer

At the output level where price equals average total cost, the firm is earning normal profit. This means that economic profit is zero. Therefore, choice A is the correct answer. B, C, D, and E are incorrect because they imply that the firm is not doing well, which is not necessarily the case. The firm could be earning normal profit and operating efficiently.

Question 7

If the marginal cost curve shifts upward, a profit-maximizing, nondiscriminating monopolist is likely to respond in the short run by

Accepted Answer

If the marginal cost curve shifts upward, the monopolist's profit-maximizing point will shift leftward and upward along the demand curve. To maximize profits, the monopolist will decrease output and raise the price, as this will reduce the costs of producing an additional unit while also setting a higher price that consumers are willing to pay.  Therefore, the best choice is B, which states that the monopolist will raise price and decrease output in response to an upward shift in the marginal cost curve.

Question 8

Exhibit 9-12  The total cost for the nondiscriminating monopolist in Exhibit 9-12, that maximizes profit while charging all customers the same price, is

Accepted Answer

The answer of Exhibit 9-12  The total cost for...

Question 9

A monopolist's short-run supply curve is

Accepted Answer

A monopolist does not have a well-defined supply curve because it is a price maker, not a price taker, and its output decision depends on the demand curve and marginal revenue, not just marginal cost.

Question 10

Assuming a constant cost industry, consumer surplus would be greater under monopoly than if the industry were perfectly competitive.

Accepted Answer

Consumer surplus is the difference between the amount that consumers are willing to pay for a good or service and the price they actually pay. In a perfectly competitive industry, prices are driven down to the marginal cost of production, resulting in a higher level of consumer surplus than under a monopoly where prices are higher and output is lower.

Question 11

Exhibit 9-12  The profit-maximizing level of output and price for the nondiscriminating monopolist in Exhibit 9-12 are

Accepted Answer

The profit-maximizing level of output for a monopolist occurs where marginal revenue equals marginal cost, which in this case is at point f. From there, the monopolist charges the price on the demand curve corresponding to that level of output, which is $d. Therefore, the correct answer is D, "f and $d".

Question 12

A nondiscriminating monopolist earning positive short-run economic profit determines that its current marginal cost is $15 and its current marginal revenue is $20.To maximize profit, a firm should

Accepted Answer

To maximize profit, the firm should produce where marginal cost equals marginal revenue. Since MR ($20) is greater than MC ($15), the firm should reduce price and increase output to reach the profit-maximizing level where MR = MC.

Question 13

Exhibit 9-12  The nondiscriminating monopolist in Exhibit 9-12 will produce where

Accepted Answer

As a profit-maximizing monopolist, the firm will produce where MR = MC. This is because at this point, the additional revenue from producing one more unit (MR) just equals the additional cost of producing that one more unit (MC), resulting in maximum profit. Choosing any other point would result in either lower profits or losses. Therefore, the answer is B.

Question 14

Suppose that the only maker of a particular type of horse hair clothing exits the industry because demand is too low.The correct analysis of this situation is that

Accepted Answer

In the long run, if a monopoly exits the market, it is likely because the price it receives is lower than its average total cost, meaning it cannot cover its costs and make a profit.

Question 15

Suppose Bank-in-the-Box is a monopolist in its market area.If the market wage rate of bank tellers rises, the bank will

Accepted Answer

As a monopolist, Bank-in-the-Box has the ability to set its own price for its services. If the market wage rate of bank tellers rises, the bank's costs will increase, and it will need to adjust its price to maintain its profit margin. However, if the bank raises its price too much, it may lose some customers to competitors (if any exist) or deter potential customers from using its services. Therefore, the best choice for the bank would be to raise its price, but not by too much, in order to earn less profit but maintain its customer base.

Question 16

In the short run, a monopolist will always shut down when

Accepted Answer

In the short run, a monopolist will always shut down when total variable cost is greater than total revenue at all output levels. This is because the firm cannot cover its variable costs and is better off not producing anything at all. Shutting down allows the firm to minimize its losses by reducing its variable costs to zero.

Question 17

A monopolist's supply curve is the portion of its marginal cost curve above average variable cost.

Accepted Answer

A monopolist does not have a supply curve because it is a price maker, not a price taker, and its output decision depends on the demand curve and marginal revenue, not just marginal cost.

Question 18

In the short run, a monopolist will shut down when

Accepted Answer

In the short run, a monopolist will shut down if the price is less than the average variable cost at all output levels, as it cannot cover its variable costs.

Question 19

Exhibit 9-13  In the short run, the monopolist depicted in Exhibit 9-13 should

Accepted Answer

The monopolist should continue producing because it is able to cover its variable costs (AVC) at some output levels where P > AVC. However, it may not be able to cover its total costs (ATC) at all output levels, which is why option B is incorrect. Option A is also incorrect because the monopolist will only shut down if it cannot cover its variable costs at any output level. Option D is incorrect because the monopolist may still experience losses if it cannot cover its fixed costs, even if P > ATC. Option E is incorrect because monopolists may still shut down if they cannot cover their costs.

Question 20

Exhibit 9-12  The nondiscriminating monopolist, which maximizes profit in Exhibit 9-12, is

Accepted Answer

The answer of Exhibit 9-12  The nondiscriminating monopolist, which...

Quiz 9: A--Monopoly