Question 1

An important difference between perfect competition and monopoly is

Accepted Answer

In perfect competition, firms face a horizontal or perfectly elastic demand curve, meaning that they have no market power to influence the price of the good or service they sell. On the other hand, in a monopoly, the firm faces a downward sloping or relatively inelastic demand curve, meaning that they have some market power to set the price of their product.

Question 2

For the monopolist, marginal revenue is

Accepted Answer

Marginal revenue is the additional revenue earned from selling one additional unit of a product. For a monopolist, in order to sell additional units, the price has to be lowered, resulting in a decrease in average revenue. Therefore, marginal revenue is less than average revenue and is not equal to price. Marginal revenue is an important consideration for a monopolist in determining how many units to produce and sell.

Question 3

-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

The answer of 
-Refer to the above figure. Which of...

Question 4

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 the product of a monopolist lead to an increase in the quantity sold. This increase in quantity sold is associated with a decrease in the price of the product, which in turn leads to a decrease in the additional per-unit revenues earned by the monopolist (i.e., marginal revenue). Therefore, successive downward movements along the demand curve for the product of a monopolist always generate successive decreases in the additional per-unit revenues earned by the monopolist.

Question 5

If a monopolist raises its price,

Accepted Answer

A monopolist has market power, which means that it can raise its price without losing all of its customers. However, as the price increases, some customers will be deterred from buying the monopolist's product and will look for substitutes. This will lead to a decrease in the quantity demanded of the monopolist's product.

Question 6

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 7

The monopolist's marginal revenue is less than price since

Accepted Answer

A monopolist has control over the price of their product, but in order to sell additional units, they must lower the price for all units sold. This means that the marginal revenue for each additional unit is less than the price received for the previous unit sold. Therefore, option A is the correct choice. Option B is incorrect because the demand curve for a monopolist is downward sloping, not horizontal. Option C is also incorrect because average revenue is equal to price for a monopolist. Option D is unrelated to the question being asked about marginal revenue.

Question 8

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

Accepted Answer

A monopolist faces a downward sloping demand curve which means that as the price of the good increases, the quantity demanded decreases. The firm's demand curve is not the same as the market demand curve because a monopolist has the power to influence the price by controlling the quantity it supplies to the market. The marginal revenue curve, which shows the change in total revenue as a result of a change in output, lies below the demand curve because the firm must lower the price of all units it sells in order to sell more units. The demand curve is never perfectly elastic for a monopolist because there are no close substitutes for the good it produces.

Question 9

The demand curve facing a monopolist is

Accepted Answer

The demand curve facing a monopolist is downward sloping because the monopolist has control over the supply of its product and can set the price at a level that maximizes its profits. As the monopolist raises the price of its product, the quantity demanded by consumers generally decreases, resulting in a downward sloping demand curve.

Question 10

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, this means that the additional revenue earned by selling the extra output was greater than the cost of producing that output. Therefore, the cost of the additional production must be less than the revenue from the additional production.

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 answer of If a firm sells 10 units of...

Question 12

If a firm sells 20 units of output at $15 per unit and 21 units of output when price is reduced to $14, its marginal revenue from selling the last unit is

Accepted Answer

To find marginal revenue, we need to find the change in total revenue from selling an additional unit of output. 
When the firm sells 20 units at $15 per unit, the total revenue is 20 * 15 = $300. 
When the price is reduced to $14, the firm sells 21 units, and the total revenue is 21 * 14 = $294. 
The change in total revenue from selling the 21st unit is $294 - $300 = -$6. 
Therefore, the marginal revenue from selling the last unit is -$6.

Question 13

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 14

A monopolist faces

Accepted Answer

A monopolist faces the market demand curve, which represents the total demand for their product in the entire market. Unlike in perfect competition, where the individual firm faces a perfectly elastic demand curve, a monopolist is able to affect the market price by adjusting their output level. Therefore, they must consider the market demand curve when making production and pricing decisions.

Question 15

For a monopolist,

Accepted Answer

A monopolist faces a downward sloping demand curve, so in order to sell more units of output, the monopolist has to lower the price for all units sold. This means that the marginal revenue from selling another unit is less than the price of the unit sold.

Question 16

If a firm sells 5 units of output at $10 per unit and 6 units of output when price is reduced to $9, its marginal revenue from selling the sixth unit is

Accepted Answer

The answer of If a firm sells 5 units of...

Question 17

If a monopolist lowers its price,

Accepted Answer

When a monopolist lowers its price, the quantity demanded increases due to the law of demand. Monopolists have the ability to control the price of their product because they are the sole producer. Lowering the price would increase demand and potentially increase the monopolist's profit, but it may also attract potential competitors to enter the market.

Question 18

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

Accepted Answer

The law of demand states that as the price of a good decreases, the quantity demanded increases. Therefore, the monopolist can induce an increase in the quantity demanded of its product by reducing the price of its product. This will generate a rightward movement along its demand curve.

Question 19

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 20

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, there are many firms selling identical products, so each firm faces a perfectly elastic demand curve. This means that at any given price, the firm can sell as much as it wants without affecting the market price. On the other hand, under monopoly, there is only one firm selling a unique product, so the firm faces a downward-sloping demand curve. This demand curve is elastic at low prices, unit-elastic at the midpoint, and inelastic at high prices, reflecting consumers' responsiveness to changes in price.

Quiz 24: Monopoly