Question 1

Figure 9-2
 
-Refer to Figure 9-2. What does the region bounded by CBAP* represent?

Accepted Answer

The answer of Figure 9-2
 
-Refer to Figure 9-2. What...

Question 2

Figure 9-1
 
-Refer to Figure 9-1. What area indicates the profit-maximizing firm's total revenue?

Accepted Answer

The area labeled 0AEQ1 represents the profit-maximizing firm's total revenue because it is the rectangle formed by the intersection of the demand curve (0AE) and the quantity sold (EQ1). This area represents the total amount of money the firm receives from selling the quantity of output that maximizes profit. The other areas do not represent total revenue because they are either below or above the optimal quantity, resulting in lower amounts of revenue.

Question 3

If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, what action should it take?

Accepted Answer

When marginal cost exceeds marginal revenue, a profit-maximizing monopolist should reduce output to the point where marginal cost equals marginal revenue. Reducing output typically leads to an increase in price due to the monopolist's market power and the inverse relationship between price and quantity demanded.

Question 4

How do profit-maximizing monopolists choose a level of output?

Accepted Answer

The profit-maximizing monopolist will choose the level of output where marginal revenue equals marginal cost, because at that point, they can produce one more unit of output without decreasing their total profit. However, they will also need to ensure that the price they charge exceeds their average variable cost, otherwise they will be making losses. So, option A is the correct choice.

Question 5

Figure 9-1
 
-Refer to Figure 9-1. What level of output will the profit-maximizing firm produce at?

Accepted Answer

The profit-maximizing firm will produce at the output level where marginal cost equals marginal revenue. In Figure 9-1, this occurs at output level 0Q1.

Question 6

The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3
 
-Refer to Figure 9-3. Which of the following price and output combinations would the monopoly prefer?

Accepted Answer

A monopoly aims to maximize profits by producing at a quantity where marginal revenue equals marginal cost and then charging the highest price the market will bear for that quantity. Without seeing Figure 9-3, the general principle is that monopolies prefer a combination of price and quantity that maximizes the difference between total revenue and total cost.

Question 7

TABLE 9-2
 
-Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

Accepted Answer

The answer of TABLE 9-2
 
-Refer to Table 9-2. What...

Question 8

TABLE 9-2
 
-Refer to Table 9-2. What is the profit-maximizing level of output?

Accepted Answer

The profit-maximizing level of output is where marginal revenue (MR) equals marginal cost (MC). At 11 units of output, MR is $70 and MC is $70, which means the company is earning maximum profit per unit sold. At any level below or above 11 units, the marginal cost or marginal revenue is higher or lower than $70, respectively, resulting in lower profit. Therefore, the best choice is C) 11 units.

Question 9

TABLE 9-2
 
-Refer to Table 9-2. What is average total cost at the profit-maximizing level of output?

Accepted Answer

Average total cost is minimized at the profit-maximizing level of output.

Question 10

Figure 9-1
 
-Refer to Figure 9-1. What area indicates the welfare loss due to monopoly?

Accepted Answer

The welfare loss due to monopoly is represented by the deadweight loss, which is the area between the demand and supply curves that is not captured by consumer or producer surplus. In this case, it is the area EGI.

Question 11

At what level of output would a profit-maximizing monopolist choose to produce at?

Accepted Answer

A profit-maximizing monopolist will choose to produce at the level where marginal revenue (MR) equals marginal cost (MC) because that is the point where the firm will earn the highest profit. If the monopoly produces at a lower output, then MR will be greater than MC and the firm can increase profits by producing more. If the monopoly produces at a higher output, then MC will be greater than MR and the firm can increase profits by reducing output. Therefore, the profit maximizing output is where MC equals MR.

Question 12

Figure 9-1
 
-Refer to Figure 9-1. What is the socially efficient level of output?

Accepted Answer

The socially efficient level of output is where the marginal cost curve intersects the demand curve, which is at point Q2 in the graph. This is where society's marginal benefit from consuming the good is equal to the marginal cost of producing it. Any output level below Q2 (such as Q1 or zero) would result in underproduction and inefficiency, while any output level above Q2 (such as Q3) would result in overproduction and inefficiency. Therefore, the best choice for the producer is to produce at the socially efficient level of output, which is Q2.

Question 13

Figure 9-1
 
-Refer to Figure 9-1. What area indicates total cost when the monopolist is maximizing profits?

Accepted Answer

When the monopolist is maximizing profits, it produces the output where marginal revenue (MR) equals marginal cost (MC). In the graph, this occurs at point Q where the marginal cost curve intersects with the marginal revenue curve. From Q, draw a vertical line upward to intersect with the demand curve at point D. Then draw a horizontal line to intersect with the y-axis at point F. This rectangle, DFAE, represents the total revenue earned by the monopolist. The area of rectangle DAFQ1 represents the monopoly's total variable cost. Finally, the area of rectangle DFQ2G represents the monopoly's total profit. Therefore, the answer is D, 0DFQ1.

Question 14

TABLE 9-2
 
-Refer to Table 9-2. What is marginal revenue at the profit-maximizing level of output?

Accepted Answer

Marginal revenue is equal to the change in revenue that results from producing one additional unit of output. The profit-maximizing level of output is where marginal revenue equals marginal cost. In this table, the marginal revenue for the 5th unit of output is $8, which is where the profit-maximizing level of output is. Therefore, the answer is choice C.

Question 15

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, what can we conclude about the monopolist?

Accepted Answer

The monopolist can increase profit by increasing output because MR ($10) is greater than MC ($6), indicating that producing more would add more to revenue than to cost.

Question 16

Which of the following statements best describes a monopoly?

Accepted Answer

A monopoly is a market structure in which there is only one seller of a good or service, and there are no close substitutes available to consumers. The monopolist has the power to set the price of the good or service, and they will typically choose a price that exceeds marginal cost in order to maximize their profits. Therefore, option A is the correct description of a monopoly. Option B is incorrect because average revenue will always exceed marginal revenue for a monopolist. Option C is not always true, as a monopolist may produce less than the socially efficient level depending on their cost structure. Option D is also incorrect because a monopolist will set their price above marginal cost, so average revenue will be greater than average cost.

Question 17

Figure 9-1
 
-Refer to Figure 9-1. If the firm is profit maximizing, what does the region bounded by DAEF represent?

Accepted Answer

The region bounded by DAEF represents total revenue, and since the firm is profit maximizing, it will produce where marginal revenue equals marginal cost (point E). At this point, the firm will have total revenue equal to the area bounded by DAEF and total costs equal to the area bounded by CBGE. Therefore, the region bounded by DAEF minus the region bounded by CBGE represents total profits.

Question 18

TABLE 9-2
 
-Refer to Table 9-2. If the firm is currently producing 12 units of output, what should the firm do to maximize profits?

Accepted Answer

To maximize profits, a firm should produce at the level where marginal cost (MC) equals marginal revenue (MR). Without the specific data from Table 9-2, the general principle is that if producing one more unit (going from 12 to 13) would increase costs more than revenue, the firm should not increase output. If the cost of producing the 12th unit is higher than the revenue it generates, reducing output would increase profits until MC equals MR. Since the question suggests a change in output is needed for profit maximization and option A is the closest to this principle without additional data, it is chosen as the correct action.

Question 19

Figure 9-2
 
-Refer to Figure 9-2. What level of output will the profit-maximizing firm produce at?

Accepted Answer

The answer of Figure 9-2
 
-Refer to Figure 9-2. What...

Question 20

What quantity will a monopolist operate at?

Accepted Answer

A monopolist determines its output level where marginal revenue (MR) equals marginal cost (MC) and then charges a price based on the demand curve at that quantity. This means the price is typically above MC, reflecting the monopolist's market power and ability to set prices above marginal costs.

Quiz 9: Monopoly

Figure 9-2 -Refer to Figure 9-2. What does the region bounded by CBAP* represent?

Figure 9-1 -Refer to Figure 9-1. What area indicates the profit-maximizing firm's total revenue?

If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, what action should it take?

How do profit-maximizing monopolists choose a level of output?

Figure 9-1 -Refer to Figure 9-1. What level of output will the profit-maximizing firm produce at?

The following diagram contains information on cost and revenue curves facing a regulated monopoly. FIGURE 9-3 -Refer to Figure 9-3. Which of the following price and output combinations would the monopoly prefer?

TABLE 9-2 -Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

TABLE 9-2 -Refer to Table 9-2. What is the profit-maximizing level of output?

TABLE 9-2 -Refer to Table 9-2. What is average total cost at the profit-maximizing level of output?

Figure 9-1 -Refer to Figure 9-1. What area indicates the welfare loss due to monopoly?

At what level of output would a profit-maximizing monopolist choose to produce at?

Figure 9-1 -Refer to Figure 9-1. What is the socially efficient level of output?

Figure 9-1 -Refer to Figure 9-1. What area indicates total cost when the monopolist is maximizing profits?

TABLE 9-2 -Refer to Table 9-2. What is marginal revenue at the profit-maximizing level of output?

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, what can we conclude about the monopolist?

Which of the following statements best describes a monopoly?

Figure 9-1 -Refer to Figure 9-1. If the firm is profit maximizing, what does the region bounded by DAEF represent?

TABLE 9-2 -Refer to Table 9-2. If the firm is currently producing 12 units of output, what should the firm do to maximize profits?

Figure 9-2 -Refer to Figure 9-2. What level of output will the profit-maximizing firm produce at?

What quantity will a monopolist operate at?