Question 1

A monopoly's output decision depends only on the shape of its marginal cost curve.

Accepted Answer

The output decision depends on the shape of its marginal costs curve and demand curve.

Question 2

Explain why a monopolist has no supply curve.

Accepted Answer

The answer of Explain why a monopolist has no supply...

Question 3

Suppose a monopolist has TC = 100 + 10Q + 2Q²,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?

Accepted Answer

The answer of Suppose a monopolist has TC = 100...

Question 4

If the demand curve a monopolist faces is perfectly elastic,then the ratio of the firm's price to the marginal cost is
A) 0.
B) 1.
C) 2.
D) None of the above-the answer cannot be determined.

Accepted Answer

When the demand curve a monopolist faces is perfectly elastic, it means the firm is a price taker and must sell at the market price. Therefore, the price equals the marginal cost, making the ratio of the firm's price to the marginal cost equal to 1.

Question 5

The introduction of satellite television systems would cause the Lerner Index for cable television to
A) become smaller.
B) increase.
C) change in accordance to the increase in market power of cable TV providers.
D) be unchanged.

Accepted Answer

The Lerner Index measures a firm's market power. The introduction of satellite television systems increases competition, reducing the market power of cable TV providers, thus making the Lerner Index smaller.

Question 6

In a recent court case,an expert witness defined a monopoly as a firm that can "raise price without reducing its total revenue." What does this imply about the elasticity of demand? Would this definition hold for a profit-maximizing monopoly? Explain.

Accepted Answer

The answer of In a recent court case,an expert witness...

Question 7

Since there are no close substitutes for the monopoly's product,the monopoly can charge any price it wishes.

Accepted Answer

The monopoly is still constrained by the demand curve,which reflects the price that people are willing to pay for the quantity produced.

Question 8

A monopoly does not have a supply curve.

Accepted Answer

A supply curve shows how much quantity a firm wishes to sell at any given price.First,the monopoly does not take price as given.The monopoly determines price based on the shape and position of its marginal cost curve and demand curve.

Question 9

-The above figure shows the demand and cost curves facing a monopoly.At the profit-maximizing price,the elasticity of demand equals
A) -1.
B) zero.
C) infinity.
D) -3.

Accepted Answer

The answer of 
-The above figure shows the demand and...

Question 10

The more elastic the demand curve,a monopoly
A) will have a larger Lerner Index.
B) will face a lower marginal cost.
C) will earn more profit.
D) will lose more sales as it raises its price.

Accepted Answer

When the demand for a monopoly's product is more elastic, it means that a small increase in price will lead to a large decrease in quantity demanded. Therefore, the monopoly will lose more sales as it raises its price, which will lead to a decrease in its revenue and profit. Therefore, option D is the correct choice. The other choices are not correct because a larger Lerner index means a higher markup over marginal cost, a lower marginal cost means the monopoly can produce at a lower cost, and a monopoly earning more profit is not necessarily related to the elasticity of demand.

Question 11

Since a monopoly can set any price it wants,it always makes a profit.

Accepted Answer

The profit-maximizing price can result in a loss.

Question 12

-The above figure shows the demand and cost curves facing a monopoly.If the firm is a profit maximizer,its Lerner Index will equal
A) 1.
B) 1/3.
C) 1.5.
D) 3.

Accepted Answer

The Lerner Index is a measure of a firm's market power and is calculated as (P - MC) / P, where P is market price and MC is marginal cost. In the context of a monopoly maximizing profits, the firm will produce where marginal revenue (MR) equals marginal cost (MC), and then it will charge the price (P) that corresponds to this quantity on the demand curve. The slope of the demand curve (which can be inferred from the price elasticity of demand) and the difference between price and marginal cost at the profit-maximizing quantity are crucial for calculating the Lerner Index. Without specific numbers or a graph to refer to, the correct answer relies on understanding the concept. Given the options, 1/3 could be a plausible value for the Lerner Index, indicating some degree of market power but not perfect monopoly power (which would be closer to 1 or higher).

Question 13

The ability of a monopoly to charge a price that exceeds marginal cost depends on
A) the price elasticity of supply.
B) price elasticity of demand.
C) slope of the demand curve.
D) shape of the marginal cost curve.

Accepted Answer

The ability of a monopoly to charge a price that exceeds marginal cost is primarily determined by the price elasticity of demand. If demand is inelastic, consumers are less sensitive to price changes, allowing the monopoly to set higher prices without losing many sales.

Question 14

The introduction of satellite television systems would cause the demand curve for cable television to be
A) more elastic.
B) less elastic.
C) perfectly inelastic.
D) unchanged.

Accepted Answer

The introduction of satellite television systems increases the number of substitutes available to consumers, making them more likely to switch away from cable television if its price increases. This makes the demand for cable television more elastic.

Question 15

The Lerner Index is
A) the ratio of the difference between price and marginal cost to price.
B) equal to (Price - MC)/Price.
C) a measure of market power.
D) All of the above.

Accepted Answer

All three choices are true. The Lerner Index is a measure of a firm's monopoly power and is defined as the ratio of the difference between price and marginal cost to price. It is also commonly expressed as (Price - MC)/Price. Therefore, D ("All of the above") is the correct answer.

Question 16

If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the firm's Lerner Index equals
A) 58/16.
B) 16/42.
C) 58/42.
D) 42/58.

Accepted Answer

The answer of If the inverse demand curve a monopoly...

Question 17

If the monopoly's demand curve intersects the AVC curve at minimum AVC,the firm will shut down.

Accepted Answer

If that is the case,marginal cost will intersect marginal revenue at some quantity that is less than the quantity that minimizes AVC.The price that consumers are willing to pay for that quantity will be compared to the AVC for that quantity.

Question 18

A monopoly always operates in the inelastic portion of its demand curve.

Accepted Answer

A monopoly never operates in the inelastic portion of its demand curve.Marginal revenue is negative in this region.

Question 19

If the demand for a firm's output is perfectly elastic,then the firm's Lerner Index equals
A) zero.
B) one.
C) infinity.
D) one-half.

Accepted Answer

If the demand for a firm's output is perfectly elastic, it means that any increase in price by the firm will result in a quantity demanded of zero. In this case, the firm has no market power or pricing ability. Therefore, its Lerner Index, which measures the degree of market power, will be zero.

Question 20

Humana Hospital's price/marginal cost ratio of 2.3 is most likely to decline if
A) the number of nearby hospitals increases.
B) the number of nearby hospitals decreases.
C) the demand curve for hospital services shifts rightward.
D) the demand curve for hospital services becomes steeper.

Accepted Answer

An increase in the number of nearby hospitals leads to more competition, which typically forces prices down or controls their rise. As prices decrease or rise more slowly relative to marginal costs, the price/marginal cost ratio would decline.

Quiz 11: Monopoly

A monopoly's output decision depends only on the shape of its marginal cost curve.

Explain why a monopolist has no supply curve.

Suppose a monopolist has TC = 100 + 10Q + 2Q2,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?

If the demand curve a monopolist faces is perfectly elastic,then the ratio of the firm's price to the marginal cost is

The introduction of satellite television systems would cause the Lerner Index for cable television to

In a recent court case,an expert witness defined a monopoly as a firm that can "raise price without reducing its total revenue." What does this imply about the elasticity of demand? Would this definition hold for a profit-maximizing monopoly? Explain.

Since there are no close substitutes for the monopoly's product,the monopoly can charge any price it wishes.

A monopoly does not have a supply curve.

-The above figure shows the demand and cost curves facing a monopoly.At the profit-maximizing price,the elasticity of demand equals

The more elastic the demand curve,a monopoly

Since a monopoly can set any price it wants,it always makes a profit.

-The above figure shows the demand and cost curves facing a monopoly.If the firm is a profit maximizer,its Lerner Index will equal

The ability of a monopoly to charge a price that exceeds marginal cost depends on

The introduction of satellite television systems would cause the demand curve for cable television to be

The Lerner Index is

If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the firm's Lerner Index equals

If the monopoly's demand curve intersects the AVC curve at minimum AVC,the firm will shut down.

A monopoly always operates in the inelastic portion of its demand curve.

If the demand for a firm's output is perfectly elastic,then the firm's Lerner Index equals

Humana Hospital's price/marginal cost ratio of 2.3 is most likely to decline if

Suppose a monopolist has TC = 100 + 10Q + 2Q²,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?