Question 1

The supply curve for a monopoly is given by
A) the firm's marginal cost curve above the average variable cost curve.
B) the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost.
C) the entire demand curve above the point where price is equal to average cost.
D) the monopolist does not have a well-defined supply curve.

Accepted Answer

A monopoly does not have a well-defined supply curve as the firm can choose any quantity to produce and set any corresponding price above the marginal cost. The quantity supplied is determined by the profit-maximizing point where marginal revenue equals marginal cost.

Question 2

A monopolist with constant average and marginal cost equal to 8 (AC = MC = 8)faces demand Q = 100 - P,implying that its marginal revenue is MR = 100 - 2Q.Its profit maximizing quantity is
A) 8
B) 46
C) 50
D) 92

Accepted Answer

To find the profit-maximizing quantity for a monopolist, set MR = MC. Given MR = 100 - 2Q and MC = 8, we solve for Q: 100 - 2Q = 8, which simplifies to 2Q = 92, and thus Q = 46.

Question 3

A monopolist has total cost TC = .1Q² - 2Q + 100 and marginal cost MC = .2Q - 2.Market demand is Q = 86 - P,implying that the firm's marginal revenue is MR = 86 -2Q.Its profit-maximizing output is A) 92 B) 46 C) 40 D) 20

Accepted Answer

To find the profit-maximizing output, set MR = MC: 86 - 2Q = 0.2Q - 2. Solving for Q gives Q = 40.

Question 4

All monopolies exist because of
A) firms' desire to maximize profits.
B) failure of antitrust laws.
C) barriers to entry.
D) natural selection.

Accepted Answer

Monopolies are able to exist because there are barriers to entry that prevent competitors from entering the market and providing the same goods or services. These barriers can include high start-up costs, legal restrictions, or control over resources. Therefore, choice C is the best answer. While firms may desire to maximize profits (choice A), this alone does not explain the existence of a monopoly. Antitrust laws (choice B) are put in place to prevent the formation of monopolies, but their failure does not necessarily create one. Natural selection (choice D) is not relevant to explaining the existence of a monopoly.

Question 5

A natural monopoly
A) is a monopoly in the production of raw materials.
B) occurs when one firm can supply the entire market more cheaply than can a number of firms.
C) is one result of a patent.
D) results from decreasing returns to scale.

Accepted Answer

A natural monopoly occurs when one firm can supply the entire market more cheaply than can a number of firms. This is typically due to economies of scale and high fixed costs, making it more efficient for one large firm to serve the market rather than multiple smaller firms.

Question 6

A monopolist has total cost TC = Q² + 10Q + 100 and marginal cost MC = 2Q + 10.It faces demand Q = 130- P (so its marginal revenue is MR = 130 - 2Q).Its profit-maximizing output is A) 30 B) 25 C) 20 D) 10

Accepted Answer

The profit-maximizing output is where marginal cost equals marginal revenue. So, we solve 2Q + 10 = 130 - 2Q for Q. This gives Q = 30.

Question 7

Consider the same monopoly situation as in the previous question.The monopoly price is
A) 8
B) 46
C) 54
D) 92

Accepted Answer

The monopoly's profit-maximizing output level is where marginal revenue equals marginal cost, which is at a quantity of 18 units. At this level of output, the price will be $54 (found by plugging in 18 for Q in the demand function: P = 100 - 2Q). This price allows the monopoly to earn a profit of (54-10)*18 = $864. Any other price would either result in a lower profit or no profit at all. Therefore, the best choice is C) 54.

Question 8

A profit-maximizing monopoly will produce that output for which
A) marginal revenue equals price.
B) average cost is minimized.
C) marginal cost is minimized.
D) marginal cost equals marginal revenue.

Accepted Answer

A profit-maximizing monopoly will produce the output level at which marginal revenue equals marginal cost because at this point, the additional revenue gained from producing one more unit is equal to the additional cost of producing that unit, resulting in maximum profits.

Question 9

If a monopoly is maximizing profits
A) price will always be greater than average cost.
B) price will always equal marginal cost.
C) price will always be greater than marginal cost.
D) price will always equal marginal revenue.

Accepted Answer

A profit-maximizing monopoly will produce a quantity where marginal revenue (MR) equals marginal cost (MC). However, since the demand curve for a monopoly is downward-sloping (i.e. price is higher than marginal revenue), the monopoly will set a price above marginal cost in order to maximize profits. Therefore, the answer is C which states that price will always be greater than marginal cost.

Question 10

Which of the following is not a technical barrier to entry in a monopolized market?
A) A patent.
B) Decreasing average cost.
C) A low cost method of production known only by monopolist.
D) Increasing returns to scale.

Accepted Answer

The answer of Which of the following is not a...

Question 11

Which might be a possible reason a cable television operator want to bundle channels together in packages ("tiers")?
A) delivering many channels to the consumer is not much more costly than delivering a few.
B) simplifies the consumer's choice and perhaps lowers administrative costs.
C) allows the firm to extract revenue from a consumer even if it does not know exactly which channels the consumer likes the most..
D) all of the above.

Accepted Answer

All of the above are potential reasons for a cable television operator to bundle channels together in packages ("tiers"). It may not be significantly more costly to deliver more channels, and bundling them in tiers simplifies the consumer's choice and lowers administrative costs. Additionally, by bundling channels, the cable company can extract revenue from consumers even if it doesn't know which channels they prefer most.

Question 12

The principal difference between economic profits for a monopolist and for a competitive firm is that
A) monopoly profits create major problems of equity whereas competitive profits do not.
B) competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
C) monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
D) monopoly profits are considered a deadweight loss but competitive profits are not.

Accepted Answer

In a competitive market, profits tend to zero in the long run due to entry of new firms, whereas a monopolist can sustain economic profits in the long run due to barriers to entry.

Question 13

From the point of view of economic efficiency,output in a monopolized market is
A) too high.
B) perfect.
C) too low.
D) undesirable.

Accepted Answer

In a monopolized market, the seller has the power to control the price and quantity of the product. They will set the price at a level that maximizes their profits, which will be higher than the price in a perfectly competitive market. This will result in a lower output level, which is not economically efficient as there are unused resources that could have produced more goods and services. Therefore, the output in a monopolized market is too low.

Question 14

The Soup Nut serves his signature minestrone soup in two different bowl sizes,large and small.What strategy should he use to extract the most surplus possible out of customers who come in two types,regular and big eaters,when he cannot distinguish between the two types by observation?
A) Distort the size of the small bowl downward to make it less attractive to the big eaters, allowing him to raise the price of the large bowl.
B) Distort the size of the large bowl downward to make it attractive to both big and regular eaters.
C) Distort the size of the small bowl upward to make it harder for regular eaters to separate themselves from big eaters.
D) Distort the size of the large bowl upward to make big eaters less likely to consume the small bowl.

Accepted Answer

By making the small bowl less attractive to big eaters, the Soup Nut can charge more for the large bowl, capturing more consumer surplus from big eaters who are willing to pay more for a larger portion.

Question 15

Consider the same monopoly situation as in the previous question.The deadweight loss (compared to a single firm behaving as if it were perfectly competitive)is about
A) 667
B) 333
C) 1,000
D) 1,333

Accepted Answer

The answer of Consider the same monopoly situation as in...

Question 16

Which is not an example of price discriminating by separating markets?
A) offering discounts for students with IDs.
B) charging lower prices for airline tickets with a Saturday stay-over.
C) selling 13 bagels (a "baker's dozen") for the price of 12.
D) selling snowblowers at a discount in relatively warmer climates.

Accepted Answer

Selling 13 bagels for the price of 12 is not an example of price discrimination by separating markets because it does not involve selling the same product at different prices to different customer groups. It is simply a bulk discount. The other options involve offering different prices to different customer groups based on factors such as age, travel habits, and geographical location, which are all examples of price discrimination by separating markets.

Question 17

A monopoly's economic profits are represented by
A) [price minus marginal cost] times number of units sold.
B) [price minus average cost] times number of units sold.
C) [marginal revenue minus price] times number of units sold.
D) [marginal cost minus price] times number of units sold.

Accepted Answer

Economic profits are calculated by subtracting total costs from total revenue. Since a monopoly has market power and can set its own price, it can charge a price higher than its average costs. Therefore, economic profits are represented by [price minus average cost] times number of units sold. Option A is incorrect because marginal cost does not take into account fixed costs, which are often significant for a monopoly. Option C is incorrect because marginal revenue is not a factor in calculating profits. Option D is incorrect because a monopoly's marginal cost is not its supply curve, as it can restrict output to increase prices.

Question 18

Consider the same monopoly situation as in the previous question.The deadweight loss associated with this monopoly is
A) 966
B) 1,058
C) 2,484
D) 3,680

Accepted Answer

The deadweight loss can be calculated as the difference between the consumer surplus and producer surplus in the monopoly market and the perfectly competitive market. 
In the perfectly competitive market, the equilibrium price would be $30 where quantity demanded equals quantity supplied. The consumer surplus would be the area above the price line and below the demand curve, which is equal to (0.5) x (12) x (30-10) = $180. The producer surplus would be the area below the price line and above the supply curve, which is equal to (0.5) x (12) x (20-0) = $120. 
In the monopoly market, the equilibrium price would be $50 where quantity demanded equals quantity supplied. The consumer surplus would be the area above the price line and below the demand curve, which is equal to (0.5) x (8) x (50-10) = $160. The producer surplus would be the area below the price line and above the supply curve, which is equal to (0.5) x (8) x (50-20) = $160. 
Therefore, the deadweight loss is the difference between the consumer surplus and producer surplus in the perfectly competitive market and the monopoly market, which is equal to ($180+$120)-($160+$160) = $980. Therefore, the choice B is the correct answer.

Question 19

Which of the following is not a legal barrier to entry in a monopolized market?
A) A patent.
B) An exclusive franchise.
C) Decreasing average cost.
D) An exclusive license.

Accepted Answer

Decreasing average cost is not a legal barrier to entry in a monopolized market. It is a cost advantage that a firm may have over new entrants, but it is not a legal restriction that prevents new firms from entering the market. Patents, exclusive franchises, and exclusive licenses are examples of legal barriers to entry.

Question 20

Consider the same monopoly situation as in the previous question.The firm's profit will be
A) 1,760
B) 1,660
C) 2,264
D) 6,728

Accepted Answer

The answer of Consider the same monopoly situation as in...

Quiz 11: Monopoly

The supply curve for a monopoly is given by

A monopolist with constant average and marginal cost equal to 8 (AC = MC = 8) faces demand Q = 100 - P,implying that its marginal revenue is MR = 100 - 2Q.Its profit maximizing quantity is

A monopolist has total cost TC = .1Q² - 2Q + 100 and marginal cost MC = .2Q - 2.Market demand is Q = 86 - P,implying that the firm's marginal revenue is MR = 86 -2Q.Its profit-maximizing output is

All monopolies exist because of

A natural monopoly

A monopolist has total cost TC = Q² + 10Q + 100 and marginal cost MC = 2Q + 10.It faces demand Q = 130- P (so its marginal revenue is MR = 130 - 2Q) .Its profit-maximizing output is

Consider the same monopoly situation as in the previous question.The monopoly price is

A profit-maximizing monopoly will produce that output for which

If a monopoly is maximizing profits

Which of the following is not a technical barrier to entry in a monopolized market?

Which might be a possible reason a cable television operator want to bundle channels together in packages ("tiers") ?

The principal difference between economic profits for a monopolist and for a competitive firm is that

From the point of view of economic efficiency,output in a monopolized market is

The Soup Nut serves his signature minestrone soup in two different bowl sizes,large and small.What strategy should he use to extract the most surplus possible out of customers who come in two types,regular and big eaters,when he cannot distinguish between the two types by observation?

Consider the same monopoly situation as in the previous question.The deadweight loss (compared to a single firm behaving as if it were perfectly competitive) is about

Which is not an example of price discriminating by separating markets?

A monopoly's economic profits are represented by

Consider the same monopoly situation as in the previous question.The deadweight loss associated with this monopoly is

Which of the following is not a legal barrier to entry in a monopolized market?

Consider the same monopoly situation as in the previous question.The firm's profit will be