Question 1

What happens to the price and quantity sold of a drug when its patent runs out? (i) The price will fall.
(ii) The quantity sold will fall.
(iii) The marginal cost of producing the drug will rise.

Accepted Answer

The answer of What happens to the price and quantity...

Question 2

Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?

Accepted Answer

The answer of Suppose a monopolist charges a price of...

Question 3

Generic drugs enter the pharmaceutical drug market once

Accepted Answer

Generic drugs enter the pharmaceutical drug market once the patent on the name brand drug expires, allowing other companies to produce and sell the same drug under a different name. This typically happens after a period of exclusivity granted by the patent, which is usually around 20 years from the time of filing. Once the patent expires, other companies can start producing and selling generic versions of the drug, which have the same active ingredients and are bioequivalent to the name brand drug, but are sold at a lower price.

Question 4

Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?

Accepted Answer

For a monopolist, the profit-maximizing rule is to produce at the quantity where Marginal Revenue (MR) equals Marginal Cost (MC). Here, MR=$4 per unit and MC=$4 per unit. So, the monopolist is producing the profit-maximizing quantity of 50 units. At this quantity, the monopolist's Average Total Cost (ATC) is $3 per unit, which means the monopolist is earning a profit of $5 ($8-$3) per unit. Therefore, the monopolist's total profit at 50 units is $250 (50*$5).

Question 5

A profit-maximizing monopolist charges a price of $14. The intersection of the marginal revenue curve and the marginal cost curve occurs where output is 15 units and marginal cost is $7. What is the monopolist's profit?

Accepted Answer

The answer of A profit-maximizing monopolist charges a price of...

Question 6

Which of the following statements is correct?

Accepted Answer

If a monopolist's marginal revenue is greater than its marginal cost, it can increase profit by producing and selling more units, as the additional revenue from selling more exceeds the additional cost.

Question 7

A reduction in a monopolist's fixed costs would

Accepted Answer

The answer of A reduction in a monopolist's fixed costs...

Question 8

If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit?

Accepted Answer

The answer of If a monopolist sells 100 units at...

Question 9

A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit?

Accepted Answer

To maximize profit, a monopolist produces where marginal revenue equals marginal cost, which is at 10 units in this case. At 10 units, the average total cost is $5, meaning the monopolist incurs a cost of $50 (10 x $5) to produce 10 units of output. 
The monopolist's total revenue is $12 x 10 = $120. 
Therefore, the monopolist's profit is $120 (total revenue) - $50 (total cost) = $70. 
Option B is the correct answer.

Question 10

Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?

Accepted Answer

To maximize profits, a monopolist should produce at the point where marginal cost equals marginal revenue (MC=MR). In this case, the marginal cost of producing 75 units is $6 per unit, while the marginal revenue is $5 per unit. This means that the firm is producing more than it should at that level, and should reduce production. Additionally, the average revenue is less than the price, which means that the monopolist is practicing price discrimination. To increase its profits, the monopolist should produce fewer units and charge a higher price.

Question 11

Which of the following statements is not correct?

Accepted Answer

The monopolist produces where MR = MC, but not necessarily where P = MC. This is because the monopolist has market power and can set a price above marginal cost, while a competitive firm cannot.

Question 12

Due to the nature of the patent laws on pharmaceuticals, the market for such drugs

Accepted Answer

The answer of Due to the nature of the patent...

Question 13

The supply curve for the monopolist

Accepted Answer

The answer of The supply curve for the monopolist
...

Question 14

Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because (i) almost all people fear the generic drug companies are devoting too few resources to research and development.
(ii) some people fear that generic drugs are inferior.
(iii) some people are loyal to the name brand.

Accepted Answer

Some people fear that generic drugs are inferior and some people are loyal to the name brand, which allows name brand drugs to continue capitalizing on their market power even after generic drugs enter the market. However, there is no evidence to support the claim that generic drug companies are devoting too few resources to research and development.

Question 15

A monopoly's marginal cost will

Accepted Answer

In a monopoly, the price per unit is typically higher than the marginal cost because monopolies set prices above marginal cost to maximize profits.

Question 16

Which of the following formulas would correctly calculate a monopolist's profit?

Accepted Answer

The formula for calculating a monopolist's profit is (price - average total cost) x quantity. This formula takes into account both the price and cost factors of producing a good, which is important for a monopolist who has significant market power and can set prices higher than their costs. Subtracting the average total cost from the price gives the monopolist their per unit profit, and multiplying this by the quantity sold gives the total profit.

Question 17

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

Accepted Answer

Patent law grants the inventor of a new drug exclusive sales rights for a limited period, usually 20 years from the date of filing. After this period, other firms may produce the drug without penalty. Therefore, the pharmaceutical company has sole ownership of the right to sell the drug for a limited number of years.

Question 18

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

Accepted Answer

The answer of In a competitive market, a firm's supply...

Question 19

A monopolist

Accepted Answer

A monopolist does not have a supply curve because it chooses the quantity to supply at the same time it sets the price, which is determined by the demand curve it faces. Therefore, the answer is B.

Question 20

After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market?

Accepted Answer

When generic drugs enter the market, competition increases, which puts downward pressure on the price of the drug. As a result, the price decreases to a level that is more affordable for consumers. This decrease in price increases consumer surplus and access to healthcare, which ultimately increases total surplus. Therefore, choice C is the best answer.

Quiz 15: Monopoly

What happens to the price and quantity sold of a drug when its patent runs out? (i) The price will fall. (ii) The quantity sold will fall. (iii) The marginal cost of producing the drug will rise.