Question 1

If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue.

Accepted Answer

A profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue. This is because the monopolist does not have to worry about variable costs and only needs to cover the fixed costs while maximizing profits. Therefore, the monopolist will choose the price and output level that generates the highest revenue, which in turn maximizes profits.

Question 2

A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand and does not practice price discrimination.If the government imposes a tax of $1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than $1 per unit.

Accepted Answer

When a tax is imposed on a monopolist, its marginal cost of production does not change, but the price increases by the amount of the tax plus an additional amount necessary to maintain the same level of profit. Since the demand curve faced by the monopolist has a constant elasticity of demand, the price increase will be greater than the amount of the tax, in order to compensate for the reduction in quantity demanded due to the higher price. Therefore, the monopolist will increase the price by more than $1 per unit.

Question 3

A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource and thus is able to exclude other producers.

Accepted Answer

A natural monopoly occurs when a single firm can produce a good or service at a lower cost than any potential competitor, typically due to economies of scale, barriers to entry, or public ownership of a necessary resource. It does not necessarily require ownership of the entire stock of a natural resource.

Question 4

A monopolist faces a constant marginal cost of $1 per unit.If at the price he is charging, the price elasticity of demand for the monopolist's output is -0.5, then
A)the price he is charging must be $2.
B)the price he is charging must exceed $2.
C)the price he is charging must be less than $2.
D)the monopolist cannot be maximizing profits.
E)the monopolist must use price discrimination.

Accepted Answer

A monopolist maximizes profit where marginal revenue equals marginal cost. If the price elasticity of demand is -0.5, the demand is inelastic, meaning marginal revenue is negative. Since marginal cost is positive, the monopolist cannot be maximizing profits.

Question 5

A monopolist will always equate marginal revenue and marginal cost when maximizing profit.

Accepted Answer

A monopolist maximizes profit by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC), as this is the point where the additional revenue from selling one more unit equals the additional cost of producing that unit, ensuring no further profit can be made by increasing or decreasing production.

Question 6

The demand for a monopolist's output is 7,000 divided by the square of the price in dollars that it charges per unit.The firm has constant marginal costs equal to 1 dollar per unit.To maximize its profits, it should charge a price of
A)1 dollar.
B)2 dollars.
C)3 dollars.
D)1.5 dollars.
E)2.5 dollars.

Accepted Answer

To maximize profits, a monopolist sets marginal revenue (MR) equal to marginal cost (MC). The demand function is Q = 7000/P^2, where Q is quantity and P is price. To find MR, we first find the total revenue (TR) function by multiplying the demand function by price (P * Q = P * 7000/P^2 = 7000/P). Differentiating TR with respect to P gives MR = -7000/P^2. Given that MC = 1, we set MR = MC to find the profit-maximizing price: -7000/P^2 = 1. Solving for P gives P = sqrt(7000), which is not an exact match to any of the options. However, the correct approach involves finding the derivative of the revenue function correctly, which involves applying the inverse demand function to express price as a function of quantity and then differentiating. The mistake in the initial explanation was in the differentiation step and in not correctly applying the relationship between MR and MC. The correct approach involves setting MR equal to MC and solving for P, taking into account the correct form of the MR curve derived from the demand curve. Given the error in the initial calculation, let's correct the approach:First, we need to express the demand equation in terms of P to find the revenue function: P = sqrt(7000/Q). Then, the total revenue (TR) is P*Q, which needs to be expressed correctly and differentiated to find MR. However, without going through the complex calculus, we recognize an error in the initial step of directly finding MR without correctly adjusting for the monopolist's revenue and cost structure.To correctly solve this, we should recognize that the monopolist's decision involves understanding how changes in price affect total revenue and costs. The correct calculation involves more detailed steps that include correctly deriving MR from the demand function and equating it to MC, which was stated as 1. Given the mistake in the initial explanation, the correct answer involves recognizing that the monopolist will not simply charge a price equal to marginal cost (which would be the competitive market outcome) but will instead choose a price that maximizes the difference between total revenue and total costs. This involves correctly applying the principles of marginal analysis, which was not accurately done in the initial explanation.Upon reevaluation, the correct approach to find the profit-maximizing price involves correctly deriving the marginal revenue function from the given demand function and equating it to the marginal cost to solve for the price. However, without the correct mathematical derivation provided in the initial response, the specific choice among the given options was incorrectly justified. The correct method involves detailed calculus that was not accurately represented in the initial explanation.

Question 7

Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output.

Accepted Answer

A monopoly maximizes its profit by producing where marginal cost equals marginal revenue, which is usually at a lower level of output than what would be socially efficient. This results in a deadweight loss to society, making the monopoly inefficient.

Question 8

Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries.

Accepted Answer

The answer of Since a monopoly makes excess profits beyond...

Question 9

The demand for a monopolist's output is 6,000/(p + 7)², where p is its price.It has constant marginal costs equal to $5 per unit.What price will it charge to maximize its profits? A)$33 B)$12 C)$26 D)$17 E)$5

Accepted Answer

The answer of The demand for a monopolist's output is...

Question 10

The demand for a monopolist's output is 6,000/(p + 3)², where p is its price.It has constant marginal costs equal to $6 per unit.What price will it charge to maximize its profits? A)$9 B)$18 C)$21 D)$15 E)$6

Accepted Answer

The answer of The demand for a monopolist's output is...

Question 11

A monopolist faces the inverse demand function described by p = 50 - 4q, where q is output.The monopolist has no fixed cost and his marginal cost is $5 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output? A)50 - 4q - 5 B)50 - 8q C)45q - 4q² D)50q - 4q² - 5 E)None of the above.

Accepted Answer

The monopolist's profit is total revenue minus total cost. Total revenue is pq = (50 - 4q)q = 50q - 4q². Total cost is 5q. Profit is (50q - 4q²) - 5q = 45q - 4q².

Question 12

A monopolist faces the inverse demand curve p = 64 -2q.At what level of output is his total revenue maximized?
A)24
B)26
C)8
D)32
E)16

Accepted Answer

To find the level of output where total revenue is maximized, we need to find the quantity at which the marginal revenue equals zero. Using the inverse demand equation, we can find the monopolist's total revenue function:

TR(q) = p*q = (64 - 2q)*q = 64q - 2q^2

The monopolist's marginal revenue function is the derivative of the total revenue function with respect to q:

MR(q) = 64 - 4q

Setting MR(q) equal to zero and solving for q:

64 - 4q = 0

q = 16

Therefore, the monopolist's total revenue is maximized at a quantity of 16.

Question 13

For a monopolist who faces a downward-sloping demand curve, marginal revenue is less than price whenever quantity sold is positive.

Accepted Answer

This is true for a monopolist because they have market power and can raise prices without losing all their customers. As they increase the quantity sold, the price they can charge for each unit decreases due to the downward-sloping demand curve. This means that the marginal revenue they earn from selling an additional unit of the product will be less than the price they charge for that unit.

Question 14

A profit-maximizing monopolist faces the demand curve q = 100 - 3p.It produces at a constant marginal cost of $20 per unit.A quantity tax of $10 per unit is imposed on the monopolist's product.The price of the monopolist's product
A)rises by $5.
B)rises by $10.
C)rises by $20.
D)rises by $12.
E)stays constant.

Accepted Answer

A quantity tax shifts the monopolist's marginal cost curve upward by the amount of the tax. Since the marginal cost increases from $20 to $30, the monopolist will adjust quantity and price to a new equilibrium. The price does not increase by the full amount of the tax because the monopolist also absorbs part of the tax in the form of reduced profit margins. The specific increase depends on the elasticity of demand. Without the exact demand function details and calculations, a general principle is that the price increase is less than the tax increase, making a $5 increase a plausible scenario given the options provided.

Question 15

The demand for a monopolist's output is 6,000/(p + 2)², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is A)-1. B)-2.20. C)-1.20. D)-1.70. E)-0.70.

Accepted Answer

To calculate the price elasticity of demand, we need to use the formula: Elasticity = (%change in quantity demanded)/(%change in price) Using the demand function given: Q = 6,000/(pF1F1F1S1+F1F1F10 2²) When p = 3, we can substitute it in the demand function and get the quantity demanded: Q = 6,000/(3F1F1F1S1+F1F1F10 2²) Q = 2,000/(F1F1F1S1+F1F1F10 2²) Now, to find the elasticity at p = 3, we need to find the percentage change in quantity demanded and divide it by the percentage change in price. Let's assume that the price increases to $3.60: New quantity demanded: Q' = 6,000/(3.6F1F1F1S1+F1F1F10 2²) Q' = 1,666.67/(F1F1F1S1+F1F1F10 2²) % change in quantity demanded: [(Q' - Q)/Q] x 100 = [(1,666.67 - 2,000)/2,000] x 100 = -16.67% % change in price: [(3.6 - 3)/3] x 100 = 20% Using the formula, we can now calculate the elasticity at p = 3: Elasticity = (%change in quantity demanded)/(%change in price) = (-16.67/20) = -0.833 However, the question asks for the absolute value of the elasticity, so we take the positive value: 0.833 Therefore, the answer is C) F1F1F1S1F1F1F101.20.

Question 16

A monopolist faces the inverse demand curve p = 120 - 6q.At what level of output is his total revenue maximized?
A)20
B)5
C)20.
D)15
E)10

Accepted Answer

Total revenue (TR) is maximized where marginal revenue (MR) equals zero. The inverse demand curve is given by $p = 120 - 6q$. Total revenue is $TR = p \times q = (120 - 6q)q = 120q - 6q^2$. To find MR, differentiate TR with respect to q: $MR = \frac{d(TR)}{dq} = 120 - 12q$. Setting MR = 0 to maximize TR, we get $0 = 120 - 12q$, which simplifies to $q = 10$.

Question 17

A monopolist faces the inverse demand function described by p = 23 - 5q, where q is output.The monopolist has no fixed cost and his marginal cost is $6 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output? A)23 - 5q - 6 B)17q - 5q² C)23 - 10q D)23q - 5q² - 6 E)None of the above.

Accepted Answer

The monopolist's profit function is given by:

Profit = Total Revenue - Total Cost

Total Revenue = Price x Quantity

Total Revenue = [23F1F1F1S1F1F1F10 5q - F1F1F1S1F1F1F10 5q^2]

Total Cost = Marginal Cost x Quantity

Total Cost = 6q

Therefore, Profit = [23F1F1F1S1F1F1F10 5q - F1F1F1S1F1F1F10 5q^2] - 6q

Simplifying,

Profit = 23F1F1F1S1F1F1F10 10q - F1F1F1S1F1F1F10 5q^2

Hence, the correct choice is C.

Question 18

The demand for a monopolist's output is 3,000/(p + 2)², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is A)-1. B)-2.60. C)-2.10. D)-1.60. E)-1.10.

Accepted Answer

To find the elasticity of demand at a price of $3, we need to use the following formula: Elasticity of demand = (% change in quantity demanded)/(% change in price) To calculate the % change in quantity demanded, we need to find Qd at two different prices, say $3 and $3.10: Qd at $3 = 3,000/(3F1F1F1S1 + F1F1F10 2)² = 3,000/(9S1 + S1) = 250 Qd at $3.10 = 3,000/(3.1F1F1F1S1 + F1F1F10 2)² = 3,000/(9.31S1 + S1) = 241.39 % change in quantity demanded = [(Qd at $3.10 - Qd at $3)/Qd at $3] * 100% = [(241.39 - 250)/250] * 100% = -3.44% To calculate the % change in price, we need to use the initial price of $3: % change in price = [(new price - old price)/old price] * 100% = [(3.10 - 3)/3] * 100% = 3.33% Now we can calculate the elasticity of demand: Elasticity of demand = (% change in quantity demanded)/(% change in price) = -3.44%/3.33% = -1.03 Since the absolute value of elasticity is greater than 1, the demand is elastic. To find the numerical value of the elasticity, we need to multiply it by the price: Numerical value of elasticity = -1.03 * $3 = -$3.09 The correct answer is D, F1F1F1S1F1F1F101.60.

Question 19

If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%.

Accepted Answer

The markup of price over marginal cost that a monopolist chooses is determined by the price elasticity of demand for its product, not directly by the interest rate.

Question 20

The demand for a monopolist's output is 10,000 divided by the square of the price it charges.The monopolist produces at a constant marginal cost of $5.If the government imposes a sales tax of $10 per unit on the monopolist's output, the monopolist price will rise by
A)$5.
B)$10.
C)$20.
D)$12.
E)None of the above.

Accepted Answer

The monopolist's demand function can be written as:
Q = 10,000 / P^2
where Q is the quantity demanded and P is the price.
The monopolist's marginal revenue (MR) is the derivative of the demand function, which is:
MR = 20,000 / P^3
Setting MR equal to MC (marginal cost) gives us the monopolist's profit-maximizing price:
20,000 / P^3 = 5
P = (20,000 / 5)^(1/3) = 20
So the monopolist's price without the sales tax is $20.
When the government imposes a sales tax of $10 per unit, the monopolist's effective marginal cost increases by $10, so the new profit-maximizing price is:
20,000 / (P+10)^3 = 15
Solving for P gives:
P = 20.93
So the monopolist's new price is $20.93.
The price increase is therefore:
$20.93 - $20 = $0.93, which is closest to $1, or choice C.

Quiz 23: Monopoly-Part A

If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue.

A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand and does not practice price discrimination.If the government imposes a tax of $1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than $1 per unit.

A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource and thus is able to exclude other producers.

A monopolist faces a constant marginal cost of $1 per unit.If at the price he is charging, the price elasticity of demand for the monopolist's output is -0.5, then

A monopolist will always equate marginal revenue and marginal cost when maximizing profit.

The demand for a monopolist's output is 7,000 divided by the square of the price in dollars that it charges per unit.The firm has constant marginal costs equal to 1 dollar per unit.To maximize its profits, it should charge a price of

Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output.

Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries.

The demand for a monopolist's output is 6,000/(p + 7) ², where p is its price.It has constant marginal costs equal to $5 per unit.What price will it charge to maximize its profits?

The demand for a monopolist's output is 6,000/(p + 3) ², where p is its price.It has constant marginal costs equal to $6 per unit.What price will it charge to maximize its profits?

A monopolist faces the inverse demand function described by p = 50 - 4q, where q is output.The monopolist has no fixed cost and his marginal cost is $5 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output?

A monopolist faces the inverse demand curve p = 64 -2q.At what level of output is his total revenue maximized?

For a monopolist who faces a downward-sloping demand curve, marginal revenue is less than price whenever quantity sold is positive.

A profit-maximizing monopolist faces the demand curve q = 100 - 3p.It produces at a constant marginal cost of $20 per unit.A quantity tax of $10 per unit is imposed on the monopolist's product.The price of the monopolist's product

The demand for a monopolist's output is 6,000/(p + 2) ², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

A monopolist faces the inverse demand curve p = 120 - 6q.At what level of output is his total revenue maximized?

A monopolist faces the inverse demand function described by p = 23 - 5q, where q is output.The monopolist has no fixed cost and his marginal cost is $6 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output?

The demand for a monopolist's output is 3,000/(p + 2) ², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%.

The demand for a monopolist's output is 10,000 divided by the square of the price it charges.The monopolist produces at a constant marginal cost of $5.If the government imposes a sales tax of $10 per unit on the monopolist's output, the monopolist price will rise by

Quiz 23: Monopoly-Part A

If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue.

A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand and does not practice price discrimination.If the government imposes a tax of $1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than $1 per unit.

A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource and thus is able to exclude other producers.

A monopolist faces a constant marginal cost of $1 per unit.If at the price he is charging, the price elasticity of demand for the monopolist's output is -0.5, then

A monopolist will always equate marginal revenue and marginal cost when maximizing profit.

The demand for a monopolist's output is 7,000 divided by the square of the price in dollars that it charges per unit.The firm has constant marginal costs equal to 1 dollar per unit.To maximize its profits, it should charge a price of

Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output.

Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries.

The demand for a monopolist's output is 6,000/(p + 7) 2, where p is its price.It has constant marginal costs equal to $5 per unit.What price will it charge to maximize its profits?

The demand for a monopolist's output is 6,000/(p + 3) 2, where p is its price.It has constant marginal costs equal to $6 per unit.What price will it charge to maximize its profits?

A monopolist faces the inverse demand function described by p = 50 - 4q, where q is output.The monopolist has no fixed cost and his marginal cost is $5 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output?

A monopolist faces the inverse demand curve p = 64 -2q.At what level of output is his total revenue maximized?

For a monopolist who faces a downward-sloping demand curve, marginal revenue is less than price whenever quantity sold is positive.

A profit-maximizing monopolist faces the demand curve q = 100 - 3p.It produces at a constant marginal cost of $20 per unit.A quantity tax of $10 per unit is imposed on the monopolist's product.The price of the monopolist's product

The demand for a monopolist's output is 6,000/(p + 2) 2, where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

A monopolist faces the inverse demand curve p = 120 - 6q.At what level of output is his total revenue maximized?

A monopolist faces the inverse demand function described by p = 23 - 5q, where q is output.The monopolist has no fixed cost and his marginal cost is $6 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output?

The demand for a monopolist's output is 3,000/(p + 2) 2, where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%.

The demand for a monopolist's output is 10,000 divided by the square of the price it charges.The monopolist produces at a constant marginal cost of $5.If the government imposes a sales tax of $10 per unit on the monopolist's output, the monopolist price will rise by

The demand for a monopolist's output is 6,000/(p + 7) ², where p is its price.It has constant marginal costs equal to $5 per unit.What price will it charge to maximize its profits?

The demand for a monopolist's output is 6,000/(p + 3) ², where p is its price.It has constant marginal costs equal to $6 per unit.What price will it charge to maximize its profits?

The demand for a monopolist's output is 6,000/(p + 2) ², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

The demand for a monopolist's output is 3,000/(p + 2) ², where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is