Question 1

Why do gas stations near airports have a higher price markup than gas stations at busy intersections in the city?
A)Gas stations at busy intersections have to contend with more competition than gas stations within the city.
B)Gas stations within the city are less convenient for consumers than gas stations at the airport.
C)Gas stations at airports face a smaller price elasticity of demand than gas stations in the city.
D)Gas stations at airports have higher fixed costs than gas stations in the city.

Accepted Answer

Gas stations at airports face a smaller price elasticity of demand because travelers may have limited options and may be willing to pay higher prices for convenience. Additionally, airports may charge the gas station higher rent or fees, contributing to higher fixed costs. Gas stations within the city may face more competition, giving consumers more options and less willingness to pay higher prices.

Question 2

For a profit-maximizing monopoly firm,the relationship between price [P],marginal revenue [MR],and the absolute value of the price elasticity of demand [$\eta$] is given by:
A)P = MR(1 - 1/$\eta$)
B)P = MR($\eta$ - 1)
C)MR = P($\eta$ - 1)
D)MR = P[1 - (1/$\eta$)]

Accepted Answer

The correct formula for a profit-maximizing monopoly firm is MR = P[1 - (1/F1F1F1S1F1F1F10)], which matches option D. This formula shows that the marginal revenue (MR) of a monopoly firm is equal to the price (P) times the quantity [1 - (1/F1F1F1S1F1F1F10)], where F1F1F1S1F1F1F10 is the absolute value of the price elasticity of demand. This quantity reflects the impact of a change in price on the quantity of goods demanded by consumers. Since a monopoly firm faces a downward sloping demand curve, it must lower its price to sell more units, which in turn lowers its marginal revenue. Thus, the formula for MR takes into account both the price and demand elasticity when determining the profit-maximizing level of output.

Question 3

Acme Baseball Bats is a monopoly firm.If the marginal cost of producing a baseball bat is $30,and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4,at what price should Acme set its price if it wants to maximize profits?
A)$30
B)$40
C)$50
D)$60

Accepted Answer

To maximize profits, a monopoly should set its price where marginal revenue (MR) equals marginal cost (MC). The relationship between price elasticity of demand (E) and marginal revenue is given by the formula MR = P(1 - 1/E), where P is the price. Given E = 4 and MC = $30, we solve for P when MR = MC. Rearranging the formula to solve for P gives P = MC / (1 - 1/E) = $30 / (1 - 1/4) = $30 / (3/4) = $40.

Question 4

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. 
Refer to Figure 11-3.The profit of the monopolist is shown by the area _____.
A)AFCO
B)IHB
C)AFGB
D)AFHB

Accepted Answer

The answer of The following figure shows the marginal revenue...

Question 5

At an output of 1,000 units,a monopoly firm's average revenue is $40,its marginal revenue is $30,its marginal cost is $30,its average variable cost is $35,and fixed costs are $5,000.Given this information,we can conclude that the monopolist:
A)is earning zero economic profit.
B)is earning an economic profit equal to $5,000.
C)is making an economic loss and should shut down.
D)should increase output to maximize profit.

Accepted Answer

At an output of 1,000 units, the total revenue (TR) is $40,000 (since average revenue, which is also the price, is $40). The total cost (TC) is composed of total variable cost (TVC) and total fixed cost (TFC). TVC can be calculated as average variable cost (AVC) times quantity, which is $35,000 ($35 * 1,000), and TFC is given as $5,000. Thus, TC = TVC + TFC = $35,000 + $5,000 = $40,000. Since TR = TC, the firm is earning zero economic profit.

Question 6

The following figure shows the marginal cost,average cost,marginal revenue,and the demand curve for a profit-maximizing monopolist. 
Refer to Figure 11-4.What is the firm's economic profit?
A)$360
B)$540
C)$630
D)$900

Accepted Answer

The answer of The following figure shows the marginal cost,average...

Question 7

Suppose your pharmaceutical company,which operates as a monopoly,has a patent on a drug with an estimated price elasticity of demand of 1.2.If the marginal cost of producing each pill is $3,at what price should you sell your drug if profit maximization is your objective?
A)$3
B)$9
C)$16
D)$18

Accepted Answer

To maximize profit, a monopolist sets the price where marginal revenue equals marginal cost. The formula for price in terms of elasticity is P = MC / (1 - 1/|E|). Here, E = 1.2, MC = $3. So, P = 3 / (1 - 1/1.2) = 3 / (1 - 0.8333) = 3 / 0.1667 = $18.

Question 8

Which of the following conditions generally holds when a monopoly firm is producing its profit-maximizing level of output?
A)Marginal cost [MC] = marginal revenue [MR] = average cost [AC] = average revenue [AR]
B)MC = MR > AC
C)MC = MR = price
D)MC = MR < AR

Accepted Answer

In a monopoly, the profit-maximizing condition is where marginal cost (MC) equals marginal revenue (MR). However, because the monopolist can set prices above marginal cost, the price (or average revenue, AR) is greater than MR.

Question 9

Which of the following is not necessarily true at the profit-maximizing quantity for a monopolist?
A)The marginal revenue is equal to the marginal cost of production.
B)The slope of the marginal revenue curve equals the slope of the marginal cost curve.
C)The difference between total revenue and total cost is maximized.
D)The difference between price and average cost is maximized.

Accepted Answer

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

Question 10

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. 
Refer to Figure 11-3.The equilibrium price charged by a profit-maximizing monopoly firm is _____.
A)OA
B)OB
C)OI
D)OC

Accepted Answer

The answer of The following figure shows the marginal revenue...

Question 11

Assume that a monopoly firm's price is $4,marginal cost is $3 and the absolute value of price elasticity of demand is 4.Based on this information we can conclude that the firm:
A)is maximizing profit.
B)should increase output.
C)should reduce output.
D)should increase price but keep output constant.

Accepted Answer

The firm is maximizing profit because the absolute value of price elasticity of demand is greater than 1.

Question 12

For a monopoly firm to maximize profits,its price markup should:
A)be at its maximum possible point.
B)equal the price elasticity of demand.
C)equal the inverse of demand elasticity.
D)equal marginal revenue.

Accepted Answer

The price markup for a monopoly firm to maximize profits should equal the inverse of the demand elasticity. This is because the optimal markup formula is based on the price elasticity of demand, where the markup over marginal cost is inversely related to the elasticity of demand.

Question 13

In response to a rightward shift in the demand for a commodity,a monopoly firm that is producing at the profit-maximizing level of output will:
A)decrease price and output.
B)decrease output and increase price.
C)increase price but maintain the level of output.
D)increase output and price.

Accepted Answer

A rightward shift in demand for a commodity indicates an increase in demand. For a monopoly firm producing at the profit-maximizing level of output, this increase in demand allows the firm to raise its price due to higher willingness to pay among consumers. Additionally, to meet the increased demand, the firm will also increase its output.

Question 14

A monopolist does not have a supply curve because:
A)price and quantity are determined by marginal cost and demand.
B)a monopoly firm's marginal cost of production is constant.
C)supply is determined by average total cost and not price.
D)firms in monopoly markets are price takers.

Accepted Answer

A monopolist does not have a supply curve because it does not set production based on a given price as in a competitive market. Instead, it sets the price based on the marginal cost and the demand. Therefore, the quantity produced is determined by the demand and the firm's marginal cost, not a specific supply curve.

Question 15

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. 
Refer to Figure 11-3.A profit-maximizing monopoly firm will produce output equal to _____.
A)OC
B)OE
C)OJ
D)CJ

Accepted Answer

The answer of The following figure shows the marginal revenue...

Question 16

The markup of price over marginal cost for a monopolist is _____.
A)independent of the price elasticity of demand
B)inversely related to the price elasticity of demand
C)the same as the price elasticity of demand
D)the same as the price elasticity of supply

Accepted Answer

The markup of price over marginal cost for a monopolist is inversely related to the price elasticity of demand. In other words, when demand is more elastic (i.e. consumers are more price sensitive), the markup will be lower. This is because if the monopolist tries to charge a high price, they will lose a lot of customers to substitutes, whereas if they charge a lower price, they can capture a larger share of the market. On the other hand, if demand is less elastic (i.e. consumers are less price sensitive), the monopolist can charge a higher price without losing too many customers. Thus, the markup will be higher.

Question 17

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. 
Refer to Figure 11-2.The profit earned by the monopolist is given by the area _____.
A)BHLM
B)IDN
C)AFLM
D)AFHB

Accepted Answer

The answer of The following figure shows the marginal cost...

Question 18

If the demand elasticity for the monopolist's product is equal to -2 and marginal revenue is 10,
What is the profit-maximizing price?
A)$20
B)$10
C)$0.50
D)$5

Accepted Answer

The profit-maximizing price can be found using the formula P = MR / (1 + (1/E)), where P is the price, MR is the marginal revenue, and E is the price elasticity of demand. Substituting the given values, P = 10 / (1 + (1/-2)) = 10 / (1 - 0.5) = 10 / 0.5 = $20.

Question 19

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. 
Refer to Figure 11-2.If the government wishes to regulate the monopoly firm by setting the price at OB in the market,the monopolist will:
A)produce the efficient quantity of output.
B)have to shut down to cut losses.
C)continue to earn economic profits.
D)earn a higher profit.

Accepted Answer

The answer of The following figure shows the marginal cost...

Question 20

If P = price and MC = marginal cost,the price markup of a monopolist is expressed as _____.
A)(P - Mc./MC
B)(P - Mc./P
C)(MC - P)/MC
D)(MC - P)/P

Accepted Answer

The price markup of a monopolist is expressed as (P - MC)/P. This formula calculates the difference between the price charged and the marginal cost, and then divides that difference by the price. This shows the percentage increase in price over the marginal cost, allowing the monopolist to make a profit from the market power they possess. Therefore, option B is the correct answer.

Quiz 11: Monopoly

Why do gas stations near airports have a higher price markup than gas stations at busy intersections in the city?

For a profit-maximizing monopoly firm,the relationship between price [P],marginal revenue [MR],and the absolute value of the price elasticity of demand [ $\eta$ ] is given by:

Acme Baseball Bats is a monopoly firm.If the marginal cost of producing a baseball bat is $30,and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4,at what price should Acme set its price if it wants to maximize profits?

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.The profit of the monopolist is shown by the area _____.

At an output of 1,000 units,a monopoly firm's average revenue is $40,its marginal revenue is $30,its marginal cost is $30,its average variable cost is $35,and fixed costs are $5,000.Given this information,we can conclude that the monopolist:

The following figure shows the marginal cost,average cost,marginal revenue,and the demand curve for a profit-maximizing monopolist. Refer to Figure 11-4.What is the firm's economic profit?

Suppose your pharmaceutical company,which operates as a monopoly,has a patent on a drug with an estimated price elasticity of demand of 1.2.If the marginal cost of producing each pill is $3,at what price should you sell your drug if profit maximization is your objective?

Which of the following conditions generally holds when a monopoly firm is producing its profit-maximizing level of output?

Which of the following is not necessarily true at the profit-maximizing quantity for a monopolist?

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.The equilibrium price charged by a profit-maximizing monopoly firm is _____.

Assume that a monopoly firm's price is $4,marginal cost is $3 and the absolute value of price elasticity of demand is 4.Based on this information we can conclude that the firm:

For a monopoly firm to maximize profits,its price markup should:

In response to a rightward shift in the demand for a commodity,a monopoly firm that is producing at the profit-maximizing level of output will:

A monopolist does not have a supply curve because:

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.A profit-maximizing monopoly firm will produce output equal to _____.

The markup of price over marginal cost for a monopolist is _____.

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. Refer to Figure 11-2.The profit earned by the monopolist is given by the area _____.

If the demand elasticity for the monopolist's product is equal to -2 and marginal revenue is 10, What is the profit-maximizing price?

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. Refer to Figure 11-2.If the government wishes to regulate the monopoly firm by setting the price at OB in the market,the monopolist will:

If P = price and MC = marginal cost,the price markup of a monopolist is expressed as _____.

Quiz 11: Monopoly

Why do gas stations near airports have a higher price markup than gas stations at busy intersections in the city?

For a profit-maximizing monopoly firm,the relationship between price [P],marginal revenue [MR],and the absolute value of the price elasticity of demand [ η\etaη ] is given by:

Acme Baseball Bats is a monopoly firm.If the marginal cost of producing a baseball bat is $30,and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4,at what price should Acme set its price if it wants to maximize profits?

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.The profit of the monopolist is shown by the area _____.

At an output of 1,000 units,a monopoly firm's average revenue is $40,its marginal revenue is $30,its marginal cost is $30,its average variable cost is $35,and fixed costs are $5,000.Given this information,we can conclude that the monopolist:

The following figure shows the marginal cost,average cost,marginal revenue,and the demand curve for a profit-maximizing monopolist. Refer to Figure 11-4.What is the firm's economic profit?

Suppose your pharmaceutical company,which operates as a monopoly,has a patent on a drug with an estimated price elasticity of demand of 1.2.If the marginal cost of producing each pill is $3,at what price should you sell your drug if profit maximization is your objective?

Which of the following conditions generally holds when a monopoly firm is producing its profit-maximizing level of output?

Which of the following is not necessarily true at the profit-maximizing quantity for a monopolist?

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.The equilibrium price charged by a profit-maximizing monopoly firm is _____.

Assume that a monopoly firm's price is $4,marginal cost is $3 and the absolute value of price elasticity of demand is 4.Based on this information we can conclude that the firm:

For a monopoly firm to maximize profits,its price markup should:

In response to a rightward shift in the demand for a commodity,a monopoly firm that is producing at the profit-maximizing level of output will:

A monopolist does not have a supply curve because:

The following figure shows the marginal revenue [MR],demand,and average cost [AC] curves for a profit-maximizing monopolist in the long run. Refer to Figure 11-3.A profit-maximizing monopoly firm will produce output equal to _____.

The markup of price over marginal cost for a monopolist is _____.

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. Refer to Figure 11-2.The profit earned by the monopolist is given by the area _____.

If the demand elasticity for the monopolist's product is equal to -2 and marginal revenue is 10, What is the profit-maximizing price?

The following figure shows the marginal cost [MC],average cost [AC],marginal revenue [MR],and demand curves for a profit-maximizing monopolist. Refer to Figure 11-2.If the government wishes to regulate the monopoly firm by setting the price at OB in the market,the monopolist will:

If P = price and MC = marginal cost,the price markup of a monopolist is expressed as _____.

For a profit-maximizing monopoly firm,the relationship between price [P],marginal revenue [MR],and the absolute value of the price elasticity of demand [ $\eta$ ] is given by: