Question 1

Exhibit 10-2 
-Refer to Exhibit 10-2.Calculate marginal revenue for the second,third,and fourth unit of output.

Accepted Answer

The answer of Exhibit 10-2 
-Refer to Exhibit 10-2.Calculate marginal...

Question 2

Which of the following statements is false?
A)A competitive firm maximizes profit when marginal revenue equals marginal cost.
B)When a competitive firm increases output by one unit,revenue increases by an amount equal to market price.
C)A monopoly and a competitive firm use a similar rule for setting output to maximize profit.
D)When a monopoly increases output by one unit,revenue increases by an amount less than market price.
E)A monopoly maximizes profit when price equals marginal cost.

Accepted Answer

A monopoly maximizes profit where marginal revenue equals marginal cost, not where price equals marginal cost. This is due to the downward-sloping demand curve a monopoly faces, which means that to sell more units, the price must decrease, affecting the revenue for all units sold.

Question 3

Explain why a monopoly can raise the price of its product and continue operating,whereas a competitive firm cannot.

Accepted Answer

The answer of Explain why a monopoly can raise the...

Question 4

A profit-maximizing monopoly might choose to produce anywhere along a straight-line market demand curve.

Accepted Answer

A profit-maximizing monopoly will produce at the quantity where marginal cost equals marginal revenue, not just anywhere along the demand curve. This specific quantity maximizes the difference between total revenue and total cost.

Question 5

A monopoly will expand output until total revenue is maximized.

Accepted Answer

A monopoly will expand output until marginal revenue equals marginal cost, not total revenue.

Question 6

Exhibit 10-2 
-Refer to Exhibit 10-2.Suppose fixed costs are $10.What are the profit-maximizing output,output price,and total profit?

Accepted Answer

The answer of Exhibit 10-2 
-Refer to Exhibit 10-2.Suppose fixed...

Question 7

On a monopoly diagram showing demand,marginal revenue,marginal cost,and average total cost,which of the following cannot be illustrated?
A)Marginal cost
B)Market price
C)Total costs
D)Market output
E)Fixed costs

Accepted Answer

All of the other choices (A, B, C, and D) can be illustrated on a monopoly diagram. Marginal cost is shown as the increasing portion of the supply curve, market price is the point where the demand curve intersects with the marginal revenue curve, total costs are shown as the vertical distance between the average total cost curve and the quantity axis, and market output is shown as the quantity where the marginal cost curve intersects with the marginal revenue curve. However, fixed costs are not shown on the diagram as they are not represented by any of the curves.

Question 8

To maximize profits,a monopoly produces at ____ and a competitive firm produces at ____.
A)price equal to marginal cost; price equal to marginal cost
B)price equal to average cost; price equal to marginal cost
C)marginal revenue greater than marginal cost; price greater than marginal cost
D)marginal revenue equal to marginal cost; price equal to marginal cost
E)marginal revenue equal to average revenue; price greater than marginal revenue

Accepted Answer

A monopoly maximizes profits where its marginal revenue equals its marginal cost. This is because a monopoly has market power and can set its price above the marginal cost. On the other hand, a competitive firm operates where its marginal cost equals its price (which is equal to the market price). This is because a competitive market has many sellers, and a firm that charges above the market price will not be able to sell its products. Therefore, the only point where a competitive firm can maximize profits is where its marginal cost equals the price, which is also equal to marginal revenue in a competitive market.

Question 9

Why is the marginal revenue curve for a monopoly steeper than its demand curve?

Accepted Answer

The answer of Why is the marginal revenue curve for...

Question 10

Suppose there are 1,000 firms in a market,and market demand has a price elasticity of 0.5.Initially,all firms produce the same output and the market price is $5.One firm then decides to double its output.By how much will price change? Show your work.

Accepted Answer

The answer of Suppose there are 1,000 firms in a...

Question 11

When we say that a monopoly has market power,does it mean that the monopoly can produce and charge any amount it wants? Explain.

Accepted Answer

The answer of When we say that a monopoly has...

Question 12

If a monopoly charges a price equal to its marginal cost,then it must be the case that the firm has
A)maximized profits.
B)suffered a loss.
C)made a profit that is less than the maximum level.
D)suffered a loss that is less than the minimum level.
E)made a profit or suffered a loss,depending on the cost structure.

Accepted Answer

In a monopoly, charging a price equal to marginal cost does not guarantee maximum profits, as monopolies typically maximize profits by setting prices above marginal cost. The actual financial outcome (profit or loss) depends on the firm's cost structure relative to the price.

Question 13

On a graph of monopoly,the profit-maximizing output level is determined by noting where the ____ and ____ curves cross.
A)marginal revenue; demand
B)marginal cost; demand
C)marginal cost; average total cost
D)marginal revenue; marginal cost
E)average total cost; demand

Accepted Answer

The profit-maximizing output level for a monopoly occurs where marginal revenue (MR) equals marginal cost (MC). This is because profits are maximized when the additional revenue from producing an additional unit (MR) equals the additional cost of producing that unit (MC). Therefore, the correct answer is D - the point where the marginal revenue and marginal cost curves intersect.

Question 14

To ascertain the profit-maximizing price on a monopoly diagram,one must first determine output by finding where
A)marginal cost and marginal revenue cross,and then doubling the amount indicated on the vertical axis to determine price.
B)marginal cost and demand cross,and then looking at the vertical axis to determine price.
C)marginal cost and marginal revenue cross,and then extending upward to the demand curve to determine price on the vertical axis.
D)marginal cost and marginal revenue cross,and then looking at that point on the vertical axis to determine price.
E)marginal revenue crosses the horizontal axis,and then noting what price demand indicates at that output level.

Accepted Answer

To determine the profit-maximizing price on a monopoly diagram, one must first determine output by finding the point where marginal cost and marginal revenue intersect. Then, to determine the price, one needs to extend a line upward from that point to the demand curve, which shows the price corresponding to the specific output level. Therefore, the correct choice is C.

Question 15

Explain why decreasing or increasing output beyond the point at which marginal cost equals marginal revenue will reduce profits for a monopoly.

Accepted Answer

The answer of Explain why decreasing or increasing output beyond...

Question 16

A profit-maximizing monopoly produces at the point at which marginal cost equals marginal revenue,while a profit-maximizing competitive firm produces at the point at which marginal cost equals price.

Accepted Answer

This statement is true. Monopolies have the power to set their own prices and will produce at the point where their marginal cost equals their marginal revenue in order to maximize profits. Competitive firms, on the other hand, are price takers and must produce at the point where their marginal cost equals the market price in order to maximize profits.

Question 17

When price equals marginal cost,
A)a monopoly should raise its price to increase profits.
B)a monopoly's profits are maximized.
C)a competitive firm should decrease output to increase profits.
D)it means that profits are maximized for both competitive firms and monopolies.
E)a competitive firm should raise its price to increase profits.

Accepted Answer

The answer of When price equals marginal cost,
A)a monopoly should...

Question 18

In order to maximize profit,a monopoly will set output so that marginal revenue equals marginal cost and will charge a price equal to marginal revenue.

Accepted Answer

A monopoly maximizes profit by setting output where marginal revenue equals marginal cost, but it will charge the highest price consumers are willing to pay for that quantity, which is typically above marginal revenue.

Question 19

When a monopoly maximizes profits,it produces at an output level at which marginal revenue exceeds marginal cost.

Accepted Answer

When a monopoly maximizes profits, it produces at an output level at which marginal revenue equals marginal cost, not exceeds it.

Question 20

To maximize profits,both monopolies and competitive firms must produce at the point at which price equals marginal cost.

Accepted Answer

Monopolies maximize profits by producing at the point where marginal revenue equals marginal cost, not where price equals marginal cost. In contrast, competitive firms produce at the point where price equals marginal cost.

Quiz 10: Monopoly

Exhibit 10-2 -Refer to Exhibit 10-2.Calculate marginal revenue for the second,third,and fourth unit of output.

Which of the following statements is false?

Explain why a monopoly can raise the price of its product and continue operating,whereas a competitive firm cannot.

A profit-maximizing monopoly might choose to produce anywhere along a straight-line market demand curve.

A monopoly will expand output until total revenue is maximized.

Exhibit 10-2 -Refer to Exhibit 10-2.Suppose fixed costs are $10.What are the profit-maximizing output,output price,and total profit?

On a monopoly diagram showing demand,marginal revenue,marginal cost,and average total cost,which of the following cannot be illustrated?

To maximize profits,a monopoly produces at and a competitive firm produces at .

Why is the marginal revenue curve for a monopoly steeper than its demand curve?

Suppose there are 1,000 firms in a market,and market demand has a price elasticity of 0.5.Initially,all firms produce the same output and the market price is $5.One firm then decides to double its output.By how much will price change? Show your work.

When we say that a monopoly has market power,does it mean that the monopoly can produce and charge any amount it wants? Explain.

If a monopoly charges a price equal to its marginal cost,then it must be the case that the firm has

On a graph of monopoly,the profit-maximizing output level is determined by noting where the and curves cross.

To ascertain the profit-maximizing price on a monopoly diagram,one must first determine output by finding where

Explain why decreasing or increasing output beyond the point at which marginal cost equals marginal revenue will reduce profits for a monopoly.

A profit-maximizing monopoly produces at the point at which marginal cost equals marginal revenue,while a profit-maximizing competitive firm produces at the point at which marginal cost equals price.

When price equals marginal cost,

In order to maximize profit,a monopoly will set output so that marginal revenue equals marginal cost and will charge a price equal to marginal revenue.

When a monopoly maximizes profits,it produces at an output level at which marginal revenue exceeds marginal cost.

To maximize profits,both monopolies and competitive firms must produce at the point at which price equals marginal cost.