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

When a drug's patent expires, generic manufacturers can enter the market, increasing competition and typically leading to a decrease in price. The quantity sold usually increases due to the lower price and increased availability, not decreases. The marginal cost of producing the drug does not necessarily rise; it may remain the same or even decrease due to economies of scale.

Question 2

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 3

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

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

Question 4

The supply curve for the monopolist

Accepted Answer

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

Question 5

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

The monopolist is currently maximizing profits where MR=MC, and at this point, it is producing 50 units. The total profit can be calculated by subtracting the total cost from the total revenue. Total revenue at 50 units is 50*$8=$400, and the total cost is 50*$3+$50*$4=$250. Therefore, the total profit is $400-$250=$150.

Question 6

A reduction in a monopolist's fixed costs would

Accepted Answer

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

Question 7

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. This allows other companies to produce the same drug using the same ingredients, but at a lower cost.

Question 8

Which of the following statements is not correct?

Accepted Answer

The monopolist produces where MR = MC, but not where P = MC. The monopolist charges a higher price than the MC to maximize profits and therefore produces a lower quantity.

Question 9

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 profit, a monopolist should produce the quantity at which marginal revenue equals marginal cost (MR=MC). In this case, the monopolist's marginal cost is $6 per unit and its marginal revenue is $5 per unit at 75 units. Therefore, the monopolist should reduce its output to increase its marginal revenue above its marginal cost, which will lead to an increase in profit. The monopolist can increase its price and decrease its quantity sold to ensure that its new quantity sold meets the MR=MC condition. As the average total cost is less than the price ($5<$10), the monopolist is earning a profit. However, the current profit is not the maximum profit, as the current quantity produced is more than the profit-maximizing quantity. Hence, choice D is the correct answer, and the monopolist should produce fewer units and charge a higher price to maximize profits.

Question 10

A monopolist

Accepted Answer

A monopolist does not have a supply curve because it can set its price at any level for a given quantity of output. Therefore, it does not face a unique marginal cost like a competitive firm does, and its supply is entirely determined by its profit-maximizing behavior.

Question 11

A monopoly's marginal cost will

Accepted Answer

The answer of A monopoly's marginal cost will
...

Question 12

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

Option B is correct because some people fear that generic drugs are inferior, and some people are loyal to the name brand. Option A is incorrect because while some people may have concerns about generic drug companies devoting too few resources to research and development, it is not the main reason why name brand drugs are able to continue capitalizing on their market power. Option C is also incorrect because while some people may be loyal to the name brand, it is not the only reason why name brand drugs are able to maintain their market power after generics enter the market. Option D is incorrect because it includes all three options, even though the first option is not a major factor.

Question 13

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

Total Revenue = Price x Quantity = $27 x 10 = $270
Total Variable Cost = Average Variable Cost x Quantity = $12 x 10 = $120
Total Fixed Cost = Average Fixed Cost x Quantity = $10 x 10 = $100
Total Cost = Total Variable Cost + Total Fixed Cost = $120 + $100 = $220
Total Profit = Total Revenue - Total Cost = $270 - $220 = $50

Therefore, the firm is earning a total profit of $50 at this price.

Question 14

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

Accepted Answer

Patent law grants the holder sole ownership of the right to sell the drug for a limited number of years, usually 20 years from the date of the patent application. After that time, other companies can legally produce and sell generic versions of the drug.

Question 15

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 16

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 17

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 18

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 19

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

Accepted Answer

Profit for a monopolist is calculated by subtracting the average total cost from the price and multiplying that by the quantity. This gives the monopolist the profit per unit, which is then multiplied by the total quantity sold to get the total profit. Therefore, the correct formula is profit = (price - average total cost) × quantity.

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, the increased competition leads to a decrease in price. This decrease in price leads to an increase in consumer surplus and may also increase total surplus. Therefore, the best choice is (C) Price decreases, and total surplus increases.

Quiz 14: 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.