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MicroChapter8mc.doc

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Economics
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Economics 2150A/B
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Prof
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Fall

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Microeconomics I, UPNA Chapter 8: Monopoly and Monopsony Multiple Choice 1. Which of the following statements is true? a) Monopoly profits are generally zero. b) Monopoly profits are maximized when total revenue is maximized. c) The condition, MC = MR, is the optimizing condition for monopolists and firms in perfectly competitive markets. d) Usually the demand and marginal revenue curves for a monopoly are the same. Ans: C 2. The marginal revenue curve for a monopolist e) will never take a linear form. f) will always have double the slope of the demand curve, when demand is linear. g) will always have one-half the slope of the demand curve, when demand is linear. h) will slope upward when demand is elastic. 3. To compute the optimal monopoly price with a linear demand curve, the monopolist i) should set MC = MR, which would determine the optimal quantity and price would equal MC and MR as well. j) should set MC = MR, which would determine the optimal quantity and price would be found by inserting the optimal quantity into the monopolist’s demand curve. k) should set MC = MR, which would determine the optimal quantity and price would be found by doubling the marginal cost. l) should set output where total revenue would be the greatest. Ans: B 4. One argument for allowing monopolies to exist is m) it would be inefficient to break up natural monopolies into smaller units. n) monopolies lead to net economic benefits as a rule. o) the free market acts as a more effective regulator than the government. p) they allow for greater standardization of products and improved quality control. 5. Identify the truthfulness of the following statements. I. A monopolist faces a downward-sloping demand curve, whereas a perfectly competitive firm faces a horizontal demand curve. II. A monopolist maximizes profit, whereas a perfectly competitive firm cannot. q) Both I and II are true. r) Both I and II are false. s) I is true; II is false. t) I is false; II is true. Microeconomics I, UPNA Ans: C 6. Identify the truthfulness of the following statements. I. A monopoly market consists of a single seller facing many buyers. II. Because the monopolist is the only seller of her product, she may sell any quantity that she chooses for any given price. u) Both I and II are true. v) Both I and II are false. w) I is true; II is false. x) I is false; II is true. 7. A monopolist maximizes total revenue where marginal revenue y) equals marginal cost. z) is maximized. aa) equals zero. bb) is negative. Ans: C 8. To maximize profit, the monopolist sets cc) price equal to marginal cost. dd) total revenue equal to total cost. ee) marginal revenue equal to marginal cost. ff) marginal revenue equal to average cost. 9. If the monopolist is producing where marginal revenue exceeds marginal cost, then the monopolist should ___________ to maximize profits. gg) produce more hh) produce less ii) stop producing jj) raise price Ans: A 10. For a monopolist kk) selling price is greater than marginal revenue. ll) selling price is equal to marginal revenue. mm) selling price is less than marginal revenue. nn) selling price may be above or below marginal revenue; it depends on the price buyers are willing to pay. 11. The monopolists average revenue can be defined as oo) Total revenue per unit of average revenue pp) Total revenue per unit of output qq) Average revenue per unit of input Microeconomics I, UPNA rr) AR = AR / Q Ans: B 12. Identify the truthfulness of the following statements. I. For the monopolist, the average revenue curve is the demand curve. II. For the monopolist, marginal revenue is less than average revenue. ss) Both I and II are true. tt) Both I and II are false. uu) I is true; II is false. vv) I is false; II is true. 13. For a monopolist ww) selling price is greater than average revenue. xx) selling price is equal to average revenue. yy) selling price is less than average revenue. zz) selling price may be above or below average revenue; it depends on the price buyers are willing to pay. Ans: B 14. A monopolist faces inverse demand P = a - bQ. The monopolist’s marginal revenue function is aaa) MR = a-bQ. bbb) MR = a – Q. ccc) MR = a – 2bQ. ddd) MR = a/Q – b. 15. Which of the following statements regarding a monopolist’s profit maximizing condition is false? eee) The monopolist’s profit-maximizing price will be greater than marginal cost for the last unit supplied. fff) A monopolist can earn positive economic profit. ggg) Because monopoly price is above marginal cost and a monopoly earns positive economic profit, there are no benefits to consumers in the monopoly market. hhh) Price equals average revenue at the profit-maximizing quantity of output. Ans: C 16. Inverse demand for a monopolist’s product is given by P = 300−6Q while the monopolist’s marginal cost is given by MC = 3Q . The profit-maximizing quantity of output for this monopolist is iii) 33.33 jjj) 100 kkk) 50 Microeconomics I, UPNA lll) 20 17. Inverse demand for a monopolist’s product is given by = 300−6Q while the monopolist’s marginal cost is given byC = 3Q . The profit-maximizing price for this monopolist is mmm) 100 nnn) 180 ooo) 60 ppp) 150 Ans: B 18. A monopolist faces an inverse demand curve P = 300−6Q and has a constant marginal cost of 20. The monopolist’s profit-maximizing output is qqq) 46.67 rrr)
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