Microeconomics I, UPNA
Chapter 8: Monopoly and Monopsony
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.
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
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.
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
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.
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
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
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.
14. A monopolist faces inverse demand P = a - bQ. The monopolist’s marginal revenue
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
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.
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
kkk) 50 Microeconomics I, UPNA
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
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