Question 1: Monopoly Choice (10 points) True or False? A monopolist always prices in the inelastic portion of the De- mand curve. Provide an explanation - all points are awarded on the basis of the quality of the explanation.

1. Which of the following is true under a monopoly?

• A. Monopolist chooses the highest possible price.
• B. Monopolist chooses a price that is always higher than marginal cost of production.
• C. Marginal revenue of a monopolist is price.
• D. None of the above are true for monopoly.

2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:

• A. 4
• B. 5
• C. 6
• D. 7

3. Which of the following is true?

• A. A monopolist produces on the inelastic portion of its demand.
• B. A monopolist always earns an economic profit.
• C. The more inelastic the demand, the closer marginal revenue is to price.
• D. In the short run a monopoly will shutdown if P < AVC.

4. In a competitive industry with identical firms, long rum equilibrium is characterized by:

• A. P = AC
• B. P = MC
• C. MR = MC
• D. All of the above

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q². Your firm's maximum profits are:

• A. 125
• B. 250
• C. 100
• D. 85

6. A perfectly competitive firm faces:

• A. A perfectly elastic demand function
• B. A perfectly inelastic demand function
• C. a demand function with unitary elasticity
• D. none of the above

Which of the following statements is False?

A) The marginal revenue earned by a monopolist will always be less than the products price.

B) For a profit-maximizing monopolist, marginal rervenue equals marginal cost.

C)Typically there are numerous very close substitutes for the product of a monopolist.

D) An unregulated, profit-maximizing monopolist will not operate in the inelastic portion of the demand curve.

Estimates of the deadweight loss of monopoly may be underestimated because

a. some firms have monopoly power that economists do not recognize.

b. monopolists actually produce on the inelastic portion of their demand curves.

c. the estimates exclude costs the firm incurs in acquiring or maintaining its monopoly.

d. all of the above.