Pure Monopoly

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Pure Monopoly The table below gives the demand and cost data for a monopoly, in dollars. Answer the next questions on the basis of this information. Price Marginal Average Marginal Output (ave.

revenue) Revenue Total cost Cost 0 1,750 1 1,600 1,600 2,400 2,400 2 1,450 1,300 1,500 600 3 1,300 1,000 1,167 500 4 1,150 700 1,050 700 5 1,000 400 1,000 800 6 850 100 975 850 Assume that the goal of this firm is to maximize total profits. The firm would produce ____ units of output and realize a profit totaling _____. a.

2 units, $300 b. 3 units, $600 *c. 4 units, $400 d.

5 units, $200 Instead assum e that this firm is a cnonprofit d that attempts to maximize output subject to the constraint that its revenue covers its full cost 4 that is, AFC plus AVC. The firm would operate at a. 3 units of output b.

4 units of output *c. 5 units of output d. 6 units of output Given identical cost conditions, a monologist is likely to charge a *a.

Higher price and earn higher profits than a competitive firm b. Higher price and earn lower profits than a competitive firm c. Lower price and ... more. less.

earn higher profits than a competitive firm d. Lower price and earn lower profits than a competitive firm If a monopolist produces at that output level where marginal cost exceeds marginal revenue, to maximize profits the firm should a. Increase output and increase price *b. Decrease output and increase price c. Increase output and decrease price d. Decrease output and decrease price Answer the following question on the basis of the figure below If the monopoly maximizes profit, total profit will equal a. $950 b. $1,150 *c. $1,350 d. $1,550 In the short run, a monopolist could: a. Break even b. Incur a loss c. Make a profit *d. Any of the above If the monopolist incurs losses in the short run, then in the long run: a. It will go out of business b. It will stay in business c. It will break even *d. Any of the above is possible In long-run equilibrium, the pure monopolist can make pure profits primarily because of *a. Blocked entry b. The high prices he charges c. His low per-unit cost d. Advertising Which of th e following is normally cinconsistent d with the concept of pure monopoly: a. The existence of imperfect-substitute goods *b. A high, positive cross elasticity of demand coefficient c. Significant barriers to entry d. Decreasing LRAC over large output levels The basis by which a monopolist controls her market might be which of the following: a. Producing under decreasing returns to scale b. Producing under diminishing returns to the variable input c. Producing under increasing cost conditions *d. Producing under a patented production process The basis on which a monopolist controls his market might be which of the following: *a. The monopolist controls vital raw material supplies b. The monopolist 9s production function is characterized by diseconomies of scale c. The monopolist 9s production process is characterized in the short run by diminishing returns to labor. *d. The monopolist uses a patented production process To maximize profits, a monopolist should produce at the output level at which: a. MC is minimized. *c. MR = MC b. TR is maximized d. AVC is minimized A monopoly position is certain to offer profits to the firm exercising it in which of the following situations: a. The firm 9s average fixed costs are quite high *b. The firm 9s MR curve intersects its MC curve at the point where MC equals ATC c. The firm 9s MR curve intersects its MC curve twice *d. The firm 9s ATC curve lies at some output level below its demand curve Which of the following is not an important characteristic of a natural monopoly? a. Substantial economies of scale are available b. Very heavy fixed costs *c. It is a public utility d. Competition is impractical and/or would be very expensive for the consumer Monopoly can probably exist over a long period of time only if: a. The firm has a relatively elastic demand curve for its product b. The firm 9s ATC curve is horizontal c. Cut throat competition is employed to eliminate rivals *d. Government assists the monopoly and prevents the establishment of rival firms Which of the following is not true with respect to the demand data confronting a monopolist? *a. Marginal revenue is greater than average revenue (price) b. Marginal revenue decreases as average revenue (price) decreases c. Demand is less than perfectly elastic d. Average revenue (price) decreases as the output of the firm increases When the monopolist is maximizing her total profits or minimizing her losses a. Total revenue is greater than total cost b. Average revenue is greater than average total cost *c. Average revenue is greater than marginal cost d. Average total cost is less than marginal cost A monopolist does not produce his product as efficiently as possible because: *a. The average total cost of producing it is not a minimum b. The marginal cost of producing the last unit is less than its price c. He is earning a profit d. Average revenue is greater than the cost of producing an extra unit of output Which of the following is always true of a monopolist? a. P = MC b. MR = AR *c. MR is less than price at any level of output d. MR is less than MC at all levels of output A profit-maximizing/loss-minimizing monopolist: a. Always makes a large profit b. Always makes economic profit c. Always makes normal profit d. Will exit the industry in the short run if MR is less than AVC *e. Will exit the industry in the long run if price is less than ATC By saying that a monopoly misallocates resources, economists mean that: a. It makes no attempt to produce goods that consumers want b. It uses too much of all of society 9s resources c. Its output decision results in its making as much profit as possible *d. Its output decision results in society not getting as much as it wants of the good in terms of what the good costs society to produce e. It never produces a level of output at which P = ATC A monopoly has less incentive to be efficient than a competitive firm because: a. Its demand curve is more elastic b. It uses too much of all of society 9s resources c. Its output decision results in society not getting as much as it wants of the good in terms of what the good costs society to produce d. It knows that people will buy its output, not matter what it charges *e. To make normal profit in the long run it does not have to be efficient, whereas a competitive firm does. The demand curve of a monopolist always: a. Is perfectly elastic *b. Has the same elasticity as the industry demand curve c. Is its MR curve d. Is highly elastic e. Is perfectly inelastic Answer the next 6 questions on the basis of the figure below. If this industry is purely competitive, the profit-maximizing price and quantity will be a. $80 and 20 units of output b. $80 and 40 units of output *c. $60 and 60 units of output d. $40 and 40 units of output If this industry is purely competitive, producer surplus plus consumer surplus totals a. $1,800 b. $2,400 c. $3,000 *d. $3,600 If this industry is comprised of a monopoly, the profit-maximizing price and quantity will be a. $80 and 60 units of output *b. $80 and 40 units of output c. $90 and 30 units of output d. $30 and 40 units of output If this industry is comprised of a monopoly, producer surplus plus consumer surplus totals a. $2,800 b. $3,000 *c. $3,200 d. $3,600 The deadweight loss (efficiency loss) of monopoly relative to pure competition equals a. $300 *b. $400 c. $500 d. $600 The deadweight loss (efficiency loss) of monopoly relative to pure competition is represented by *a. area GFC b. area DHG c. area HACG d. area EBF

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