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Economics - Canadian Edition, 14e (Ragan) Chapter 10 Monopoly, Cartels, and Price Discrimination 1) One similarity between a monopolist and a perfectly competitive firm is that both A) are large relative to their markets. B) may have similarly shaped cost curves. C) choose the price at which to sell their product. D) can make economic profits in the long run. E) need to know the shape of the market demand curve. Answer: B Diff: 1 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative 2) The marginal revenue curve facing a single-price monopolist A) is the same as the average revenue curve facing the monopolist. B) is the same as the demand curve facing the monopolist. C) shows the change in the profit for the firm. D) lies below the average revenue curve. E) at first falls to a minimum and then rises as output is increased. Answer: D Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative 3) The demand curve facing a single-price monopolist slopes downward because A) its average revenue equals its marginal revenue. B) its demand curve is the market demand curve, which is generally downward sloping. C) demand is perfectly inelastic. D) it sells typically to only one consumer. E) its supply curve is upward sloping. Answer: B Diff: 1 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative

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4) A monopoly is distinguished from a firm operating under any other market structure in the following way: the monopoly A) charges a price higher than its average revenue. B) can choose its output level. C) can choose its level of cost. D) does not produce at a profit-maximizing level of output. E) faces a demand curve which is identical to the market demand curve. Answer: E Diff: 1 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative 5) A monopolistic firm faces a downward-sloping demand curve because A) there are a large number of firms in the industry, all selling the same product. B) the demand for its product is always inelastic. C) the market price is affected by the amount sold by a monopolistic firm. D) marginal revenue is negative throughout the feasible range of output. E) the monopolistic firm can exploit economies of scale. Answer: C Diff: 1 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative 6) The average revenue curve for a single-price monopolist A) is a horizontal line, equal to the price of its product. B) lies below its demand curve. C) coincides with its demand curve. D) slopes upward to the right. E) does not exist. Answer: C Diff: 1 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative

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7) For a single-price monopolist, marginal revenue falls faster than price (as output rises) because A) in order to sell additional units, the price must be lowered on all units. B) profits are maximized when marginal cost equals marginal revenue. C) the firm has no supply curve. D) the cost of producing extra units of output increases as production is increased. E) none of the above — marginal revenue does not fall faster than price. Answer: A Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative 8) Marginal revenue is less than price for a single-price monopolist because the A) firm's output decisions do not affect the selling price. B) firm must lower its price for all units if it wants to sell more of the product. C) monopolist charges a price higher than the unit production cost. D) monopolist must worry about how its price setting will lead to entry by other firms. E) monopolist has achieved economies of scale. Answer: B Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative

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Price $8 $7 $6 $5 $4 $3 $2

Quantity Demanded 5 6 7 8 9 10 11

TABLE 10-1 9) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 5 to 6 units is A) -4. B) -2. C) 0. D) 2. E) 4. Answer: D Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Table User2: Quantitative 10) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 6 to 7 units is A) -4. B) -2. C) 0. D) 2. E) 4. Answer: C Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Table User2: Quantitative

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11) Refer to Table 10-1. For a single-price monopolist producing and selling 9 units, the marginal revenue earned by selling the 9th unit is A) -4. B) -2. C) 0. D) 2. E) 4. Answer: A Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Table User2: Quantitative 12) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output is marginal revenue equal to 0? A) between 6 and 7 units B) between 7 and 8 units C) between 8 and 9 units D) between 9 and 10 units E) between 10 and 11 units Answer: A Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: NEW User1: Table User2: Quantitative 13) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output is total revenue maximized for this firm? A) between 6 and 7 units B) between 7 and 8 units C) between 8 and 9 units D) between 9 and 10 units E) between 10 and 11 units Answer: A Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: NEW User1: Table User2: Quantitative

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14) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. Which of the following statements about price elasticity of demand is true? A) demand is unit-elastic at a price of $4 B) demand is elastic at a price of $8 C) demand is elastic at a price of $5 D) demand is inelastic at a price of $8 E) demand is elastic at a price of $3 Answer: B Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: NEW User1: Table User2: Quantitative 15) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of demand is the price elasticity of demand equal to 1? A) between 6 and 7 units B) between 7 and 8 units C) between 8 and 9 units D) between 9 and 10 units E) between 10 and 11 units Answer: A Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: NEW User1: Table User2: Quantitative

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The figure below shows the demand schedule and demand curve for a product produced by a single-price monopolist.

FIGURE 10-1 16) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 5 units at $8 each and then reduces the price of the product to $6. By making this change, the firm is giving up revenue of ________ on the original number of units sold and gaining revenue of ________ on the additional units sold. Its marginal revenue is therefore ________. (All figures are dollars.) A) 38; 40; 2 B) 8; 6; 2 C) 10; 12; 2 D) 14; 14; 0 E) 5; 7; -2 Answer: C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: REVISED User1: Graph User2: Quantitative

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17) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 9 units at $4 each and then reduces the price of the product to $3. By making this change, the firm is giving up revenue of ________ on the original number of units sold and gaining revenue of ________ on the additional units sold. Its marginal revenue is therefore ________. (All figures are dollars) A) 40; 27; -13 B) 30; 36; 6 C) 34; 28; -6 D) 9; 3; -6 E) 3; 9; 6 Answer: D Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: REVISED User1: Graph User2: Quantitative 18) Refer to Figure 10-1. What is the lowest level of output at which marginal revenue becomes negative? A) 5th unit B) 6th unit C) 7th unit D) 8th unit E) 9th unit Answer: C Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Graph User2: Quantitative 19) If a single-price monopolist sets price where the price elasticity of demand exactly equals 1, its A) total profits are at a maximum. B) marginal revenue is always positive. C) total revenue is rising, although marginal revenue is falling. D) total revenue is falling. E) total revenue is at its maximum. Answer: E Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User2: Qualitative

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20) Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm sets price where the price elasticity of demand is A) zero. B) less than one. C) one. D) greater than one. E) infinite. Answer: D Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Recall User2: Qualitative Consider the following AR and MR curves for a single-price monopolist.

FIGURE 10-2 21) Refer to Figure 10-2. The price elasticity of demand at Q2 is A) zero B) greater than 1. C) less than 1. D) equal to 1. E) not determinable from the diagram. Answer: D Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Graph User2: Qualitative

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22) Refer to Figure 10-2. The price elasticity of demand at Q1 is A) zero. B) less than 1. C) equal to 1. D) greater than 1. E) not determinable from the diagram. Answer: D Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Graph User2: Qualitative The diagram below shows total revenue for a single-price monopolist.

FIGURE 10-3 23) Refer to Figure 10-3. The firm's marginal revenue at Q1 is A) zero. B) positive and rising. C) positive but falling. D) negative and falling. E) not determinable from the diagram. Answer: C Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Graph User2: Qualitative

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24) Refer to Figure 10-3. The price elasticity of demand at Q3 is A) zero. B) less than 1. C) equal to 1. D) greater than 1. E) not determinable from the diagram. Answer: B Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User1: Graph User2: Qualitative 25) A monopolist faces a straight-line demand curve and is currently producing an output level of 2000 units receiving $10 000 in total revenue. At an output of 1000 units the marginal revenue for this firm would be A) 0. B) $2.50. C) $5.00. D) $10.00 E) Impossible to tell with the given information. Answer: E Diff: 3 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied User2: Quantitative 26) Consider a single-price monopolist that is operating in the inelastic range of its linear demand curve. This firm A) would be operating where its AR is negative. B) would have a marginal revenue curve that is negative. C) would have a marginal revenue that is negative although its total revenues would be at a maximum. D) could raise its total revenue by lowering its price. E) would be operating at its profit-maximizing position. Answer: B Diff: 2 Topic: 10.1a. demand, price and revenue for a monopolist Skill: Applied Objective: REVISED User2: Qualitative

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Consider the following AR and MR curves for a single-price monopolist.

FIGURE 10-2 27) Refer to Figure 10-2. If marginal costs were zero, the profit-maximizing output for this single-price monopolist would be A) 0. B) Q1. C) Q2. D) Q3. E) Q4. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User1: Graph User2: Qualitative

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28) Refer to Figure 10-2. If marginal costs were positive and constant but less than A, the profitmaximizing output for this single-price monopolist would be A) 0. B) greater than zero, but less than Q1. C) greater than zero, but less than Q2. D) equal to Q2. E) between Q2 and Q4. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User1: Graph User2: Qualitative 29) Refer to Figure 10-2. For this single-price monopolist, the profit-maximizing level of output is A) Q1. B) Q2. C) Q3. D) Q4. E) not determinable from the diagram. Answer: E Diff: 1 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User1: Graph User2: Qualitative

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The diagram below shows total revenue for a single-price monopolist.

FIGURE 10-3 30) Refer to Figure 10-3. The profit-maximizing output for this single-price monopolist is A) Q1 B) Q2. C) Q3. D) Q4. E) not determinable from the diagram. Answer: E Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User1: Graph User2: Qualitative 31) If a single-price monopoly is presently producing an output at which marginal revenue is less than marginal cost, it can increase its profits by A) reducing output and raising prices. B) reducing output and holding prices unchanged. C) expanding output and lowering price. D) expanding output and raising price. E) reducing barriers to entry. Answer: A Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Qualitative

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32) For a monopolist, the profit-maximizing level of output occurs where A) MR = MC. B) MR = AC. C) MC = 0. D) MC = AR. E) MC = price. Answer: A Comment: An algorithmic version of this question appears in MyEconLab Diff: 1 Topic: 10.1b. profit maximization for a monopolist Skill: Recall User2: Qualitative 33) A monopolist will be earning positive economic profits A) at all times, since it controls the market. B) when price equals marginal cost. C) whenever marginal revenue equals marginal cost. D) when price exceeds average total cost. E) whenever marginal revenue is positive. Answer: D Diff: 1 Topic: 10.1b. profit maximization for a monopolist Skill: Recall User2: Qualitative 34) At the profit-maximizing level of output for a single-price monopolist, price A) always exceeds average total cost. B) equals marginal cost. C) exceeds marginal cost. D) equals marginal revenue. E) is below marginal revenue. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Qualitative

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35) Which of the following statements about single-price monopolists is correct? A) The profit-maximizing level of output is the same as the total revenue-maximizing level of output. B) The average revenue curve lies above the demand curve. C) AR is greater than MR. D) Price elasticity of demand will be equal to one if the firm is profit-maximizing. E) Price equals marginal cost at the profit-maximizing level of output. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Qualitative 36) Monopolistic firms do not have supply curves because A) they are not constrained by the marginal costs of production. B) their output is a fixed quantity. C) monopolists get to choose their price-quantity combination along the demand curve. D) monopolists face a given market price. E) their marginal costs cannot be calculated. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Recall User2: Qualitative 37) A single-price monopolist is currently producing an output level where price equals marginal cost, and profits are positive. In order to maximize profits, this monopolist should A) shut down. B) increase production and reduce price. C) decrease production and increase price. D) not change his output level, because he is currently earning profits. E) reduce price and let production adjust to the new price. Answer: C Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied Objective: REVISED User2: Qualitative

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38) A single-price monopolist is currently producing an output level where P = $20, MR = $13, ATC = $15, and MC = $14. In order to maximize profits, this monopolist should A) shut down. B) increase production and reduce price. C) decrease production and increase price. D) not change the output level, because the firm is currently at the profit-maximizing output level. E) There is insufficient information to make a recommendation. Answer: C Diff: 3 Topic: 10.1b. profit maximization for a monopolist Skill: Applied Objective: REVISED User2: Quantitative 39) A single-price monopolist is currently producing an output level where P = $320, MR = $260, ATC = $280, and MC = $200. In order to maximize profits, this monopolist should A) shut down. B) increase production and reduce price C) decrease production and increase price. D) not change the output level because the firm is currently at the profit-maximizing output level. E) There is insufficient information to make a recommendation. Answer: B Diff: 3 Topic: 10.1b. profit maximization for a monopolist Skill: Applied Objective: NEW User2: Quantitative 40) A single-price monopolist is currently producing an output level where P = $320, MR = $200, AVC = $327, and MC = $200. In order to maximize profits, this firm should A) increase production and reduce prices. B) decrease production and increase prices. C) not change its output level, because the firm is currently at its profit maximizing level. D) shut down. E) There is insufficient information to make a recommendation. Answer: D Diff: 3 Topic: 10.1b. profit maximization for a monopolist Skill: Applied Objective: NEW User2: Quantitative

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41) Economic profit for a monopolistic firm will equal zero when A) average total cost is minimized. B) marginal revenue equals marginal cost. C) marginal revenue equals price. D) price equals marginal cost. E) average total cost equals price. Answer: E Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Qualitative 42) If a monopolist's marginal revenue is MR = 12 - 2Q and its marginal cost is MC = 3, then the profit-maximizing quantity is A) 0. B) 4. C) 4.5. D) 6. E) 12. Answer: C Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Quantitative 43) If a monopolist's marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5, then the profit-maximizing quantity is A) 0. B) 5. C) 7.5. D) 10. E) 15. Answer: B Diff: 2 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User2: Quantitative

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Your food-services company has been named as the sole provider of meals at a small university. The cost and demand schedules are:

Sold per Day 0 100 200 300 400 500 600 700

Price per Meal $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75

Total Fixed Cost $150 $150 $150 $150 $150 $150 $150 $150

Total Variable Cost $0 $300 $500 $650 $750 $830 $905 $995

Total Revenue $0 $325 $600 $825 $1000 $1125 $1200 $1225

TABLE 10-2 44) Refer to Table 10-2. The marginal cost between 100 and 200 meals per day is A) $0. B) $1.00. C) $1.50. D) $2.00. E) $3.00. Answer: D Diff: 3 Topic: 10.1b. profit maximization for a monopolist Skill: Applied User1: Table User2: Quantitative 45) Refer to Table 10-2. Ass...