Monopoly


1. If the monopolist operated in the inelastic range of its demand curve:
A. it could raise total revenue by lowering price.
B. the firm would be acting to maximize total revenue rather than profit.
C. marginal revenue would be negative.
D. it could increase its profit by lowering its price and increasing output.
E. it could increase its profit by increasing both price and output.
2. At the profit-maximizing output for a monopolist, price:
A. always exceeds average total cost.
B. is less than marginal cost.
C. exceeds marginal cost.
D. equals marginal cost.
E. may be greater than or equal to average total cost but will never be less than average total cost.
3. A monopoly firm will produce at minimum ATC:
A. when in long-run equilibrium.
B. if MR happens to equal MC where ATC is at a minimum.
C. if price happens to equal ATC at the output where ATC is at its minimum.
D. under no circumstances.
E. whenever price is everywhere below the monopolist's ATC.
4. That portion of a monopolist's marginal cost curve lying above its AVC curve has all of the following characteristics except:
A. it is upward sloping.
B. it intersects the monopolist's ATC at its minimum.
C. its intersection with the firm's MR curve determines the firm's profit maximizing output level.
D. it is the firm's supply curve.
E. all of the above are true.
5. As compared to other firms that may have monopoly power, a natural monopoly:
A. faces a demand curve that is inelastic throughout its entire output range.
B. has marginal and average costs that decline continuously over the entire range of industry or market demand.
C. is often the result of mergers.
D. is likely to have a stranglehold on raw material sources.
E. faces a demand curve that is elastic throughout its entire output range.
6. When a monopoly firm is operating in a range of output where total revenue is rising as output rises, then marginal revenue:
A. is also rising.
B. is constant.
C. is falling but is greater than zero.
D. is falling but is less than zero.
7. A natural monopolist will shut down in the long-run when forced by regulation to set price at the socially optimum price (where P = MC) because at the output level where P = MC:
A. the firm's average fixed costs are high.
B. the firm may have substantial excess productive capacity.
C. marginal revenue may be greater than marginal cost.
D. average total cost will be greater than price.
8. Assuming constant total costs of production (i.e. marginal cost is equal to zero), economic profits:
A. are exactly proportional to the price a monopolist charges.
B. rise if price is cut in the inelastic range of a demand curve.
C. fall if price is cut in the elastic range of a demand curve.
D. rise when price is changed if demand is unitarily elastic.
E. none of the above.
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