Monopoly MC Practice

Monopolies

1. What is the profit-maximizing combination of output and price for the single price monopoly shown here?

A. Q2 & P1B. Q2 & P3C. Q1 & P3D. Q1 & P4E. Q1 & P1

2. Using the graph above, what are the socially optimal price and quantity for the graph shown here?A. Q2, P4B. Q1, P4C. Q1, P3D. Q1, P1E. Q2, P3

3. All of these are possible reasons for a monopoly to exist EXCEPT which of the following?

A. interdependent pricingB. legal barriers to entryC. very high start-up costsD. high minimum efficient scaleE. ownership of a key resource

Assume a monopolist and a perfectly competitive firm face the same market demand and cost curves.

4. How does the output and price in a monopoly compare to the output and price in perfect competition?

A. Monopoly produces a lower quantity and charges the same price as perfect competition.B. Monopoly produces the same quantity and charges a higher price than in perfect competition.C. Monopoly produces a lower quantity and charges a lower price than in perfect competitionD. Monopoly produces a lower quantity and charges a higher price than in perfect competition.E. Monopoly produces a higher quantity and charges a higher price than in perfect competition.

Assume a monopoly firm has a downward sloping linear demand curve and cannot price discriminate5. What happens to the firm’s marginal revenue as it sells additional units?

A. Marginal revenue increases then decreases.B. Marginal revenue decreases.C. Marginal revenue increases.D. Marginal revenue is constant.E. Marginal revenue decreases then increases.

6. What price will a single price monopolist charge based on this graph?

A. PBB. PCC. PAD. PDE. PE

7. Which of the following describes a monopoly market?A. Bing, Inc., which is one of the many sellers of a resource with only one buyer.B. Clark Unlimited, which is the sole producer of Gleemenex, a drug with no close substitutes.C. Bae, Inc., which produces an antibiotic that is similar to its rival Logos Corp.D. Greco, LLC, which is one of many producers of an identical drug with an expired patent.E. Tuma Unlimited, which is one of many sellers selling a good that is slightly differentiated from other sellers.

8. Which of the following best describes the relationship between the demand curve (D) and the marginal revenue curve (MR) for a monopoly firm that has a downward sloping linear demand curve?

A. D is greater than MR for some quantities, less than MR for othersB. D is less than MRC. D equals MRD. D is greater than MRE. D crosses MR when D is unit elastic

The price and total revenue for the monopoly firm Mammoth, Inc. based on the quantity it sells is shown in this table:

9. What is the marginal revenue (MR) for the third unit and the fourth unit?

A. MR (3) = $10, MR (4) =$6B. MR (3) = $10, MR (4) =$10C. MR (3) = $6, MR (4) =$6D. MR (3) = -$2, MR (4) = -$2E. MR (3) = $14, MR (4) =$12

Efficiency and Monopolies

10. Which of the following best explains why the firm shown in this graph qualifies as a natural monopoly?

A. The demand curve is greater than the marginal revenue curve.B. There is no quantity that maximizes profit for this firm.C. There is deadweight loss.D. The marginal revenue curve crosses the quantity axis at a lower quantity than the demand curve.E. The average total cost is decreasing at every quantity demanded.

The market for electricity in Hamsterville is a natural monopoly. The government of Hamsterville wants to regulate Cricetidae Lighting and Power, the sole producer of electricity in Hamsterville. The government wants to set a price that reduces deadweight loss but doesn’t want to have to subsidize the firm to keep it in business. The firm’s cost curves and demand are shown here.

11. What price should regulators set and what quantity will be sold?A. P3, Q1B. P2, Q1C. P1, Q3D. P2, Q2E. P4, Q1

12. Using the graph above, what is the profit-maximizing price and quantity that this firm will choose?A. P1, Q1B. P4, Q1C. P2, Q1D. P1, Q3E. P4, Q3

13. Using the graph above, what price should the government set to eliminate deadweight loss?A. P4B. P2C. P1D. There is no price that eliminates deadweight loss.E. P3

Wuthering Flights is an airline that sells seats for domestic air travel in the nation of Hamsterville. This firm experiences decreasing the average cost for the entire range of its demand curve due to very high start-up costs associated with running an airline.

14. Which of the following must be true based on this information?

A. It can produce and supply flights at a lower cost per unit than if there were many smaller firms.B. There is no deadweight loss.C. It produces a quantity that is both productively efficient and allocatively efficient.D. It is possible to eliminate deadweight loss by taxing this firm.E. It is productively efficient for the government to break up this monopoly.

15. If the government of Hamsterville grants the monopoly that controls the hamster food industry a lump sum subsidy, which curve is affected?

A. Marginal CostB. Marginal RevenueC. Average Variable CostD. DemandE. Average Total Cost