Question

12.Suppose that MR = MC = $3 at an output level of 2,000 units. If a monopolist produces
and sells 2,000 units, charging a price of $6 per unit and incurring average total cost of $5
per unit, the monopolist will:
a.earn profit equal to $2,000.
b.earn profit equal to $6,000.
c.choose to sell fewer than 2,000 units in order to charge a higher price.
d.choose to sell more than 2,000 units in order to increase revenue.
13.A monopoly produces a ________ level of output and charges a _________ price than a
perfectly competitive industry, provided economies of scale are not significant.
a.lower; higher
b.higher; higher
c.Higher; lower
d.lower; lower
14.A monopolist that earn positive economic profit in the short run will:
a.always continue to earn positive economic profit in the long run.
b.earn positive economic profit in the long run if it can maintain barriers to entry,
assuming no changes in costs or market demand.
c.earn higher economic profit in the long run because of economies of scale.
d.earn zero economic profit in long-run equilibrium.
15.A firm gains monopoly power when:
a.barriers to entry can be erected and maintained.
b.other firms cannot produce an identical product but are able to purchase a close
substitute.
c.it can sell all that it can produce at the price determined by market forces.
d.it must raise price on all units in order to sell a higher level of output.
16.Which of the following is not an example of price discrimination?
a.An airline charges lower prices for tickets purchased well in advance.
b.An airline charges higher prices for larger seats in the first-class section.
c.A psychologist charges a lower fee to low-income patients.
d.A movie theater gives a discount to students and senior citizens.
17.In order to price discriminate, a monopoly firm must be able to:
a.separate customers based on different elasticities of demand.
b.charge each customer the same price.
c.incur a different cost for producing each unit of output.
d.all of the above.
18.If DeBeers has a monopoly in the diamond market, then:
a.DeBeers must be engaging in perfect price discrimination if it is charging every
customer the same price for a diamond.
b.the marginal revenue of selling one more diamond is greater than the price of that
diamond if DeBeers cannot price discriminate.
c.the marginal revenue of selling one more diamond is less than the price of that diamond
if DeBeers cannot price discriminate.
d.the market demand for diamonds is perfectl
y elastic.
19.A producer of Product X is most likely to be a monopolist when:
a.there are close substitutes for Product X.
b.there are no close substitutes for Product X and there are barriers to entry into the
industry.
c.a single firm owns the patent for manufacturing Product X, but other firms can sell
Product Y which is a close substitute for Product X.
d.there are no close substitutes for Product X and there are no barriers to entry into the
industry.
20.For a monopolist, it is always true that:
a.profit is maximized where marginal revenue equals marginal cost.
b.economic profit is positive in both the short run and the long run.
c.price is greater than average total cost.
d.all of the above are always true

Answer 1

12> a.earn profit equal to $2,000.

Reason

The profit per item is $1, so the total profit will be $2000

13>a.lower; higher

Reason

It has less consumer surplus than a perfectly competitive market.

14> b.earn positive economic profit in the long run if it can maintain barriers to entry,
assuming no changes in costs or market demand.

Reason

If the barrier is maintained, the profit will be earned.

15> a.barriers to entry can be erected and maintained.

Reason

Barrier to entry is an important property of a monopoly.