Question

1. A monopolist is currently selling at a price of $5 with constant ATC equal to $3. If quantity demanded increases by three units for each one cent reduction in the price, the welfare (efficiency) loss due to monopoly is:  

A. $1,600

B. $2,000

C. $900

D. $600

E. $6,000

2. If elasticity of demand is LESS than ONE where a certain monopolist is currently operating then:  

A. it should increase production

B. the Marginal Revenue curve must be rising

C. None of the above

D. the monopolist should reduce output, lower cost and raise revenue

E. Its ATC will fall if it raises output

3. Which of the following statements is INCORRECT?

A. in a long run monopolistic competitors' equilibrium, profits are zero

B. monopolistic competitors' demand curves become less elastic as entry occurs

C. all of the above are correct

D. a downward sloping demand curve for an individual firm's product indicates the presence of monopoly power

Answer 1

SOLUTION :-

1. A monopolist is currently selling at a price of $5 with constant ATC equal to $3. If quantity demanded increases by three units for each one cent reduction in the price, the welfare (efficiency) loss due to monopoly is:

HENCE Option "B","$ 2,000" is correct answer.

2.If elasticity of demand is LESS than ONE where a certain monopolist is currently operating then:

HENCE Option "E","Its ATC will fall if it raises output " is correct answer.

3.Which of the following statements is INCORRECT?

HENCE Option "D","a downward sloping demand curve for an individual firm's product indicates the presence of monopoly power "is correct answer.