Econ 231
Chapter 14:
Monopoly
1. Which of the following statements is correct?
a. A competitive firm is a price maker and a monopoly is a price taker.
b. A competitive firm is a price taker and a monopoly is a price maker.
c. Both competitive firms and monopolies are price takers.
d. Both competitive firms and monopolies are price makers.
2. A natural monopoly occurs when
a. the product is sold in its natural state (such as water or diamonds).
b. there are economies of scale over the relevant range of output.
c. the firm is characterized by a rising marginal cost curve.
d. production requires the use of free natural resources, such as water or air.
3. An industry is a natural monopoly when
(i) the government assists the firm in maintaining the monopoly.
(ii) a single firm owns a key resource.
(iii)
a single firm can supply a good or service to an entire market at a smaller cost
than could two or more firms.
a. (ii) only
b. (iii) only
c. (i) and (ii)
d. (ii) and (iii)
4.Encouraging firms to invest in research and development and individuals to engage in creative
endeavors such as writing novels is one justification for
a. resource monopolies.
b. natural monopolies.
c. government-created monopolies.
d. breaking up monopolies into smaller firms.
5. When a firm's average total cost curve continually declines, the firm is a
a. government-created monopoly.
b. natural monopoly.
c. revenue monopoly.
d. All of the above are correct.
6.For a profit-maximizing monopolist,
a. P > MR = MC.
b. P = MR = MC.
c. P > MR > MC.
d. MR < MC < P.
Table 14-1
Quantity
1
2
3
4
5
6
7
8
9
10
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
99
80
11
8
-1
-7
-13
7. Refer to Table 14-1. If the monopolist sells 8 units of its product, how much total revenue
will it receive from the sale?
a. 14
b. 40
c. 112
d. 164
8. Refer to Table 14-1. If the monopolist wants to maximize its revenue, how many units of
its product should it sell?
a. 4
b. 5
c. 6
d. 8
9. Refer to Table 14-1. When 4 units of output are produced and sold, what is average
revenue?
a. 17
b. 21
c. 23
d. 26
10. Refer to Table 14-1. What is the marginal revenue for the monopolist for the sixth unit
sold?
a. 3
b. 5
c. 11
d. 17
11. Refer to Table 14-1. Assume this monopolist's marginal cost is constant at $12. What
quantity of output (Q) will it produce and what price (P) will it charge?
a. Q = 4, P = $29
b. Q = 4, P = $26
c. Q = 5, P = $23
d. Q = 7, P = $17
Figure 14-3
The figure below illustrates the cost and revenue structure for a monopoly firm.
12. Refer to Figure 14-3. A profit-maximizing monopoly's total revenue is equal to
a. P3 × Q2.
b. P2 × Q4.
c. (P3 – P0) × Q2.
d. (P3 – P0) × Q4.
13. Refer to Figure 14-3. A profit-maximizing monopoly's total cost is equal to
a. (P1 – P0) × Q2.
b. P0 × Q1.
c. P0 × Q2.
d. P0 × Q3.
14. Refer to Figure 14-3. A profit-maximizing monopoly's profit is equal to
a. P3 × Q2.
b. P2 × Q4.
c. (P3 – P0) × Q2.
d. (P3 – P0) × Q4.
15. Refer to Figure 14-3. Profit on a typical unit sold for a profit-maximizing monopoly would
equal
a. P2 – P1.
b. P2 – P0.
c. P3 – P2.
d. P3 – P0.
16. Refer to Figure 14-3. At the profit-maximizing level of output,
a. marginal revenue is equal to P3.
b. marginal cost is equal to P3.
c. average revenue is equal to P3.
d. average total cost is equal to P1.
17. A monopolist can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201
units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is
a. $-4.20.
b. $-0.20.
c. $4.20.
d. $35.80.
18. A monopolist faces the following demand curve:
Price
$51
$47
$42
$36
$29
$21
$12
Quantity
Demanded
1
2
3
4
5
6
7
The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is
the profit-maximizing level of production?
a. 2 units
b. 3 units
c. 4 units
d. 5 units
19. The following table gives information on the price, quantity, and total cost of production
for a monopolist. How much profit will the firm earn at the profit-maximizing price?
P
5
4
3
2
1
0
a.
b.
c.
d.
Q
0
5
10
15
20
25
$9
$12
$15
$18
ANSWERS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
b
b
b
c
b
a
c
c
d
b
b
a
c
c
d
c
a
c
b
TC
3
8
18
33
53
78