Quiz # 4

2. Which of the following is true at the output level where P=MC?
a. The monopolist is maximizing profit.
b. The monopolist is not maximizing profit and should increase output.
c. The monopolist is not maximizing profit and should decrease output.
d. The monopolist is earning a positive profit.

3. Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ______________ price and sell a ______________ quantity.
a. higher; larger
b. lower; larger
c. higher; smaller
d. lower; smaller
e. none of these

4. As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should
a. expand output.
b. do nothing without information about your fixed costs.
c. reduce output until marginal revenue equals marginal cost.
d. expand output until marginal revenue equals zero.
e. reduce output beyond the level where marginal revenue equals zero.

5. The monopolist has no supply curve because
a. the quantity supplied at any particular price depends on the monopolist's demand curve.
b. the monopolist's marginal cost curve changes considerably over time.
c. the relationship between price and quantity depends on both marginal cost and average cost.
d. there is a single seller in the market.
e. although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.

6. Use the following two statements to answer this question:
I. For a monopolist, at every output level, average revenue is equal to price.
II. For a monopolist, at every output level, marginal revenue is equal to price.

a. Both I and II are true.
b. I is true, and II is false.
c. I is false, and II is true.
d. Both I and II are false.
e. Statements I and II could either be true or false depending upon demand.

7. A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?
a. The firm should cut output.
b. This is typical for a monopolist; output should not be altered.
c. The firm should increase output.
d. None of the above is necessarily correct.

8. Assume that a firm's marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firm's profit maximizing price is approximately
a. $20.
b. $5.
c. $10.
d. The answer cannot be determined without additional information.

Scenario 2:

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5

9. Refer to Scenario 2. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above

10. Refer to Scenario 2. What is the profit maximizing price?
a. $95.00.
b. $5.00.
c. $52.50.
d. $10.00.

11. Refer to Scenario 2. How much profit does the monopolist earn?
a. $4512.50.
b. $4987.50.
c. $475.00.
d. $5.00.

12. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above

13. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price?
a. $90.00.
b. $10.00.
c. $55.00.
d. $52.50.

14. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?
a. $4050.
b. $4950.
c. $450.
d. $5.

15. Refer to Scenario 2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above