William Rainey Harper College
ECO 211

Review

Ch. 10 Monopoly

1.

Pure monopolists may earn economic profits in the long run because:

A.

of advertising.

B.

marginal revenue is constant as sales increase.

C.

of barriers to entry.

D.

of rising average fixed costs.



2.

A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:

A.

-$1,000.

B.

$9,000.

C.

$10,000.

D.

$1,000.



3.

The pure monopolist's demand curve is:

A.

identical with the industry demand curve.

B.

of unit elasticity throughout.

C.

perfectly inelastic.

D.

perfectly elastic.



4.

R-1 F24033

Refer to the above diagram. Demand is relatively inelastic:

A.

at price P3.

B.

at any price below P2.

C.

in the P2P4 price range.

D.

in the P2P3 price range.



5.

The marginal revenue curve for a monopolist:

A.

is a straight, upward sloping curve.

B.

rises at first, reaches a maximum, and then declines.

C.

is posiive at low levels of output, then becomes negative at high output levels.

D.

is a straight line, parallel to the horizontal axis.



6.

The MR = MC rule:

A.

applies only to pure competition.

B.

applies only to pure monopoly.

C.

does not apply to pure monopoly because price exceeds marginal revenue.

D.

applies both to pure monopoly and pure competition.



7.

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by:

A.

reducing output and raising price.

B.

reducing both output and price.

C.

increasing both price and output.

D.

raising price while keeping output unchanged.



8.

R-2 F24079

Refer to the above diagram. To maximize profits or minimize losses this firm should produce:

A.

E units and charge price C.

B.

E units and charge price A.

C.

M units and charge price N.

D.

L units and charge price LK.

E.

E units and charge price B.



9.

R-2 F24079

Refer to the above diagram. In equilibrium total revenue will be:

A.

NM times 0M.

B.

0AJE.

C.

0EGC.

D.

0EHB.



10.

R-2 F24079

Refer to the above diagram. In equilibrium total cost will be:

A.

NM times 0M.

B.

0AJE.

C.

0CGC.

D.

0BHE.



11.

R-2 F24079

Refer to the above diagram. In equilibrium the firm will realize:

A.

an economic profit of ABHJ.

B.

an economic profit of ACGJ.

C.

a loss of GH per unit.

D.

a loss of JH per unit.



12.

A single-price pure monopoly is economically inefficient:

A.

only because it produces beyond the point of minimum average total cost.

B.

only because it produces short of the point of minimum average total cost.

C.

because it produces short of minimum average cost and price is greater than marginal cost.

D.

because it produces beyond minimum average total cost and marginal cost is greater than price.



13.

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's:

A.

price, output, and average total cost would all be higher.

B.

price and average total cost would be higher, but output would be lower.

C.

price, output, and average total cost would all be lower.

D.

price and output would be lower, but average total cost would be higher.



14.

R-3 F24112

Refer to the above long-run cost diagram for a firm. If the firm produces output Q1 at an average total cost of ATC1, then the firm is:

A.

producing the potentially profit-maximizing output, but is failing to minimize production costs.

B.

incurring X-inefficiency, but is realizing all existing economies of scale.

C.

incurring X-inefficiency and is failing to realize all existing economies of scale.

D.

producing that output with the most efficient combination of inputs and is realizing all economies of scale.



15.

In which one of the following market models is X-inefficiency least likely to be present?

A.

pure competition

B.

oligopoly

C.

monopolistic competition

D.

pure monopoly



16.

Answer the next question(s) on the basis of the following information for a pure monopolist:

Output
Total Cost
Product Price
0
$ 250
$ 500
1
260
300
2
290
250
3
350
200
4
480
150
5
700
100

R-4 REF24129

How many units would the above profit-maximizing monopolist produce?

A.

1

B.

2

C.

3

D.

4



17.

Answer the next question(s) on the basis of the following information for a pure monopolist:

Output
Total Cost
Product Price
0
$ 250
$ 500
1
260
300
2
290
250
3
350
200
4
480
150
5
700
100

R-4 REF24129

The above monopolist should set its price at:

A.

$300.

B.

$250.

C.

$200.

D.

$15.



18.

Answer the next question(s) on the basis of the following information for a pure monopolist:

Output
Total Cost
Product Price
0
$ 250
$ 500
1
260
300
2
290
250
3
350
200
4
480
150
5
700
100

R-4 REF24129

At its profit-maximizing output, the above monopolist:

A.

incurs a loss.

B.

earns an economic profit of $250.

C.

earns a normal profit of $250.

D.

earns an economic profit of $150.




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