A reduction in a monopolist's fixed costs would

Which of the following statements is true?

When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.

When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

Average revenue is the same as price for both competitive and monopoly firms.

(i) only

(iii) only

(i) and (ii)

(ii) and (iii)

If a firm in a competitive market triples the number of units of output sold, then total revenue will

more than triple.

less than triple.

exactly triple.

All of the above are potentially true.

10. When a competitive firm makes a decision to shut down, it is most likely that

marginal cost is above average variable cost.

marginal cost is above average total cost.

price is below the minimum of average variable cost.

fixed costs exceed variable costs.

Table 4.

Number of figs

TC

ATC

TVC

AVC

MC

0

$80

1

$90

$90

2

$135

3

$92

4

$500

5

$600

11. Table 4 presents the cost schedule for David's Figs. If David produces three figs, David's total variable costs are

$276.

$0.

$92.

$376.

$106.

Table 4 presents the cost schedule for David's Figs. If David produces five figs, David's marginal costs are

$70.

$150.

$200.

$700.

None of the above.

13. At a price of $20, the marginal revenue of a monopolist is $13. If the marginal cost of production is $14, what should the monopolist do?

Increase its price

Decrease its price

Keep its price at the same level

Shut down

2

Consider the following production data for the Tickle-Me-Elmo company. What would you, an economic consultant, conclude about this firm?

Current output = 1000 Elmos, MR[at 1000 Elmos] = $3.50

MC[at 1000 Elmos] = $4.00, MC[at 1001 Elmos] = $4.25

It is producing too little, and it is producing where marginal costs are falling.

It is producing too much, and it is producing where marginal costs are rising.

It is producing rationally.

Wages are too high.

It is a monopolist.

For a profit maximizing monopolist, _____. In contrast, for a profit maximizing perfectly competitive firm, _________.

P=MR=MC; P<MR=MC

P>MR>MC; P>MR=MC

P>MR=MC; P=MR=MC

P>MR<MC; P=MR>MC

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

a one-unit decrease in output would increase the firm’s profit.

average revenue exceeds marginal cost.

the firm is earning a positive profit.

All of the above are correct.

Firms can have:

Accounting profits and economic losses

Accounting profits and economic profits

Accounting losses and economic losses

Accounting losses and economic profits

i, ii, and iii

only i and iv

only ii and iii

All of the above

18. A reduction in a monopolist’s fixed costs would

a. possibly increase, decrease or not affect profit-maximizing price and quantity, depending on the

elasticity of demand.

b. decrease the profit-maximizing price and increase the profit-maximizing quantity produced.

c. increase the profit-maximizing price and decrease the profit-maximizing quantity produced.

d. not affect the profit-maximizing price or quantity.

19. What is the monopolist's profit under the following conditions? The profit-maximizing price charged

for goods produced is $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units, marginal cost is $8, and average total cost is $7.

$50

$40

$10

Not enough information is given to determine the answer.

20. A competitive firm might choose to set its price below the market price, because

this would result in higher average revenue.

this would result in lower total costs.

this would result in higher profits.

None of the above are correct.

3

A monopolist faces demand given by: P = 100 -.4Q D , and has marginal costs given by:

MC = 10 + .2Q .

Draw the demand, marginal revenue and marginal cost curves. Calculate and show how much this firm will sell and what they will charge.

Calculate the producer surplus with monopoly and the consumer surplus with monopoly.

C. How much would be produced if this was a competitive market? What would be the price?

Calculate the consumer and producer surplus for a competitive market.

5

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