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  • 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.

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