Problem Set 12

Econ 202 (03, 04, and 05) Spring 2003

(Dr. Tin-Chun Lin)
1. Which of the following is a difference between a monopolist and a firm in perfect
competition? For the monopolist:
(A) The marginal revenue curve is downward-sloping.
(B) Marginal revenue equals price.
(C) Economic profits are zero in the long run.
(D) The marginal revenue curve lies above the demand curve.
(Answer: (A))
2. At the point where the marginal revenue equals zero for a monopolist facing a downwardsloping straight-line demand curve, total revenue is:
(A) Greater than 1.
(B) At a maximum.
(C) Less than 1.
(D) Equal to zero.
(Answer: (B))
3. Both a perfectly competitive firm and a monopolist:
(A) Always earn an economic profit.
(B) Maximize profit by setting marginal cost equal to marginal revenue.
(C) Maximize profit by setting marginal cost equal to average total cost.
(D) Are price takers.
(Answer: (B))
4. What would a profit maximizing do if she is currently producing where MC < MR?
(A) Increase output until MC = MR.
(B) Decrease output until MC = MR.
(C) Shut down in the long run.
(D) Keep producing at this level.
(E) Operate only in the short long.
(Answer: (A))
5. (True or False) A monopolist always selects a price on the elastic portion of its demand curve.
(Answer: True)
6. (True or False) When a monopoly price discriminates, it charges the highest price to the
group of buyers with the least elastic demand.
(Answer: True)
7. Minnies Mineral Springs, a single-price monopoly, has the following demand schedule and
total cost for bottled mineral water:
Quantity (bottles)
Price (dollars per bottle)
Total cost (dollars)
0
10
1
1
8
3
2
6
7
3
4
13
4
2
21
5
0
31
(a) Calculate Minnies total revenue schedule. (Answer: you can do it by yourself)
(b) Calculate its marginal revenue schedule. (Answer: you can do it by yourself)
(c) At what price is the elasticity of demand equal to 1? (Answer: between a price of $6 and
$4.)

(d) Calculate Minnies profit-maximizing levels of output, price, marginal cost, marginal
revenue, and profit. (Answer: output = 2; price = $6; marginal cost = $4; marginal
revenue = $4; profit = $12-$7 = $5)
8. Which of the following could never occur for a monopolist?
(A) Marginal revenue > 0.
(B) Marginal revenue = 0.
(C) Marginal revenue < 0.
(D) All of the above are possible.

(Answer: (D))

9. A price-discriminating monopoly charges the lowest price to the group that:

(A) Has the most elastic demand.
(B) Purchases the largest quantity.
(C) Engages in the most quantity.
(D) Is least responsive to price changes.
(Answer: (A))
10. Monopolists are criticized because they are inefficient. What does it mean?
(A) Monopolists charge too high price.
(B) Monopolists dont innovate enough to control pollution.
(C) Monopolists produce a large quantity of waste.
(D) Monopolists produce where P > MC.
(E) Monopolists could use their resources better elsewhere.
(Answer: (D))
11. If marginal revenue is negative at a particular output, then
(A) Price must be negative.
(B) A profit-maximizing monopoly should increase output.
(C) The elasticity of demand is less than one at that output.
(D) Demand must be elastic at that output.

(Answer: ( C ))

12. The supply for a monopoly

(A) Is the marginal cost curve above average total cost.
(B) Is the marginal cost curve above average variable cost.
(C) Is the positively sloped portion of the marginal revenue curve.
(D) Does not exist.

(Answer: (D))

13. A profit-maximizing monopoly will never produce at an output level

(A) At which it would make economic losses.
(B) Where marginal revenue is less than price.
(C) At which average cost is greater than marginal cost.
(D) In the inelastic range of its demand curve.

(Answer: (D))

14. If a price discriminating monopoly charging a lower price to students, it is likely that the firm
(A) Believes that student demand is relatively elastic.
(B) Believes that student demand is relatively inelastic.
(C) Wants to shift student demand.
(D) Is primarily concerned about the well-being of students.
(Answer: (A))
15. (True or False) No deadweight loss results from a perfect price discriminating monopoly
because the monopoly gains everything the consumer loses.
(Answer: True)