QUESTIONS FOR SECTION VI

1. If a firm has a downward sloping demand curve, we know: (a) P =AR (b) MR = AR (c) MR is less than price (d) it cannot be a price-taker (e) all of the above except (b).

2. Price-taking firms and monopohsts are alike in that: (a) P = AR for both when a single price is charged (b) if either produces, it will do so at an output at which MR = MC (c) MR does not equal price for eidier (d) (a) and (b) only (e) all of the above but (d).

3. By royal decree, there is only a single toothpaste manufacturer in Hobbidand, and the following represents his demand curve:

P($):20.0019.50 19.00 18.50 18.0017.5017.0016.5016.00 Q:01 23 45678

The MR of units one through three is respectively: (a) 50 on each (b) 50<, $1.00, $1.50 (c) $19.50, $38.00. $55.50 (d) $19.50, $18.50, $17.50 (e) none of these.

4. In the demand curve in the question above, the gain in revenue from selling the 4th tube (taken alone), the loss in revenue in prior tubes, and the MR associated with selling the 4th tube, are respectively: (a) $72.00, $1.50, $16.50 (b) $16,50, $72.00, $1.50 (c) $18.00. $1.50, $16.50 (d) $18.50, $2.00, $16.50 (e) none of the above.

5. If the of producing toothpaste is constant at $16.50, then the monopolist in #3 will produce: (a) 4 tubes at a total profit of $1.50 (b) 4 tubes at a lotal profit of $6.00 (c) shut down because is not covered (d) shut down because AVC is not covered (e) 3 tubes at a total profit of $8.00.

6. In #3 we know the demand portrayed is: (a) elasdc because MR is always positive (b) inelastic because MR is always negative (c) elastic because MR is always decreasing (d) inelastic because MR is always decreasing (e) none ofthe above.

7. In #3 the welfare loss due to monopoly is: (a) $20.00 (b) $18.00 (c) $1.50 (d) $2.00 (e) $16.50.

8. If MR is zero over a certain range of output.

then we know: (a) the firm should produce in this range (b) entry cannot be profitable (c) demand is unit elastic in this range (d) demand is perfcciK elasdc in this range (e) none of the above.

9. You are retained as a consultant to a firm Avish-ing to maximize profits. You discover that at the firms current output, elasticity of demand is 0.47. Then you should: (a) advise the firm to increase its output at once (b) advise the firm to decrease its output at once (g) wait for information regarding average cost before giving any advice (d) wait for information regarding total cost (e) none of the above.

10. In monopoly: (a) profit equals MR times MC (b) profit equals price times quantity minus the product of average total cost and quantity (c) prof its always exist (d) profits equal the total area under the demand curve minus that under the curve (e) profit equals the sum of the marginal revenue curves up to the equilibrium output.

11. Monopoly is considered to be inefficient because: (a) monopoly profits are excesshe (b) the monopolist does not necessarily produce where average total cost is at a minimum (c) monopoly concentrates too much power (d) under monopoly, some which is valued more than the cost of producing it is not produced (e) all of the above.

12. If a firm can sell one added unit for $4.50 at the sacrifice of $20.00 revenue on prior units, then:

(a) MR is $24.50 and demand is inelastic (b) MR is $15.50 and demand is inelastic (c) MR is $24.50 and demand is elastic (d) MR is $15.50 and demand is elastic (e) none of the above.

13. A firm sells an added unit for $5 and thereb) gains a MR of the same amount, then: (a) the firni, is not a monopolist (b) elasticity is equal to 1. (c) the firm is selling into a perfecdy elasdc demaiK curve (d) an expansion of output will necessarih b profitable (e) options (a) and (c) only.

14(H). A compedtive industry with a perfecdy elasti supply curve receives a subsidy of $2 per unit Currendy, its price and output are $5 and 700 uint Without the subsidy, its output would be 300 unit The welfare loss due to the subsidy: (a) cannot l calculated unless the competitive price is gi

(b) is approximately $400 (c) is approximate

$800 above.

(d) is approximately $600 (e) none of the

15 A monopolist toll bridge operator has fixed costs of $200 per year and no operating costs. The current price is $3 per crossing; there are 300 crossings at present; and the number of added crossings would rise by four per year for each one cent reduction in price. The welfare loss in this situation is approximately: (a) $0 (b) $900 (c) $3,600 (d) $1,800 (e) none of the above.

16(H). A monopolist widi a constant equal to $5 currently charges $7 per unit and makes a profit of $3,000, leaung a consumer surplus of $1,500. If the industry were compeddve, output would be 3000 units. Consumer surplus would then be approximately: (a) $5500 (b) $6000 (c) $7000 (d) $4500 (e) none of the above.

17. Bunk Boards Inc is a monopoly supplier of surf boards, which produces vdth the following costs:

# Surf boards supplied: 1 2 3 4 5 6 7 Total cost: 210 220 235 255 280 310345

Surfers demand Bunk Boards according to the following schedule:

# Surf boards demanded: 1 2 3 4 5 6 7 Price of surf board: 140 120100 80 65 50 35

What quandty would Bunk Boards Inc. produce? (a) 2 (b)3 (c)4 (d)5 (e) 6.

18. What would be the equilibrium price of a Bunk Board? (a) $140 (b) $120 (c) $100 (d)$80 (e) $60.

19. What would Bunk Boards profits be? (a) $0 (b)$20 (c)$55 (d)$65 (e)$7 5.

20. What is the efficient level of output? (a) 3 (b) 4 (c) 5 (d) 6 (e) 7.

21. Ifa monopolists marginal cost is zero at all levels of producdon, then elasticit) of demand at the monopolys profit maximizing output would be: (a) perfecdy elasdc (b) elasdc (c) unit elasdc (d) inelasdc (e) perfectly inelastic.

22. The marginal revenue of the first unit is $10 and decreases by $2 for each additional unit sold. The long run marginal cost of the first unit is $1 and

increases by $1 for each addidonal unit produced. What would the monopoly output be? (a) 4 (b) 5 (c) 6 (d) 7 (e) 8.

23. If in equilibrium we find that a monopolists MC is $5, we can conclude that (a) his profit exceeds $5 (b) he is producing too much (c) MR exceeds $5 and price equals $5 (d) he is a natural monopolist (e) none of the above.

24. If marginal revenue over a range of output is less than zero, then elasticity must be: (a) constant

(b) zero (c) positive and increasing (d) undefined (e) inelastic.

25. Monopoly differs from compedtion in that in monopoly: (a) AR = P (b) = AFC + AVC

(c) the industry demand -vc slopes down (d) P doesnt equal MC in equilibrium (e) economies of scale dont exist.

26. If a firms demand curve for a gOod is perfectly elastic, we can reasonably conclude: (a) it is not a monopoly (b) MR = AR (c) the MR curve is never negative (d) it will not pay to withhold output in order to keep the price high (e) all ofthese.

27. - Regulation is often- favored by-di©- regulated industries themselves because: (a) it can shield existing firms firom competition from new entrants (b) the paper work is tax deductible (c) regulation can create monopoly power (d) none of the above (e) bodi (a) and (c).

28. A pordon of a certain monopolists demand curve for widgets is as follows:

$7.50 10

$7.00 11

$6.50

The marginal revenue on the 10th, llth, 12th widgets is respectively: (a) $3.00, $2.00. $1.00 (b) $7.50, $7.00, $6.50 (c) 500, 500 and 500 (d) $75.00, $77.00 and $78.00 (e) none of these.

29. We can conclude in the above question that:

(a) demand is elastic because MR is greater than 0

(b) demand is inelastic because MR is less than 0

(c) demand is elastic because MR is declining

(d) demand is inelastic because MR is declining

(e) demand is clastic because MR is greater than 1.0.

30. Marginal to a certain firm varies with output as follows;

q

MR %2

We can conclude that; 4 units because .MR = %\ because MR is decreasing because MR is decreasing at 5 units because MR = $0 malie a profit.

(a) demand is unit elastic at (b) demand is elasdc (c) demand is inelastic (d) demand is unit elastic (e) this firm can never

31. Three teaching assistants develop a course supplement for Economics 1. If they receive 20% of the total revenues gained from the sale of the supplement, they would want the bookstore to order copies to die point where the bookstores: (a) MR = 0 (b) MR = MC (c) MR = (d) MR differs from as much as possible (e) MR is negadve.

32. Which of the following is inconsistent with monopoly? (a) industry demand curve inelasdc in some ranges (b) a "U" shaped curve (c) selling in the elastic region of the demand curve

(d) no profits (e) easy entry into the industry.

33. Which of the following represents a poor candidate for price discrimination? (a) jewels (b) haircuts (c) dental care (d) morie dckets (e) excursion cruises.

34. Morie theatres often charge lower prices to students than to others because: (a) students income elasdcity of demand for moNies is low (b) the demand curve of students lies outside that of non-students (c) any point on the demand curve of non-students is more elastic than every point on that of students (d) student demand is reladvely elasdc

(e) its cheaper to sell tickets to students.

35. \ ich of the following is true of perfect compedtion and untrue of monopoly? (a) average total cost curves may be "U" shaped (b) profits are the product of average total cost and output sold (c) profits may exist in the long run (d) total revenue is the product of average revenue and quandty sold (e) marginal revenue and average revenue are always idendcal.

36. Monopoly is said to be inefficient because: (a) producdon is usually excessive since monopohes

are normally huge companies (b) production is too small even if the company is large (c) economic and political power is undemocratically distributed (d) monopolies usually require goiennnent intervention (e) producdon is excessive because monopoly profits are too large.

37. A recent ardcle in the L.A. Times stated that Japanese companies have been selling cameras in South America at prices below those of idendcal models in the United States. This suggests that: (a) middlemen can make money by purchasing at the low South American price and reselling at or below the U.S. price if shipping costs are low enough (b) the U.S. elasdcity of demand must equal that of South America (c) camera sales should be regulated (d) the U.S. elasdcity of demand must be greater than that of South America (e) the Japanese should try-to sell more cameras in the U.S. where they can fetch higher prices.

38. A monopolist sells chewing tobacco at a constant of $4 per dn in two completely isolated markets having the following demands:

The total number of tins sold in both markets combined and the firms profits will be respectively: (a) 0, $0 (b) 2. $4 (c) 5, $7 (d) 8. $10 (e) 8. $6.

39. Canned Heat, Inc. is a chartered monopoly supplier of salsa, producing with the following costs:

Cans Produced: 1 2 3 Total Cost 5 8 9

4 5 6 7 16 25 36 49

Consumers demand salsa according to the following demand schedule:

Cans Demanded 1 2 3 4 5 6 7

Price per can (S/q) 13 12.50 12 11.50 11 10.50 10

What would Canned Heats output be? (a) 0 (b) 1 (c) 3 (d) 5 (e) 6.

40. What would be Canned Heats total profits? (a) 0 (b) $30 (c) $35 (d) $11 (e) none of these.