Monopoly and Demand

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Questions and Answers

What is the relationship between the quantity demanded for the product and the price offered by the monopoly?

Positive
Negative (correct)
Uncertain
Zero

What type of demand curve does the monopoly face?

Horizontal
Vertical
Upward sloping
Downward sloping (correct)

What happens to the quantity demanded when the price offered by the monopoly increases?

It remains the same
It becomes zero
It decreases (correct)
It increases

What is the implication of the negative relationship between price and quantity demanded?

Higher prices lead to lower quantity demanded (C) Signup and view all the answers

What is the market structure in which the downward sloping demand curve is observed?

Monopoly (D) Signup and view all the answers

What is price discrimination?

The practice of selling different units of a good or service for different prices (D) Signup and view all the answers

What is a common characteristic of firms that price discriminate?

They are not necessarily monopoly firms (D) Signup and view all the answers

What is the key factor that determines the price of a good or service in price discrimination?

The type of customer buying the good or service (B) Signup and view all the answers

Why might a firm choose to price discriminate?

To increase profit margins by charging different prices to different customers (B) Signup and view all the answers

What is a result of price discrimination?

Some customers pay a higher price for a good or service, while others pay a lower price (C) Signup and view all the answers

What is a characteristic of a natural monopoly?

One firm supplying the entire market at the lowest possible cost (B) Signup and view all the answers

What enables a firm to be a natural monopoly?

Economies of scale (B) Signup and view all the answers

What is the result of economies of scale in a natural monopoly?

A decrease in the average cost per unit (B) Signup and view all the answers

What is the outcome of a natural monopoly in the market?

One firm supplying the entire market (C) Signup and view all the answers

What is a key feature of a natural monopoly market?

A single firm operating at the lowest possible cost (A) Signup and view all the answers

What is the primary focus of Figure 16.2?

The relationship between price and marginal revenue (C) Signup and view all the answers

What can be derived from the information provided in Figure 16.2?

The marginal revenue curve (A) Signup and view all the answers

What is the relationship between price and marginal revenue in Figure 16.2?

Marginal revenue is always less than price (A) Signup and view all the answers

What can be inferred from the marginal revenue curve in Figure 16.2?

The demand for the product is decreasing (B) Signup and view all the answers

What is the purpose of analyzing the relationship between price and marginal revenue in Figure 16.2?

To understand the behavior of a firm in a market (D) Signup and view all the answers

What is the condition for profit maximizing output?

MR = MC (A) Signup and view all the answers

At what point on the AR curve is the price of the product determined?

At the equilibrium output (D) Signup and view all the answers

What is the relationship between the marginal revenue and the marginal cost at the profit maximizing output?

MR is equal to MC (C) Signup and view all the answers

What is the significance of the equilibrium output on the AR curve?

It determines the price of the product (C) Signup and view all the answers

What is the condition for the firm to maximize its profit?

When MR is equal to MC (B) Signup and view all the answers

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Study Notes

Monopoly and Demand

A monopoly faces a downward sloping demand curve, indicating a negative relation between the quantity demanded and the price offered.

Natural Monopoly

A natural monopoly occurs when economies of scale enable one firm to supply the entire market at the lowest possible cost.

Price Discrimination

Price discrimination is the practice of selling different units of a good or service for different prices.
Not all firms that price discriminate are monopoly firms.

Marginal and Average Revenue

Figure 16.2 illustrates the relationship between price and marginal revenue, and derives the marginal revenue curve.

Profit Maximization

The profit maximizing output occurs when Marginal Revenue (MR) equals Marginal Cost (MC).
The price of the product is determined at the equilibrium output on the Average Revenue (AR) curve.