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Questions and Answers
Why is the marginal revenue (MR) curve below the demand curve for a monopolist?
Why is the marginal revenue (MR) curve below the demand curve for a monopolist?
- Because the demand curve is perfectly elastic.
- Because the monopolist's costs are higher than in competitive markets.
- Because the monopolist must lower the price on all units to sell one more unit. (correct)
- Because monopolists can perfectly price discriminate.
At what point does a monopolist maximize profit?
At what point does a monopolist maximize profit?
- Where average total cost is minimized.
- Where total revenue is maximized.
- Where marginal cost (MC) equals the price.
- Where marginal revenue (MR) equals marginal cost (MC). (correct)
After determining the profit-maximizing quantity, how does a monopolist decide what price to charge?
After determining the profit-maximizing quantity, how does a monopolist decide what price to charge?
- The monopolist sets the price equal to the marginal cost at the profit-maximizing quantity.
- The monopolist sets the price at the intersection of the MR and MC curves.
- The monopolist sets the price based on the demand curve at the profit-maximizing quantity. (correct)
- The monopolist sets the price based on the average cost curve at the profit-maximizing quantity.
Which of the following is the correct formula for calculating a monopolist's total revenue (TR)?
Which of the following is the correct formula for calculating a monopolist's total revenue (TR)?
Which of the following is the correct formula for calculating a monopolist's profit?
Which of the following is the correct formula for calculating a monopolist's profit?
A monopolist is producing a quantity where marginal revenue (MR) exceeds marginal cost (MC). What should the monopolist do to increase profit?
A monopolist is producing a quantity where marginal revenue (MR) exceeds marginal cost (MC). What should the monopolist do to increase profit?
What is a key characteristic of the demand curve faced by a monopolist?
What is a key characteristic of the demand curve faced by a monopolist?
A monopolist is currently producing 10 units at a price of $15 per unit. To sell 11 units, the monopolist must lower the price to $14 per unit. What is the marginal revenue of the 11th unit?
A monopolist is currently producing 10 units at a price of $15 per unit. To sell 11 units, the monopolist must lower the price to $14 per unit. What is the marginal revenue of the 11th unit?
A monopolist's average cost (AC) is $8 per unit, and it sells 20 units at a price of $12 per unit. What is the monopolist's profit?
A monopolist's average cost (AC) is $8 per unit, and it sells 20 units at a price of $12 per unit. What is the monopolist's profit?
What typically happens to marginal cost (MC) as a firm increases production?
What typically happens to marginal cost (MC) as a firm increases production?
Flashcards
Monopoly
Monopoly
A market structure characterized by a single seller, high barriers to entry, and significant control over market prices.
Marginal Revenue (MR)
Marginal Revenue (MR)
The additional revenue gained from selling one more unit of a good or service.
Marginal Cost (MC)
Marginal Cost (MC)
The cost of producing one additional unit of a good or service.
Profit-Maximizing Quantity
Profit-Maximizing Quantity
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Total Revenue (TR)
Total Revenue (TR)
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Total Cost (TC)
Total Cost (TC)
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Profit Calculation
Profit Calculation
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Study Notes
- A monopolist has significant control over the market and can influence prices.
- A monopolist faces a downward-sloping demand curve, unlike firms in perfect competition.
- Marginal Revenue (MR) is the additional revenue gained from selling one more unit of a good.
- For a monopolist, MR is always less than the price, due to the need to lower the price on all units sold to increase sales.
- Marginal Cost (MC) is the cost of producing one additional unit of a good.
- Typically, the MC curve slopes upward, indicating that producing more units will increase costs.
Profit Maximization Process
- The monopolist uses a three-step process to determine the profit-maximizing price and quantity.
Step 1: Determine Profit-Maximizing Quantity
- The monopolist uses the marginal revenue (MR) and marginal cost (MC) to find the optimal output level.
- The profit-maximizing quantity occurs where MR = MC.
- For example, if MR is equal to MC at a quantity of 4, this is the output level the monopolist should produce.
Step 2: Decide on the Price to Charge
- The monopolist sets the price based on the demand curve at the determined quantity.
- A vertical line is drawn from the profit-maximizing quantity to the demand curve to find the corresponding price.
Step 3: Calculate Total Revenue, Total Cost, and Profit
- Total Revenue (TR) = Price × Quantity
- Total Cost (TC) = Average Cost × Quantity
- Profit = TR − TC
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