Monopoly Chapter Exercise Problems PDF

Exercise Problems for Monopoly Chapter Shuo Xu December 2, 2024 Exercise Questions Multiple Choice Questions 1. Which of the following is a characteristic of a monopoly? (a) A large number of firms (b) A single seller and no clos...

Exercise Problems for Monopoly Chapter Shuo Xu December 2, 2024 Exercise Questions Multiple Choice Questions 1. Which of the following is a characteristic of a monopoly? (a) A large number of firms (b) A single seller and no close substitutes for the product (c) Free entry and exit in the market (d) Perfect information for consumers and producers 2. A monopolist maximizes profit where: (a) Marginal cost equals price (b) Marginal cost equals marginal revenue (c) Average total cost equals marginal cost (d) Price equals marginal revenue 3. Which of the following is true about the demand curve faced by a monopolist? (a) It is perfectly elastic (b) It is perfectly inelastic (c) It is downward sloping (d) It is vertical 1 4. In a monopoly market, the price is: (a) Always equal to marginal cost (b) Always higher than marginal cost (c) Always lower than marginal cost (d) Always equal to average cost 5. A monopolist’s total revenue is maximized when: (a) Marginal revenue equals zero (b) Marginal revenue equals marginal cost (c) Total revenue is at its highest point (d) Average revenue equals total cost 6. Which of the following statements is true for a monopolist? (a) The monopolist has no control over price (b) The monopolist produces at the point where price equals marginal cost (c) The monopolist produces at the point where marginal revenue equals marginal cost (d) The monopolist faces a perfectly elastic demand curve 7. The socially optimal price for a monopolist is: (a) The price at which marginal cost equals marginal revenue (b) The price at which average total cost equals marginal cost (c) The price at which price equals marginal cost (d) The price at which the firm maximizes its profits 8. If a monopolist faces a linear demand curve P = 20 − 2Q, what will happen to price if the monopolist increases output from Q = 4 to Q = 5? (a) The price will remain constant (b) The price will increase 2  (c) The price will decrease (d) The price will increase slightly 9. A monopolist practices first-degree price discrimination. Which of the following statements is true? (a) The monopolist charges different prices based on the consumer’s income level. (b) The monopolist charges each consumer the maximum price they are willing to pay. (c) The monopolist does not charge different prices to different con- sumer segments. (d) The monopolist sets the same price for all consumers. 10. In a regulated natural monopoly, if the government sets the price equal to marginal cost, which of the following is most likely to occur? (a) The monopolist will make zero profit. (b) The monopolist will produce at the socially optimal quantity. (c) The monopolist will have an incentive to reduce output. (d) All of the above. Calculation Questions 1. A monopolist faces the demand curve P = 40 − 2Q, where P is the price and Q is the quantity. The monopolist’s cost function is C(Q) = 20 + 10Q + Q2. (a) Calculate the monopolist’s profit-maximizing output. (b) What is the price the monopolist will charge at this output level? (c) Calculate the consumer surplus, producer surplus, and total sur- plus in the market if the monopolist does not practice price dis- crimination. 3