Question 1

Which condition must be satisfied for a monopolist to produce a positive output in the short run?

Accepted Answer

The monopolist must set $$MR(q^*) = MC(q^*)$$ and $$p(q^*) \geq AVC(q^*).$$

Question 2

Given the demand function $$Q(p) = 400 - 2p$$ and cost function $$C(q) = 100 + q^2$, what is the profit-maximizing output for the monopolist?

Accepted Answer

$$q^* = \frac{200}{3}$$

Question 3

For the same monopolist as above, what is the profit-maximizing price?

Accepted Answer

$$p^* = \frac{500}{3}$$

Question 4

What is the economic meaning of the area labeled as the 'deadweight loss' in a monopoly diagram?

Accepted Answer

It represents the loss of total welfare due to the monopolist producing less than the competitive output.

Question 5

In the long run, a monopolist will produce only if:

Accepted Answer

$$MR(q^*) = MC(q^*)$$ and $$p(q^*) \geq AC(q^*)$$

Question 6

Which of the following is NOT a characteristic of monopoly compared to perfect competition?

Accepted Answer

Monopoly produces more than the competitive equilibrium output.

Question 7

If a monopolist faces $$Q(p) = 200 - 2p$$ and $$MC(q) = AC(q) = 10$$ with no fixed cost, what is the profit-maximizing output?

Accepted Answer

$$q^* = 90$$

Question 8

For the above monopolist, what is the profit-maximizing price?

Accepted Answer

$$p^* = 55$$

Question 9

Which type of price discrimination involves charging each consumer their exact willingness to pay?

Accepted Answer

First-degree price discrimination

Question 10

Which of the following is an example of third-degree price discrimination?

Accepted Answer

Student discounts at movie theaters

Question 11

What is the effect of first-degree price discrimination on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is zero.

Question 12

Which of the following best describes second-degree price discrimination?

Accepted Answer

Charging different prices for different quantities purchased.

Question 13

Suppose a monopolist can perfectly price discriminate. What happens to total welfare compared to the single-price monopoly case?

Accepted Answer

Total welfare increases because deadweight loss is eliminated.

Question 14

If a monopolist sets $$MR(q^*) = MC(q^*)$$ but $$p(q^*) \u003c AVC(q^*) in $$the short run, what should the monopolist do?

Accepted Answer

Shut down and produce zero output.

Question 15

Which area in the monopoly welfare diagram represents the deadweight loss?

Accepted Answer

The light gray triangle between $$q^*$$ and $$q_c$$ above $$MC$$ and below demand.

Question 16

Which of the following is a necessary step in finding the profit-maximizing output for a monopolist?

Accepted Answer

Set $$MR(q) = MC(q)$$ and solve for $$q^*.$$

Question 17

A monopolist faces the demand curve $$Q(p) = 100 - p$$ and has $$MC(q) = 20. $$What is the marginal revenue function?

Accepted Answer

$$MR(q) = 100 - 2q$$

Question 18

Which of the following is a real-world example of second-degree price discrimination?

Accepted Answer

Buy one get one 50% off

Question 19

If a monopolist can separate consumers into two groups with different elasticities of demand, which pricing strategy is being used?

Accepted Answer

Third-degree price discrimination

Monopoly Output Decisions and Pricing with Market Power

Study Guide - Practice Questions