SOLVED

10.3  How Does a Monopoly Choose Price and Output? 1) The demand curve for the monopoly’s product is A) the market demand for the product. B) more elastic than the market demand for the product. C) more inelastic than the market demand for the product. D) undefined. 2) A monopolist’s profit maximizing price and output correspond to the point on a graph A) where average total cost is minimized. B) where total costs are the smallest relative to price. C) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. D) where price is as high as possible. 3) Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so? A) because Microsoft is large enough to hire the best people in the field B) because Microsoft could potentially lose sales if it sets prices indiscriminately C) because the wealthy corn farmer is a price taker who chooses his optimal output independently of market price but Microsoft’s optimal output depends on the price it selects D) because unlike Microsoft, the wealthy corn farmer is probably a monopolist 4) Because a monopoly’s demand curve is the same as the market demand curve for its product, A) the monopoly’s marginal revenue equals its price. B) the monopoly is a price taker. C) the monopoly must lower its price to sell more of its product. D) the monopoly’s average total cost always falls as it increases its output. 5) If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the A) marginal revenue of the sixth performance is $48,000. B) marginal revenue of the sixth performance is $38,000. C) cost of staging the sixth performance is probably higher than the cost of staging the previous five. D) company will be making a loss on the sixth performance because its ticket sales will be less than the average received from the previous five. 6) If a monopolist’s price is $50 per unit and its marginal cost is $25, then A) to maximize profit the firm should increase output. B) to maximize profit the firm should decrease output. C) to maximize profit the firm should continue to produce the output it is producing. D) Not enough information is given to say what the firm should do to maximize profit. 7) If a monopolist’s marginal revenue is $25 a unit and its marginal cost is $25, then A) to maximize profit the firm should increase output. B) to maximize profit the firm should decrease output. C) to maximize profit the firm should continue to produce the output it is producing. D) Not enough information is given to say what the firm should do to maximize profit. 8) Refer to Figure 10-1. To maximize profit, the firm will produce A) Q1. B) Q2. C) Q3. D) Q4. 9) Refer to Figure 10-1. The firm’s profit-maximizing price is A) P1. B) P2. C) P3. D) P4. 10) Refer to Figure 10-1. If the firm’s average total cost curve is ATC1, the firm will A) suffer a loss. B) break even. C) make a profit. D) face competition.