a. The point where average cost is a minimum
b. The price where there is a maximum difference between
marginal revenue and marginal cost.
d. The point on the demand curve above the intersection
of marginal cost and marginal revenue.
e. The price at which the monopolist operates at maximum
8. Suppose Arf n' Barf restaurant has a monopoly on restaurant
food in a certain small town. Their rent, which is one of several fixed
costs they pay whether they sell food or not, has gone up. In the short
run, the Arf n' Barf should
a. pay the higher rent and increase menu prices
b. pay the higher rent and leave menu prices unchanged
c. pay the higher rent and lower prices
d. go out of business
e. shut down
9. A nondiscriminating monopolist earning positive short-run
economic profit determines that its current marginal cost is $15 and its
current marginal revenue is $20. To maximize profit, a firm should
a. raise price and increase output
b. raise price and decrease output
c. maintain a constant price and increase output
d. reduce price and increase output
e. shut down
10. Suppose that the demand for my new book, Spatulas
From Around the World, is such that the demand curve lies everywhere
below the average variable cost of producing it. To maximize profits or
minimize losses, I should
a. raise price
b. lower price to increase demand
c. shut down the presses printing my book
d. lower price until demand is inelastic
e. charge the highest price I can
11. Which of the following falsely describes a
nondiscriminating monopolist at profit maximization?
a. Price is greater than marginal cost.
b. Economic profit is always positive.
c. Marginal revenue is equal to marginal cost.
d. Marginal revenue will typically be less than price.
e. Average total cost will not be at a minimum.
12. Firms can earn economic profits even in the long run
a. they charge the highest price possible
b. there is a cost-reducing technological change
c. there are significant barriers to entry
d. marginal revenue equals marginal cost
e. price is less than average variable cost at all rates
a. The existence of a demand curve for the firm.
13. Which of the following conditions would distinguish
a competitive firm from a monopolist?
b. The slope of the demand curve facing the firm.
c. The rule of profit maximization, i.e., produce where
MR = MC.
d. The relationship between marginal revenue and total
e. The existence of diseconomies of scale.
a. very efficient because it charges higher prices
14. Compared to the productive efficiency of a
perfectly competitive firm, a monopolist tends to be
b. more efficient because it produces greater output
d. equally efficient, as it also produces where MR =
e. very efficient because it conserves resources by producing
a. its profits increased
15. When the Postal Service raised third-class
("junk" mail) rates,
b. it was practicing perfect price discrimination
c. its fixed costs fell because the Postal Service is
a natural monopoly
d. third-class mailers shifted to other forms of advertising,
such as cable TV and telemarketing
e. the quantity demanded actually increased
a. Long distance telephone rates are cheaper late at
16. Which of the following would not be
considered price discrimination?
b. Airline fares are cheaper if you reserve several weeks
c. The price of lettuce is 59 cents a head and two for
d. The price of a brand-name prescription drug is higher
than the price of a generic brand.
e. Senior citizens pay less for a movie.
a. both c and d
17. Price discrimination occurs when a monopolist
b. different prices to different buyers for different
c. different prices to different groups of buyers, based
on differences in the cost of providing the commodity to the buyer
d. different prices to different groups of buyers for
reasons unrelated to the cost of providing the commodity to the buyer
e. all buyers the same price for the same product
a. have relatively less elastic demand
18. Suppose that a price-discriminating monopolist
divides its market into two segments. The firm will charge the lower price
in the market segment where consumers
b. have relatively more elastic demand
c. attach a higher marginal value to each unit of the
d. have perfectly inelastic demand
e. attach higher average value to units of the good
19. Slugmullet Gulch, New Mexico, is surrounded by desert
that stretches 100 miles in all directions. The only cold soft drinks available
are for sale in the general store, which charges residents of Slugmullet
Gulch 50 cents per bottle consumed in the store. But for residents who
want to take a bottle out of the store--or for travelers--the price is
$3 per bottle. If the store were to sell cold soft drinks to Slugmullet
Gulch residents for 50 cents per bottle no matter where they were consumed,
all of the following would be true except one. Which is the exception?
a. The store would no longer be unable to price discriminate.
b. The store's profits would be lower.
c. The store would be unable to prevent residents of
Slugmullet Gulch from buying cold soft drinks at 50 cents per bottle and
reselling them to travelers for less than $3 per bottle.
d. The store would no longer be the only source of cold
soft drinks for travelers to Slugmullet Gulch.
e. Consumer surplus would decrease.
a. consumers receive no consumer surplus
20. When a monopolist practices perfect price discrimination,
b. there is allocative inefficiency
c. there is a deadweight loss
d. profit is lower than for the nondiscriminating monopolist
e. total revenue is less than for the nondiscriminating