Question 1

Refer to the first graph. At what quantity does a monopolist maximize profit?

Accepted Answer

Where the marginal revenue (MR) curve intersects the marginal cost (MC) curve.

Question 2

In the second graph, what is the economic significance of the vertical dashed line at $$Q_{profit\ maximizing}$$?

Accepted Answer

It shows the quantity where marginal revenue equals marginal cost.

Question 3

Using the second graph, how does the monopolist determine the price to charge for the profit-maximizing quantity?

Accepted Answer

By finding the intersection of the MR and MC curves and then moving up to the demand curve.

Question 4

Suppose the marginal cost (MC) curve shifts upward due to an increase in input prices. Based on the graphs, what will happen to the profit-maximizing quantity and price for the monopolist?

Accepted Answer

The profit-maximizing quantity will decrease and the price will increase.

Question 5

If the demand curve in the graphs becomes more elastic, what happens to the monopolist's markup over marginal cost?

Accepted Answer

The markup decreases.

Question 6

Given the graphs, which area represents the monopolist's profit?

Accepted Answer

The area between the price (from the demand curve) and the average total cost (ATC) at the profit-maximizing quantity, multiplied by the quantity.

Question 7

If the average total cost (ATC) curve is above the demand curve at the profit-maximizing quantity, what does this indicate about the monopolist's profit?

Accepted Answer

The monopolist is incurring an economic loss.

Question 8

Which equation correctly represents the profit-maximizing rule for a monopolist as shown in the graphs?

Accepted Answer

$$MR = MC$$

Question 9

If the government regulates the monopolist to set price equal to marginal cost, what is the likely outcome shown in the graphs?

Accepted Answer

The monopolist may incur losses if $$MC \u003c ATC at $$that quantity.

Question 10

Based on the graphs, what is the deadweight loss associated with monopoly?

Accepted Answer

The area between the demand and marginal cost curves from the monopoly quantity to the competitive quantity.

Microeconomics Study Guide: Competitive, Monopoly, and Monopolistic Competition Markets

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