Question 1

Which of the following best describes a monopoly?

Accepted Answer

A market with a single supplier of a good for which there is no close substitute.

Question 2

Given a linear demand function $$P(q) = a - bq$$, what is the formula for the marginal revenue (MR) curve?

Accepted Answer

$$MR(q) = a - 2bq$$

Question 3

Suppose the market demand is $$Q = 100 - 5P. $$What is the marginal revenue function for the monopolist?

Accepted Answer

$$MR(q) = 20 - 0.4q$$

Question 4

A monopolist faces the demand curve $$P = 40 - q$$ and has a total cost function $$TC(q) = 50 + q^2$. What is the profit-maximizing output?

Accepted Answer

$$q^* = 10$$

Question 5

For a monopolist, profit is maximized when:

Accepted Answer

Marginal revenue equals marginal cost.

Question 6

If a monopolist faces a downward-sloping demand curve, which of the following is true at the profit-maximizing output?

Accepted Answer

Price is greater than marginal cost.

Question 7

The Lerner Index of monopoly power is given by:

Accepted Answer

$$L = \frac{P - MC}{P}$$

Question 8

If the elasticity of demand at the profit-maximizing output is $$E_d = -2$$, what is the Lerner Index?

Accepted Answer

$$L = 0.5$$

Question 9

Which of the following is NOT a source of monopoly power?

Accepted Answer

Government-imposed price ceiling.

Question 10

A government imposes a price ceiling below the monopolist’s profit-maximizing price. What is the likely effect?

Accepted Answer

Output will decrease and a shortage may occur.

Question 11

A natural monopoly is characterized by:

Accepted Answer

Declining average and marginal costs over the entire output range.

Question 12

Suppose a monopolist faces a specific tax $$t$$ per unit sold. What happens to the marginal cost curve?

Accepted Answer

It shifts upward by $$t.$$

Question 13

A firm operates two plants with marginal cost functions $$MC_1 = 10 + 20Q_1$ and MC_2$ = 60 + 5Q_2. $$What condition must be met for profit maximization?

Accepted Answer

$$MC_1$$ = $$MC_2 = MR$

Question 14

Deadweight loss from monopoly power is represented by:

Accepted Answer

The loss in consumer and producer surplus due to the monopolist producing less than the competitive quantity.

Question 15

In a monopsony, the profit-maximizing rule is:

Accepted Answer

Marginal expenditure equals marginal value.

Question 16

If the inverse supply curve is $$P = 4Q + 3$$, what is the marginal expenditure (ME) function?

Accepted Answer

$$ME = 8Q + 3$$

Question 17

A hospital is the only employer of nurses in a town (monopsony). The supply curve for nurses is $$w = 1000 + 75q. $$What is the marginal expenditure curve?

Accepted Answer

$$ME = 1000 + 150q$$

Question 18

If a monopsonist faces a perfectly elastic supply curve at price $$P^*$$, what will be the quantity purchased?

Accepted Answer

Where marginal value equals $$P^*.$$

Question 19

Monopsony power depends primarily on:

Accepted Answer

The elasticity of market supply.

Question 20

In a bilateral monopoly, the optimal price and quantity depend on:

Accepted Answer

The relative bargaining position of the buyer and seller.

Chapter 10: Market Power – Monopoly & Monopsony (Microeconomics Study Notes)

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