Q: Which of the following equations correctly expresses a monopolist’s profit?

$$Profit = (P - ATC) \times Q$$

Question 1

Which of the following best describes a natural monopoly?

Accepted Answer

A firm that can supply the entire market at a lower cost than two or more firms due to economies of scale.

Question 2

Suppose a monopolist faces the following demand schedule: Price = $$20 - Q, and has a constant marginal cost of 4. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 8$$

Question 3

Which formula correctly expresses the average total cost (ATC) for a firm with fixed cost $$F$$ and constant marginal cost $$M$$?

Accepted Answer

$$ATC = \frac{F}{Q} + M$$

Question 4

Why is a monopolist’s marginal revenue always less than the price of its good (except for the first unit sold)?

Accepted Answer

Because lowering the price to sell an additional unit reduces the revenue received from all previous units sold.

Question 5

If a monopoly sets its price equal to marginal cost, what is the likely outcome for a natural monopoly?

Accepted Answer

The firm will incur losses and may require a government subsidy to continue operating.

Question 6

Which of the following is NOT a necessary condition for a firm to successfully price discriminate?

Accepted Answer

The firm must be a price taker in a perfectly competitive market.

Question 7

Consider a monopolist with total cost $$TC = 100 + 2Q$$ and demand $$P = 20 - Q. $$What is the monopolist’s profit-maximizing output?

Accepted Answer

$$Q = 9$$

Question 8

Which of the following best explains the welfare loss (deadweight loss) from monopoly?

Accepted Answer

The monopolist produces less than the socially efficient quantity, so some mutually beneficial trades do not occur.

Question 9

Which of the following is an example of a network economy?

Accepted Answer

The value of a social media platform increases as more users join.

Question 10

In monopolistic competition, what happens in the long run if firms are earning positive economic profits?

Accepted Answer

New firms enter the market, shifting each incumbent firm’s demand curve to the left until profits are zero.

Question 11

Which of the following equations correctly expresses a monopolist’s profit?

Accepted Answer

$$Profit = (P - ATC) 	imes Q$$

Question 12

Why would a profit-maximizing monopolist never produce on the inelastic portion of the demand curve?

Accepted Answer

Because reducing output would increase total revenue and reduce total cost, increasing profit.

Question 13

Which of the following is a likely government response to a natural monopoly?

Accepted Answer

Regulate the firm to charge a price equal to marginal cost and provide a subsidy to cover losses.

Question 14

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Many firms selling differentiated products with free entry and exit.

Question 15

Suppose a firm has total cost $$TC = 500 + 2Q$$ and sells its product at $$P = 10. $$What is the average total cost when $$Q = 100$$?

Accepted Answer

$$ATC = 7$$

Question 16

Which of the following best describes perfect price discrimination?

Accepted Answer

Charging each customer exactly their willingness to pay, capturing all consumer surplus.

Question 17

Which of the following is a potential downside of state-owned natural monopolies?

Accepted Answer

They may lack incentives to minimize costs and may employ excessive staff.

Question 18

If a monopolist can perfectly price discriminate, what happens to deadweight loss?

Accepted Answer

Deadweight loss is eliminated because the monopolist produces the efficient quantity.

Question 19

Which of the following is a plausible reason for government to block a merger between two large firms?

Accepted Answer

To prevent a substantial lessening of competition and reduce the risk of collusion.

Question 20

Which of the following is an example of a hurdle method for price discrimination?

Accepted Answer

Offering a lower price only to customers willing to wait for a sale.

Market Power, Monopoly, and Monopolistic Competition: Study Notes

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