Q: Refer to the graph provided. What is the monopolist’s total profit at the profit-maximizing output?

$$\pi = (6.5 - 4.55) \times 8 = 15.6$$

Question 1

Which of the following best explains why a monopolist’s marginal revenue (MR) is always below the price for each unit sold (except the first unit)?

Accepted Answer

Because the monopolist must lower the price on all units sold to sell an additional unit.

Question 2

Given the demand function $$Q(p) = 100 - 2p$$, what is the inverse demand function $$p(q)$$?

Accepted Answer

$$p(q) = 50 - 0.5q$$

Question 3

If a monopolist’s total revenue function is $$R(q) = 50q - 0.5q^2$, what is the marginal revenue function MR(q$$)$$?

Accepted Answer

$$MR(q) = 50 - q$$

Question 4

A monopolist’s profit-maximizing output occurs where:

Accepted Answer

$$MR(q^*) = MC(q^*)$$

Question 5

Refer to the graph provided. What is the profit-maximizing quantity for the monopolist?

Accepted Answer

$$q^* = 8$$

Question 6

Refer to the graph provided. What is the profit-maximizing price for the monopolist?

Accepted Answer

$$p^* = 6.5$$

Question 7

Refer to the graph provided. What is the average cost at the profit-maximizing output?

Accepted Answer

$$AC(8) = 4.55$$

Question 8

Refer to the graph provided. What is the monopolist’s total profit at the profit-maximizing output?

Accepted Answer

$$\pi = (6.5 - 4.55) 	imes 8 = 15.6$$

Question 9

Which of the following conditions must be satisfied for a monopolist to continue producing in the long run?

Accepted Answer

$$p(q^*) \geq AC(q^*)$$

Question 10

Suppose a monopolist faces the demand curve $$q = 100 - 2p$$ and has a constant marginal cost of $$MC = 10. $$What is the profit-maximizing quantity?

Accepted Answer

$$q^* = 40$$

Question 11

Suppose a monopolist faces the demand curve $$q = 100 - 2p$$ and has a constant marginal cost of $$MC = 10. $$What is the profit-maximizing price?

Accepted Answer

$$p^* = 30$$

Question 12

If a monopolist’s average variable cost is always below the price at every output level, what can we conclude about the monopolist’s short-run production decision?

Accepted Answer

The monopolist will produce where $$MR = MC.$$

Question 13

Which of the following best describes the relationship between the demand curve and the marginal revenue curve for a monopolist?

Accepted Answer

The marginal revenue curve lies below the demand curve and has twice the slope.

Question 14

If a monopolist’s marginal cost increases, what will happen to the profit-maximizing price and quantity?

Accepted Answer

Price will increase and quantity will decrease.

Question 15

Why does a monopolist not produce at the minimum of the average cost curve, unlike a perfectly competitive firm in the long run?

Accepted Answer

Because the monopolist maximizes profit where $$MR = MC$$, not where $$AC is $$minimized.

Market Power: Monopoly – Microeconomic Theory Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards