Mc 6- Firms with Market Power

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• Published : August 25, 2012

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1. At the current level of output a firm's marginal cost equal 16 and marginal revenue equals 10. The firms
Ais producing the profit-maximizing amount.
Bshould produce more.
Cshould produce less.
DNot enough information.

2. If the demand curve a monopoly faces is P = 100 - 2Q, then profit maximization
Ais achieved when 25 units are produced.
Bis achieved by setting price equal to 25.
Cis achieved only by shutting down in the short run.
Dcannot be determined solely from the information provided.

3. If the demand curve a monopoly faces is P = 100 - 2Q, and MC is constant at 16, then profit maximization
Ais achieved when 21 units are produced.
Bis achieved by setting price equal to 21.
Cis achieved only by shutting down in the short run.
Dcannot be determined solely from the information provided.

4. A monopolist faces the demand curve P = 500 – 5Q. Without knowing anything about costs, which of the following prices would definitely not be a profit-maximizing option for the monopolist?
A400
B300
C200
Dit is impossible to answer this without knowing about the cost structure.

5. A monopolist
Acan raise its price without losing any sales because it is the only supplier in the market.
Bcan earn a greater than normal rate of return in the long run.
Calways charges a price that is higher than marginal revenue.
Dboth a and b
Eboth b and c

6. A firm with market power
Acan increase price without losing all sales.
Bfaces a downward-sloping demand curve.
Cis the only seller in a market.
Dboth a and b
Eall of the above

7. A monopoly firm faces a demand function P = 30 - 0.075Q and the corresponding MR function, MR = 30 - 0.15Q.

At any price above \$______ demand is elastic.
A\$5
B\$10
C\$15
D\$20
Ezero

8. As above, a monopoly firm faces a demand function P = 30 - 0.075Q and the corresponding MR function, MR = 30 - 0.15Q.

If production costs are constant and equal to \$10 (i.e., LAC = LMC = \$10), what price will the monopoly charge?
A\$5
B\$10
C\$15
D\$20
E\$25

9. In a monopolistically competitive market,
Aa firm has market power because it produces a differentiated product.
Ba firm earns economic profits in the long run because it has market power.
Cthere are a large number of firms.
Dboth a and b
Eboth a and c

10. Monopolistic competition is similar to perfect competition in that: Athere are a large number of firms
Bfirms earn economic profits in the long run
Cfirms face downward-sloping demand curves
Dboth a and b
Eall of the above

11. A monopoly is producing a level of output at which price is \$80, marginal revenue is \$40, average total cost is \$100, marginal cost is \$40, and average fixed cost is \$10. In order to maximize profit, the firm should

Aproduce more.
Bkeep output the same.
Cproduce less.
Dshut down.

12. A profit-maximizing firm with market power will always produce a level of output where
Bdemand is inelastic.
Cprice is greater than average total cost.
Dmarginal revenue is greater than average total cost.

13. A monopolist which suffers losses in the short run will
Acontinue to operate as long as total revenue covers fixed cost.
Braise price in order to eliminate losses.
Cexit in the long run if there is no plant size that will result in economic profit that is greater than or equal to zero.
Dboth a and b
Eboth a and c

14. Suppose that a profit-maximizing monopolist has a plant of the optimal size and is producing a level of output at which price is \$30, average total cost is \$55, and average fixed cost is \$40. The firm should

Aoperate in the short run.
Bshut down in the short run.
Cexit the market in the long run.
Dcontinue to operate in the long run.
Eboth a and c

15. A monopolist is currently hiring 5,000 units of labor. At this level, the marginal revenue of output is...