Part A: MCQ
1. In moving down the elastic segment of the monopolist's demand curve, total revenue is:
A. Increasing, and marginal revenue is negative.
B. Decreasing, and marginal revenue is positive.
C. Decreasing, and marginal revenue is negative.
D. Increasing, and marginal revenue is positive.
2. Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by:
A. Decreasing price and increasing output.
B. Increasing price and decreasing output.
C. Decreasing price and leaving output unchanged.
D. Decreasing output and leaving price unchanged.
3. Which of the following is not a barrier to entry?
C. Economies of scale.
D. Ownership of essential resources.
4. Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
A. Marginal cost = demand.
B. Marginal revenue = demand.
C. Average total cost = demand.
D. Marginal cost = marginal revenue.
5. Allocative inefficiency due to unregulated monopoly is characterized by the condition:
A. P = MC.
B. P = MR.
C. P > MC.
D. P > AVC.
6. If a monopolist produces 100 units of output at a market price of $5 per unit with marginal revenue per unit equaling $4, we would expect that if the monopolist's good was provided under pure competition, quantity would be:
A. Higher than 100 units, price lower than $5, and MR = price.
B. Lower than 100 units, price greater than $5, and MR = price.
C. Higher than 100 units, price greater than $5, and MR = price.
D. Lower than 100 units, price lower than $5, and MR = price.
7. X-inefficiency is said to occur when a firm's:
A. Average costs of producing any output are greater than the minimum possible average costs.
B. Marginal costs of producing any output are greater than the minimum possible total costs.