Multiple Choice Questions:
1. If a profit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, it should
a. Raise price and decrease output.
b. Lower price and increase output.
c. Reduce both output and price.
d. Hold output constant and raise price.
e. Do none of the above.
2. If a monopolist had a zero marginal cost of production, it would maximize profits by choosing to produce a quantity where
a. Demand was inelastic.
b. Demand was unit elastic.
c. Demand was elastic.
d. It is impossible to determine where along a demand curve such a monopolist would choose to produce.
3. Tom is the monopoly provider of a town’s TV cable service, whose current subscription price is $20.00 per month. In order to attract one more subscriber, he has to lower his price to $19.95. What is true of Tom’s marginal revenue from that additional subscriber?
a. Tom’s marginal revenue equals $19.95.
b. Tom’s marginal revenue is greater than $19.95.
c. Tom’s marginal revenue is less than $19.95.
d. Tom’s marginal revenue is between $19.95 and $20.00.
4. Rob owns the only race-car track in the entire region. When he lowers his price, the track attracts more customers, but its total revenue falls. Which of the following is true of Rob?
a. He is a monopolist operating in the inelastic region of his demand curve.
b. He is a monopolist operating in the elastic region of his demand curve.
c. He would not choose to lower his price in such a situation.
d. He is a price taker.
e. Both a and c are true of Rob.
5. Which of the following is not true about a profit-maximizing monopolist?
a. The monopolist faces the downward-sloping market demand curve.
b. The monopolist always earns an economic profit.
c. The price of output exceeds marginal revenue.
d. The monopolist chooses output where marginal revenue equals marginal cost.
e. All of the above are true.
6. Which of the following is true for a firm that is a monopolist?
a. The firm will definitely make an economic profit in the short run.
b. The firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency.
c. The additional revenue that can be generated from an increase in output will exceed the firm’s price.
d. The firm can charge whatever it wants for its product, because consumers have no alternatives.
7. Monopolists are like perfectly competitive firms in that
a. Both maximize profits at the output level where marginal revenue equals marginal cost.
b. Both could be earning either profits or losses in the short run.
c. Both are in industries with downward-sloping demand curves.
d. All of the above are true of both of them.
e. A and b are true of both of them, but not c.