3. Table: Monopolist Output Total Revenue Marginal Cost 1 $20 $10 2 50 10 3 70 1

Question

3. Table: Monopolist Output Total Revenue Marginal Cost 1 $20 $10 2 50 10 3 70 10 4 80 10 5 85 10 6 88 10 7 90 10 Refer to the table. What is the monopolist's profit-maximizing level of output?

A. 5

B. 3

C. 6

D. 4

4. In Chicago's Southside (and other places), auto mechanics (who work outside the formal sector, without a business license, advertising, or even a garage) will do work for gang members without charging them. In exchange, gang members chase away other mechanics who wish to operate in the area. These auto mechanics have monopoly power; what type of source does it come from?

A. barriers to entry

B. innovation

C. hard to duplicate inputs

D. economies of scale

5. The power to raise price above marginal cost without fear that other firms will enter the market is:

A. marginal power.

B. firm power.

C. market power.

D. cost power.

6. A monopolist can sell 300 units of output for $29.00 per unit. Alternatively, it can sell 301 units of output for $28.25 per unit. The marginal revenue of the 301st unit of output is:

A. –$196.75.

B. $196.75.

C. –$0.75.

D. $28.25.

7. When a monopolist's demand curve is inelastic, raising the price:

A. decreases total revenue and decreases total cost.

B. decreases total revenue and increases total cost.

C. increases total revenue and decreases total cost.

D. increases total revenue and increases total cost.

8. Suppose a monopolist faces the demand curve P = 151 - 4Q. The monopolist's marginal costs are a constant $32 and they have fixed costs equal to $69. Given this information, what will the profit-maximizing price be for this monopolist?

9. Suppose a monopolist faces the demand curve P = 138 - 2Q. The monopolist's marginal costs are a constant $21 and they have fixed costs equal to $72. Given this information, what are the maximum profits this firm can earn?

10. Suppose a monopolist faces the demand curve P = 195 - 3Q. The monopolist's marginal costs are a constant $30 and they have fixed costs equal to $117. Given this information, if the firm maximizes their profits, what would be size of the deadweight loss in this market?

Explanation / Answer

Question 3

Following is the complete table -

A monopolist maximizes profit when it produce that level of output at which marginal cost equals marginal revenue.

The above table shows that at production of 4 units, MR equals MC.

So, the monopolist's profit-maximizing level of output is 4 units.

Hence, the correct answer is the option (D).

Output Total Revenue Marginal Revenue Marginal Cost 1 20 - 10 2 50 30 10 3 70 20 10 4 80 10 10 5 85 5 10 6 88 3 10 7 90 2 10

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