1) I) The monopoly maximizes profit by setting A) price equal to marginal cost.B
ID: 1110947 • Letter: 1
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1) I) The monopoly maximizes profit by setting A) price equal to marginal cost.B) marginal revenue equal to marginal cost. C) price equal to marginal revenue. D) marginal revenue equal to zero. 2) A profit maximizing monopolist 2) A) is not guaranteed to make a positive profit B) is guaranteed to make a positive profit, hence the desire to be a monopolist. C) is guaranteed to lose money because of a lack of competition. D) is guaranteed to make a non-negative profit, otherwise government would step in to assist. 3) A profit maximizing monopolist 3) A) is guaranteed to make a positive profit, hence the desire to be a monopolist B) is guaranteed to make a non-negative profit, otherwise government would step in to assist C) is not guaranteed to make a positive profit. D) is guaranteed to lose money because of a lack of competition. 4) The monopolist's marginal revenue curve 4) A) lies below the demand curve. B) is identical to the demand curve C) doesn't exist. D) lies above the demand curve. 5) If the inverse demand function for a monopoly's product is p-a bQ, then the firm's marginal revenue function is A)a bo. 6) If the inverse demand curve a monopoly faces is p-100-2Q. and MC is constant at 16, then profit maximization 6) A) is achieved by setting price equal to 21 B) is achieved only by shutting down in the short run. C) is achieved when 21 units are produced. D) cannot be determined solely from the information provided. 7) If the inverse demand curve a monopoly faces is p- 100- 2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly sets price equal to 7) A)58. B) 16. C)21. D) 25 8) Which of the following statements is TRUE? 8) A) A monopoly can charge whatever it wants. B) A monopoly cannot set price and quantity such that the point lies above the demand curve. C) Profit maximization occurs by setting price first. D) Both A and B. g monopolist will never operate in the portion of the demand curve with price 9) A elasticity equal to9) A)-3, B)-1/3. D) None of the above the price elasticity does not matter. 0) 10) Marginal Revenue is A) equal to P(I+e) B) the increase in total revenue from selling one more unit of output. C) equal to P when the price elasticity of demand is infinite. D) All of the above.Explanation / Answer
Ans ) Monopoly is refered to a market condition with only one seller of a product and there is barriers to entry of others . We can take the example as if there is for assumption only apple supplying smart phones and there are no substitutes like i phone than Apple has a monopoly in the mobile business.
1. The monopoly maximizes profit by setting( option B) : Marginal revenue = Marginal Cost .Here it is to be noted that Marginal revenue is revenue earned on each additional unit of output and marginal cost is the cost incurred on each additional unit of output and price as usual is determined at this equilibrium point and here profit is maximized.
2 option (A) .A profit maximizing monopolist is not guaranteed to make a positive profit : If average total cost of production is more it will incur losses no matter what prices it will chooses. In the short run a period where factors of production cannot be changed it will sustain the loss as far as it covers the average variable cost i.e the cost which is varied with production but in the long run it should cover all its cost
3. option(C) explanation same above.
4.option (A).The monopolist marginal revenue curve always lie below the demand curve : because AR revenue is the demand curve it is : Total revenue/ Units of production where as Marginal revenue is = change in Total Revenue/Change in units sold hence it is lesser than AR and lies below it.
5. Option( B) . AR = P = a-bq hence TR or Total revenue = Average revenue * Q hence TR = aq-bq^2
also Marginal revenue = &TR/&Q which is change in total revenue with respect to quantity and is a differentiation of Total revenue with respect to quentity which is =a-2bq
6.option (C) : AR = P = 100 -2Q hence TR = 100Q-2Q^2 and MR =100 -4Q and profit is maximised at MR =MC
that is 100 -4Q = 16 and 100-16 = 4Q , 84=4Q , Q=84/4 =21 hence quantity is 21
7.Option (A) : P = 100 -2Q hence TR or total revenue = 100 Q-2Q^2 , MR = &TR/&Q = 100 -4Q for profit maximization MR= MC hence 100 -4Q =16 ,,, 4Q= 100-16 = 84 hence Q= 84/4 =21 also Price at profit maximization =P= 100 -2Q putting the value of Q=21 in this we get P= 100 - 2 *21 = 100-42 = 58.
8 . Option (A)
10 Option (B) Marginal revenue is additional revenue per extra unit sold = Change in TR / Change in quantities.
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