Question 10: The amount of output a monopolist produces is: A. Always more than

Question

Question 10: The amount of output a monopolist produces is: A. Always more than its cost minimizing output level Always less than its cost minimizing output level C. Always the same as its cost minimizing output level D. More than, less than, or as much as its cost minimizing output level Question 11: A water company serves the residents of a city by pumping underground water company faces an increasing cost of extracting water as the reservoir is being used. The company should charge residents: . The water A. A higher price per cubic meter of water, once their consumption exceeds a specific amount B. A lower price per cubic meter of water, once their consumption exceeds a specific amount C. A higher price per cubic meter of water, once their consumption exceeds a specific amount. D. A lower price per cubic meter of water, once their consumption exceeds a specific This pricing strategy is the result of price discrimination This pricing strategy is the result of price discrimination This pricing strategy is the result of differences in production costs This pricing strategy reflects consumers' diminishing willingness to pay for additional units amount. of water Question 12: Which of the following firms is most likely to be a monopoly? A. A local restaurant B A local electricity company C. A local drug store D. A local clothing store Question 13: In the short run, perfectly competitive firms firms but in the long run, perfectly competitive A. Can incur an economic loss; incur an economic loss B. Can incur economic losses; make an economic profit Can make an economic profit; make an economic profit D) Can incur an economic loss; make zero economic profit

Explanation / Answer

Question 10 -

Ans is B. The output produced by monopolist is always less than its cost minimisation output level. It is so because monopolist always produced at the level of output where MR = MC not at the level of minimum AC that is the cost minimisation level. And the MR = MC is always at the level of output less than the level of output of minimum AC beacuse usually the minimum AC could be achieve when monopoly produce large amount of good or services and able to achieve the benefit of economies of scale.

Question 11-

Correct ans is D - The company should charge residents the lower prices per cubic metre of water, once.....

It is so because the company is not the perfect competition so it has to lower its price to sell more unit of output (here cubic metre of water). And this price strategy reflects the consumer's diminishing willingness to pay for additional units of water. It is because of law of the diminishing marginal utility which states that as more and more unit of any good (water) consumed the marginal utility will falls. So as the marginal utlutil from arditaddit units falls the consumers are willing to pay less and less for every additional unit.

Question 12-

Correct ans is B- the local electricity company is most likely to be a monopoly. It is so because there is no close subsitute of electricity available also there is barrier to entry in the industry of electricity. So it is a kind of natural monopoly.

Other options are incorrect because -

Option a) there is no barrier to enter in the industry of restaurants. Also there are close substitute of local restaurant are available every where in the form of food stalls etc..

Option C) is incorrect because we can see a local drug shop (medical shops) available at almost every where. Yes there is barrier to entry in this industry as one must have a get a licence but the barrier to entry is less than the barrier to entry in electricity industry.

Option D) is incorrect because a local clothing store or the clothing industry does not face barrier to entry.

Question 13-

Correct option is D- beacuse a perfect competitive firm could make economic profit or incur economic losses but always earn zero economic profit in the long run due to free entry and exit of firm in perfect competition.

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