1. (8 pts.) The XYZ Company is a profit-maximizing firm with a monopoly in the p

Question

1. (8 pts.) The XYZ Company is a profit-maximizing firm with a monopoly in the production of UIC sweatshirts.  The firm sells UIC sweatshirts for $25 each.  We can conclude, therefore, that XYZ Company is producing at a level of output at which:

A. average total cost is equal to $25

B. average total cost is greater than $25

C. marginal revenue is equal to $25

D. marginal revenue is equal to marginal cost

E. statements A, B, C, and D are all incorrect

2. (8 pts.) Suppose a monopoly can separate its customers into two groups.  If the monopoly practices price discrimination, it will charge the lower price to the group with:

A. the higher price elasticity of demand (e.g., -1.5 is higher than -0.8)

B. the lower price elasticity of demand (e.g., -0.8 is lower than -1.5)

C. the fewest close substitutes

D. the greatest need for the product or service

E. the answer cannot be determined with the information given

Explanation / Answer

1.C. marginal revenue is equal to $25

2.A. the higher price elasticity of demand

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