Monopoly Flashcards
Assume quantity need not be an integer. A single-price monopolist facing
$10 per unit marginal cost maximizes profits at a price of $75. If it charged a slightly lower price, total revenues and producer surplus .
A. would increase; would increase.
B. would Increase; would decrease
C. would decrease; would increase
D. would decrease; would decrease
E; would decrease; would decrease
B. would Increase; would decrease
- [2 Marks] Consider a standard single-price monopolist facing a positive marginal cost of
production and a standard linear demand curve. What is the effect in a small increase
in price from the profit-maximizing price?
A. Total revenue decreases.
B. Total revenue may increase or decrease.
C. Total revenue increases.
A. Total revenue decreases.
P 10,000 9,000 7,000 5,000 2,000
Q 1 2 3 4 5
Assume quantities must be integers. Ifeanyi is a profit-maximizing monopolist
in Nigeria, where the currency is the Naira (₦), he must charge the same price for each
unit sold, and he incurs no fixed costs but a constant marginal cost for each unit sold.
Table 2 shows the demand schedule he faces. At which of the following marginal costs
does he sell exactly 4 units?
A. ₦5,000
B. ₦4,999
C. ₦1,000
D. ₦0
E. None of the above.
E. None of the above.
P 10,000 9,000 7,000 5,000 2,000
Q 1 2 3 4 5
Assume quantities must be integers. Ifeanyi is a profit-maximizing monopolist
in Nigeria, where the currency is the Naira (₦), he must charge the same price for each
unit sold, and he incurs no fixed costs but a cost of ₦1,000 on each unit sold. Table 2
shows the demand schedule he faces. What is the price effect if he increases quantity
from 3 to 4?
A. ₦5,000
B. −₦1,000
C. −₦2,000
D. −₦6,000
E. None of the above.
D. −₦6,000
Apple has chosen a price of $1319 for the iPhone X. According to our
monopoly pricing model, what do we know about the iPhone X’s (own-price) elastic-
ity of demand at this price?
A. Demand is elastic at $1319.
B. Demand is unit elastic at $1319.
C. Demand is inelastic at $1319.
A. Demand is elastic at $1319.
The monopolist prices on the elastic portion of its demand curve.
If the firm with market power increases price from $26 to $28, quantity sold
decreases from 23 to 22. What is the marginal revenue of the 23rd unit?
A. $28.
B. $26.
C. $16.
D. -$16.
E. -$18.
E The quantity effect: Ms. 23 puts $26 in the firm’s pocket. The price effect:
it loses $2 on 22 units = -$44. $26-$44=-$18
Assume all benefits accrue to the buyer and all costs are borne by the profit-
maximizing monopolist. The monopolist faces a $5 per-unit marginal cost and would set
P = $12. What are the surplus effects of a $10 price ceiling?
A. TS will ↑. PS may ↑ or ↓.
B. TS will ↑. PS will ↓.
C. TS may ↑ or ↓. PS may ↑ or ↓.
D. TS may ↑ or ↓. PS will ↓.
E. TS will ↓. PS will ↓.
B
Amy is a single-price monopolist in the chicken market. Market demand is given in the table
below. Amy’s Marginal Cost is $12. What quantity will Amy produce?
Price 22 19 16 13 10
Quantity 1 2 3 4 5
A 1
B 2
C 3
D 4
E 5
B
Single price monopolist has a Marginal Cost= $Q and a recurring Fixed Cost of $1000.
Market Demand Q = 50 − P/2 What is Market Price in the long run?
A 0
B 25
C 50
D 60
E 100
E
A single-price monopolist has a constant Marginal Cost of $10. Market demand is Q = 230 −2P .
A Market price is $110
B Market quantity is 120
C Market price is $62.5
D Market quantity is 210
E Market price is $55
Lena is a monopolist in the mango market. At her current price choice, she is making zero profits.
The (absolute) elasticity of demand at her current price choice is 1.1. What can you conclude based on this
information?
A Lena has a zero Marginal cost of production for the last unit sold.
B Lena has a positive Marginal cost of production for the last unit produced.
C Lena has no fixed cost.
D If Lena increases her price, her revenues will increase.
E Lena only has fixed costs.
Solution
B
[3 points] A profit-maximizing monopolist who has to charge the same price for each unit produces at a constant
marginal cost of $40 and faces demand QD = 50 −0.25P . What is the monopolist’s price?
A. 40
B. 120
C. 160
D. 240
E. 0
B
A profit-maximizing monopolist who has to charge the same price for each unit produces at a constant
marginal cost of $10 and faces demand MWTP(Q) = 50 −0.25Q . The government imposes a price ceiling
of $20 on the monopolist. What is the marginal revenue when the firm produces 10 units?
A. 10
B. 20
C. 44.75
D. 45
E. 47.5
B
The monopolist is producing at a quantity where a 5% change in quantity causes a 2% change in
price. The marginal cost is constant and > 0. The monopolist should
A increase quantity to increase profits
B decrease quantity to increase profits
C increase quantity to decrease revenue
D Stay here because it is the profit maximizing point.
E Need more information.
E
Currently the monopolist is producing 100 units earning revenues of $700. Marginal cost is $2 per
unit and the fixed cost is $50. The government wants to increase the quantity produced by a single-price
monopolist in the long-run. Market demand is the usual downward sloping curve. Which of the policies below
will achieve this?
A Impose at a price ceiling of $8 per unit.
B Increasing the monopolist’s market power.
C Give the monopolist a lump-sum amount big enough to cover its fixed cost.
D Option (A) and (C)
E None of the options.
