quiz11a

# quiz11a - Principles of Economics EC 1 UCLA Dr. Bresnock...

This preview shows pages 1–3. Sign up to view the full content.

Principles of Economics EC 1 UCLA Dr. Bresnock Quiz 10 Answers Choose the best answer to each question and mark it on your answer form. A) is incorrect because, for a monopoly, the MR does not equal the demand curve. The demand curve is above the MR curve at all levels of output except the first unit of output. B) is incorrect for the same reasons as (A). C) is incorrect for the same reasons as (A). D) is correct because none of the above are correct. For a monopolist, the MR curve and demand curves are now equal except for the first unit of output. At all other levels of output, the demand curve is above the MR. Use the following to answer Question 2: Figure: Computing Monopoly Profit 2. The profit-maximizing price is _______ and will generate total economic profit of _______. A) P 2 ; EF B) P 3 ; the rectangle P 1 P 2 FG Page 1 1. The demand curve for a monopoly is: A) the MR curve above the AVC curve. B) the MR curve above the horizontal axis. C) the entire MR curve. D) none of the above

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
P 3 ; the rectangle P 2 P 3 EF D) P 2 ; EF A) is incorrect for the reasons given in (C). A profit maximizing monopolist would charge a price of P 3 , not P 2 . B) is incorrect for the reasons given in (C). C) is correct because a profit maximizing monopolist will choose a quantity where MR = MC, which exists at quantity Q. The monopolist then selects the price along the demand curve, which is price P 3 . These values correspond to point F. Profit= (P - ATC) x Q, so the firm’s profit is the rectangle P 2 P 3 EF D) is incorrect for the reasons given in (C). A profit maximizing monopolist would charge a price of P 3 , not P 2 . 3. Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from: A) sunk costs. B) location. C) economies of scale. D) government restrictions. A) is incorrect because a sunk cost is simply a cost already incurred, and it has no bearing on current decisions. Sunk costs do not cause decreasing average costs. B) is incorrect because, in this case, location did not give the firm a monopoly. It was due to the decreasing average costs creating economies of scale. C) is correct because the definition of economies of scale is the presence of decreasing average costs. This often occurs due to a high amount of fixed costs necessary to operate in the market. D)
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 01/07/2011 for the course ECON 1 taught by Professor Nagata during the Fall '08 term at UCLA.

### Page1 / 8

quiz11a - Principles of Economics EC 1 UCLA Dr. Bresnock...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online