practicemonopoly-1

# practicemonopoly-1 - Econ 3101.04 University of Minnesota...

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TRUE/FALSE 1. Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output. 2. If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%. 3. A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource and thus is able to exclude other producers. 4. Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries. 5. If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue. 6. For a monopolist who faces a downward-sloping demand curve, marginal revenue is less than price whenever quantity sold is positive. 7. A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand and does not practice price discrimination. If the government imposes a tax of \$1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than \$1 per unit. 8. A monopolist will always equate marginal revenue and marginal cost when maximizing profit. MULTIPLE CHOICE 1. A monopolist faces the inverse demand function described by p = 50 – 4 q , where q is output. The monopolist has no fixed cost and his marginal cost is \$5 at all levels of output. Which of the following expresses the monopolist’s profits as a function of his output? a. 50 – 4 q – 5 b. 50 – 8 q c. 45 q – 4 q 2 d. 50 q – 4 q 2 – 5 e. None of the above. 2. A monopolist faces the inverse demand function described by p = 23 – 5 q , where q is output. The monopolist has no fixed cost and his marginal cost is \$6 at all levels of output. Which of the following expresses the monopolist’s profits as a function of his output? a. 23 – 5

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practicemonopoly-1 - Econ 3101.04 University of Minnesota...

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