31) Which of the following is true for a monopoly?
A) P = MC
B) P = MR
C) P > MR
D) P < MR
32) Which of the following is true about a monopoly?
A) Its demand curve is generally less elastic than in more competitive markets.
B) It will always earn economic profit.
C) It will always produce the same as a perfectly competitive firm.
D) It will always be subject to government regulation.
E) None of the above is true.
33) A monopoly will usually produce
A) where its demand curve is inelastic.
B) where its demand curve is elastic.
C) where its demand curve is either elastic or inelastic.
D) only when its demand curve is perfectly inelastic.
34) The main difference between the price-quantity graph of a perfectly competitive firm and a
monopoly is
A) that the competitive firm’s demand curve is horizontal, while that of the monopoly is
downward sloping.
B) that a monopoly always earns an economic profit while a competitive company always earns
only normal profit.
C) that a monopoly maximizes its profit when marginal revenue is greater than marginal cost.
D) that a monopoly does not incur increasing marginal cost.
35) When the slope of the total revenue curve is equal to the slope of the total cost curve
A) profit is maximized.
B) marginal revenue equals marginal cost.
C) the marginal cost curve intersects the total average cost curve.
D) the total cost curve is at its minimum.
E) Both A and B
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36) Monopoly is characterized by
A) unique products.
B) market entry and exit are difficult or impossible.
C) non-price competition not necessary.
D) All of the above
37) The fact that a perfectly competitive firm has a perfectly elastic demand curve means
A) there is no limit to the firm’s profits.
B) there is no limit to the firm’s revenues.
C) that it can sell all it wants at any price.
D) None of the above
38) In the short run a firm should shut down if it cannot
A) make normal profits.
B) make economic profits.
C) cover its variable costs.
D) cover its fixed costs.
39) Firms are “price makers” if they
A) have sufficient market power to set their product price.
B) make the market price their product price.
C) make their product price competitive.
D) None of the above
40) If a monopoly wants to maximize its profit, it should produce in the range where
A) its average costs are declining.
B) its demand curve is elastic.
C) its marginal costs are declining.
D) its marginal costs are less than its average costs.
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Analytical Questions
1) A perfectly competitive firm has total revenue and total cost curves given by:
TR = 100Q
TC = 5,000 + 2Q + 0.2 Q2
a. Find the profit-maximizing output for this firm.
b. What profit does the firm make?
2) What does it mean to say that a perfectly competitive firm is a price taker? Can’t a firm set any
price it chooses?
3) Why would a firm choose to remain in an industry in which it makes an economic profit of
zero?
4) You’ve been hired by an unprofitable firm to determine whether it should shut down its
operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily
wage (per worker) is $100, and the price of the firm’s output is $30. The cost of other variable
inputs is $500 per day. Although you don’t know the firm’s fixed cost, you know that it is high
enough that the firm’s total costs exceed its total revenue. You know that the marginal cost of the
last unit is $30. Should the firm continue to operate at a loss? Carefully explain your answer.
5) Suppose that a perfectly competitive industry is in long-run equilibrium, and demand
increases. Explain the short- and long-run effects on the firm and the industry.
6) Market price is $50. The firm’s marginal cost curve is given by MC = 10 + 2Q.
a. Find the profit-maximizing output for the firm.
b. At this output, is the firm making a profit? Explain your answer.
7) A monopolist has demand and cost curves given by:
QD = 1000 – 2P
TC = 5,000 + 50Q
a. Find the monopolist’s profit-maximizing quantity and price.
b. Find the monopolist’s profit.
8) A monopolist has demand and cost curves given by:
QD = 10,000 – 20P
TC = 1,000 + 10Q + .05Q2
a. Find the monopolist’s profit-maximizing quantity and price.
b. Find the monopolist’s profit.
9) True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the
short run.
10) A perfectly competitive firm has the cost function TC = 1000 + 2Q + 0.1 Q2. What is the
lowest price at which this firm can break even?
11) Describe the difference in market structure between monopoly and oligopoly.
12) Explain the difference between economic and normal profits.
13) Describe the process by which the competitive market establishes a price at which all firms
are just earning normal profits.
14) A monopolist’s demand function is P = 1624 – 4Q, and its total cost function is
TC = 22,000 + 24Q -4Q2 + 1/3 Q3, where Q is output produced and sold.
a. At what level of output and sales (Q) and price (P) will total profits be maximized?
b. At what level of output and sales (Q) and price (P) will total revenue be maximized?
c. At what price (P) should the monopolist shut down?
15) What are the limitations in using break-even analysis?
16) What is the Degree of Operating Leverage?
17) How can break-even analysis be used to project the level of operation needed to achieve a
targeted profit level?