AP Micro - Perfect Competition & Monopolies Review

A single-price monopolist is currently producing in the inelastic portion of its market demand curve. In order to maximize profits, the monopolist should change the price and quantity in which of the following ways? 

• P=Increase; Q=Increase
• P=Increase; Q=Decrease
• P=Decrease; Q=Decrease
• P=No Change; Q=Increase

If the goal of government regulators of a natural monopoly is to reduce deadweight loss without subsidizing the monopolist, government regulators would set a price equal to:

• Average variable cost
• Average total cost
• Average fixed cost
• Marginal cost

The profit-maximizing combination of output and price for a single-price monopoly is:

• Q1 & P1
• Q2 & P3
• Q1 & P4
• Q3 & P2

If the monopolist could engage in perfect price discrimination, the monopolist’s total output and the price charged for the last unit of output sold would be:

• Q1 & P1
• Q2 & P3
• Q1 & P2
• Q3 & P2

A firm with market power engages in price discrimination to:

• earn a higher profit
  
• increase consumer surplus
  
• decrease deadweight loss
  
• make its demand more elastic 

Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly’s price and quantity will be which of the following? 

• P=Higher; Q=Same
• P=Lower; Q=Same
• P=Lower; Q=Higher
• P=Higher; Q=Lower

For the firm shown in the graph above, the short- run, profit-maximizing strategy would be to set output at:

• Q1, price at P3, and earn an economic profit 
• Q1, price at P1, and suffer a loss 
• Q2, price at P2, and earn an economic profit 
• Q2, price at P2, and earn only a normal profit 

For an unregulated monopolist, the profit-maximizing quantity will always be:

• in the elastic region of the demand curve 
• where marginal revenue equals price 
• where price equals average total cost 
• where the marginal cost curve intersects the demand curve 

In order for a firm to engage in price discrimination, it must be: 

• producing in the inelastic portion of its demand curve to raise its price and increase total revenue 
• a price taker
  
• able to separate consumers into different groups based on demand elasticities 
• experiencing economies of scale in the relevant range of production
  

A monopolist introduces a technological innovation that lowers the marginal cost and average cost of production. The price of the good and the quantity are most likely to change in which of the following ways? 

• P=Decrease; Q=Increase
• P=Decrease; Q=Decrease
• P=Increase; Q=Increase
• P=Increase; Q=Decrease