Monopoly Test Micro 5

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will _____ its price and _____ its level of production.

• raise; decrease

• not change; decrease

• raise; increase

• lower; increase

If a monopolist is producing a quantity that generates MC = P, then profit:

• is maximized only if MR = P

• an be increased by increasing production

• is maximized

• can be increased by decreasing production

The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:

• inequity

• opportunity costs

• deadweight loss

• sunk costs

A downward-sloping demand curve will ensure that: (where, MR is marginal revenue, MC is marginal cost, P is price)

• P > MR

• P = MC

• P = MR

• P < MR

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. 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:

• control of a scarce resource or input

• government-set barriers

• increasing returns to scale

• technological superiority

A monopolist responds to an increase in demand by _____ price and _____ output.

• increasing; increasing

• decreasing; decreasing

• decreasing; increasing

• increasing; decreasing

Because monopoly firms are price setters:

• they charge the highest possible price

• they sell more at higher prices than at lower prices

• they take the market-determined price as given and sell all they can at that price

• they can sell more only by lowering price

In 1999, a judge declared that Microsoft was a monopolist. Assuming that Microsoft has a linear demand curve and that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would:

• rise

• remain unchanged

• fall

• There is insufficient information to make a determination.

A monopoly is producing output so that average total cost (ATC) is $30, marginal revenue is $40, and the price is $50. If ATC is at its minimum level and the ATC curve is U-shaped, to maximize profits this firm should:

• do nothing; it is already maximizing profits.

• shut down

• reduce output

• increase output

Assume a monopoly is currently earning economic profits. If a change in fixed cost raises average total cost above the demand curve:

• more monopolies will enter

• price and output will remain unchanged

• the monopoly will go out of business

• marginal cost will be greater than marginal revenue