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Exam 13: Monopoly

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Question 31

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To maximize profit, the monopolist increases output:

A) until it is using full manufacturing capacity.
B) until marginal cost is equal to marginal revenue.
C) to the same amount it would produce if the firm was competitive, but maximizes price.
D) as long as the marginal revenue curve is higher than the demand curve.

E) A) and B)
F) A) and C)

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Question 32

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Many people argue that the U.S. government should control pharmaceutical prices. What would most likely happen as a result of this policy?

A) Lower prices would mean lower profits and hence less incentive for firms to engage in research and development of new drugs.
B) Government price controls on pharmaceuticals would lead to an increased standard of living.
C) The number of new drugs would increase as firms would compete for new markets.
D) Demand for pharmaceuticals would increase as a result of the lower prices.

E) A) and B)
F) None of the above

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Question 33

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A monopolist's demand curve is described by the equation Q = 50 - 0.5P. The marginal revenue curve is described by the equation MR = 50 - Q. Marginal cost per unit is constant at $5, and there are no fixed costs to be considered here. What is the monopolist's profit-maximizing quantity and profit level? Show all your calculations.

The more inelastic the demand curve for the monopolist's product, the higher the price that can be charged for the good.

Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.

Reference: Ref 13-6 (Figure: Regulated vs Unregulated Monopolist) Refer to the figure. Calculate consumer surplus when this monopoly is regulated.

GlaxoSmithKline owns a government grant of temporary monopoly rights on Combivir, the AIDS drugs, due to:

A monopolist has a demand function that is described by Qd = 100 - 2P. The monopolist's cost function is simply described by TC = 30 + 2Q. Therefore MC is constant at 2. The marginal revenue function for the monopolist is 100 - 4P. What is the profit-maximizing price and quantity for the monopolist? What is the profit that the monopolist earns at this output level?

A firm will attain more monopoly power as demand for its product becomes more elastic.

If a monopolist faces a straight-line downward sloping demand curve, the price of the units it sells is always:

(Figure: Monopoly Revenue) Refer to the figure. A profit- maximizing monopolist faces the market environment described by the figure shown. What is the monopolist's revenue? Figure: Monopoly Revenue

Reference: Ref 13-3 (Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of:

One way that has been suggested to eliminate deadweight loss from monopoly power without reducing incentives to innovation is to:

The marginal revenue curve is a straight line beginning at the same point on the:

Figure: Maximize Monopoly Profits Reference: Ref 13-4 (Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by charging a price equal to:

Natural monopolies:

A monopolist increased output by 100 units, but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue?

Explain how a firm can use its monopoly power to earn above- normal profits.

A monopolist has a demand function that is described by Qd = 100 - P. The monopolist's cost function is simply described by TC = 10 + 2Q. Therefore MC is constant at 2. The marginal revenue function for the monopolist is 100 - 2P. What is the profit-maximizing price and quantity for the monopolist? What is the profit that the monopolist earns at this output level?

For a monopolist, MR is always less than P because: