Use the following demand and marginal cost schedule facing a monopolist to answer questions 1 - 4. Price Q MC 20 0 -- 19 1 11 18 2 8 17 3 7 16 4 9 15 5 11 14 6 14 13 7 18 12 8 22 11 9 27 10 10 33 1. Suppose the monopolist increases production from one unit to two units. What is the marginal revenue of the second unit of output? a. $10 c. $18 * b. $17 d $25 2. How many units will the profit-maximizing monopoly produce? a. 2 c. 4 b. 3 * d. 5 3. A profit-maximizing monopoly will charge the price of: * a. $15 c. $17 b. $16 d. $18 4. Using market price minus marginal cost how much is the monopolist exploiting the consumer? a. $1 c. $3 b. $2 d. $4 5. When a perfectly competitive firm produces eight units of output, it receives a price of $20.00. If it produces nine units of output, marginal revenue of the ninth unit a. will be less than $20.00 b. will be more than $20.00 c. will equal $20.00 d. cannot be determined without more information 6. Dilbert sits in his cubicle doing his boring job earning $1500 a day. Dilbert has to rent his computer for $250 a day. But, Dilbert could skip out of work and be an exotic dancer on the Jerry Springer show and earn $550. What is Dilbert's economic profit ? a. $1250 b. $950 c. $250 * d. $700 e. $1500 7. Referring again to Dilbert what was his accounting profit? * a. $1250 b. $950 c. $250 d. $750 e. $1500 8. A potential advantage of monopoly compared to a perfectly competitive firm is: * a. more rapid technological progress as the monopolist protects its position b. efficient allocation of resources c. expanded output relative to perfect competition d. greater variety of products 9. Which of the following is a source of monopoly power? a. diseconomies of scale b. homogenous product * c. control over a scarce input d. all of the above 10. If MR = MC = $25 and AVC = $20, the price a monopoly charges a. is less than $25 b. is $25 * c. is more than $25 d. cannot be determined with the available information 11. A monopolist observes that at a given output level, price is less than average variable cost, but marginal cost equals marginal revenue. To maximize profit, the monopolist should: * a. shut down b. continue to operate, but reduce the level of production c. expand production d. maintain current production and pricing policies 12. If the monopolist was a revenue maximizer and not a profit maximizer, the output produced would be consistent with: * a. marginal revenue equaling zero b. marginal revenue equaling marginal cost c. price equaling marginal revenue d. price equaling marginal cost 13. Entry occurs in perfectly competitive markets when firms in the industry are earning: a. normal profits * b. economic profits c. economic losses d. relatively low rates of return 14. If the average variable cost of producing 10 units of output is $45, then the "total" variable cost of 10 units of output is a. $45 b. $10 * c. $450 d. $4.50 15. If the average fixed cost of producing 10 units of output is $45, then the "total" fixed cost of producing 5 units of output is a. unknown * b. $450 c. $4.50 d. $45 16. In the long run, a firm can change: a. its output b. the amount of labor it uses c. the amount of capital it uses * d. all of the above 17. Both Ford and General Motors manufacture cars. Forduses a production process that has very low fixed costs and very high variable costs. While General Motors uses a production process that has very high fixed costs and very low variable costs. Currently, each factory is producing 100 cars at the same total cost. Which of the following statements is correct? If each produces a. more, their total costs will remain equal b. less, their total costs will remain equal * c. more, then General Motors' costs will be less then Ford's costs d. less, then General Motors' costs will be less then Ford's costs 18. Economies of scale explain why: a. smaller plant sizes lower average costs. * b. larger plant sizes lower average costs. c. larger plant sizes raise average costs. d. average fixed cost declines as output increases. 19. A price discriminating monopolist attempts to capture all of the consumer surplus how? * a. by charging customers with a more inelastic demand a higher price b. by charging customers with a more elastic demand a higher price c. by charging customers with a more unitary demand a higher price d. two of the above are correct Use the following information to answer the remaining questions Output Total Cost 0 $ 46 1 $ 76 2 $ 96 3 $ 104 4 $ 110 5 $ 130 6 $ 160 7 $ 196 8 $ 236 9 $ 286 Marginal Revenue for all output levels equals $40 20. What is the fixed cost of production? a. $10 b. $55 c. $50 * d. $46 21. What is the marginal cost of increasing output from 5 to 6 units? * a. $30 b. $55 c. $50 d. $90 22. If three units are produced, what is the average variable cost? a. $20 * b. $19.33 c. $34.67 d. $60 23. If seven units are produced, what is the average total cost? a. $21.43 b. $10 c. $30 * d. $28 24. What is the firm's shutdown decision price? a. $40 b. $18 * c. $16 d. $25 25. Given no changes in the cost curves, at what price must the firm have to make it into the long run? * a. $26 b. $35 c. $36.67 d. $42.33 26. What price does this perfectly competitive firm have to work with a. $25 b. $45 c. $30 * d. $40 27. Given a market price of $30, which level of output maximizes profit? a. 3 units b. 5 units c. 4 units * d. 6 units e. the firm should shutdown and produce no output 28. If the market demand curve decreases and price falls to $10, how many units of output should the producer manufacture in order to maximize profits? a. 2 units b. 3 units c. 4 units d. 5 units * e. the firm should shutdown and produce no output