# Monopoly & Monopolistic Competition

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### Which of the following is true for a price-setting pure monopoly? a.Production is carried out at minimum average cost. b.The firm only operates on the elastic portion of the market demand curve. c.Production is carried out where price equals marginal cost. d.There is no shutdown rule for monopolists because they always make monopoly profits.

b.The firm only operates on the elastic portion of the market demand curve.

b.\$4.00.

### Based on the information in the box, which of the following is not correct? a.MR is negative. b.The demand curve is downward-sloping c.Demand is elastic. d.The percentage change in quantity demanded is less than the percentage change in price.

c.Demand is elastic.

### he diagram is used to show the short-run equilibrium of a.only perfect competition. b.only monopolistic competition. c.both perfect and monopolistic competition. d.both monopolistic competition and pure monopoly.

d.both monopolistic competition and pure monopoly.

### If for the eighty-third unit of output, a monopolist finds from his rising MC curve that the marginal cost is \$8.50, while MR is \$7.00, he should a.stop and maximize profit b.expand production to increase MR. c.reduce production to lower MC. d.shut down in the short run.

c.reduce production to lower MC.

b.\$500.

### If this is a monopolistically competitive firm, in the long run, a.new firms entering the industry will result in a decrease in demand. b.new firms entering the industry will result in the cost curves shifting down. c.entry barriers will be sufficiently high to keep economic profits at their current level. d.the firm will start producing on the inelastic portion of its demand curve.

a.new firms entering the industry will result in a decrease in demand.

### Which of the following is a correct statement about monopolists? a.Monopolists charge the highest possible price. b.Monopolists always earn profits. c.Monopolists produce where average costs are minimized. d.Monopolists charge a price higher than marginal cost.

d.Monopolists charge a price higher than marginal cost.

### Which of the following does not tend to happen to an established monopolistic competitor as new firms enter the industry when economic profits are being earned? a.The firm will increase its rate of output. b.The firm's demand curve will become more elastic. c.Economic profits will tend to decrease. d.The firm's demand curve will shift to the left.

a.The firm will increase its rate of output.

### In order for a firm to undertake price discrimination, all the following must be true except a.the firm must have control over price. b.the demand curves in the two markets must be the same. c.the seller must be able to distinguish between buyers. d.buyers are not allowed to resell the product.

b.the demand curves in the two markets must be the same.

### A potential benefit of price discrimination is that a.it allows monopolists to restrict output by the maximum amount. b.it charges different buyers different prices for the same good. c.it may raise revenues and output. d.it tends to lower profits when undertaken.

c.it may raise revenues and output.

### Use the model of a profit-maximizing monopolist in the short run shown in the diagram to answer the following questions: a.Calculate TR, VC, TC, FC, economic profits per unit, and total economic profits. b.What will this firm do in the short run? long run?

TR=32000
TC=40000
FC=16000
VC=24000
Profit per=-80
Total Profit=-8000

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