1 Multiple Choices 1.(Mankiw,page 324,Quick Check Multiple Choice,1) A firm is a

Question

1 Multiple Choices 1.(Mankiw,page 324,Quick Check Multiple Choice,1) A firm is a natural monopoly if it exhibits the following as its output increases: A. decreasing marginal revenue B. increasing marginal cost C. decreasing average revenue decreasing average total cost 2.(Mankiw,page 324,Quick Check Multiple Choice,6) When a monopolist switches from charging a single price to perfect price discrimination reduces:) A. the quantity produced B. the firm's profit C. consumer surplus D. total surplus. 3. (Mankiw.page 366,Quick Check Multiple Choice,1) The key feature of an oligopolistic market is that:( A. each firm produces a different product from other firms B. a single firm chooses a point on the market demand curve C. each firm takes the market price as given. D. a smal number of firms are acting strategically (Mankiw,page 367,Quick Check Multiple Choice,4)As the number of firms in an oligopoly grows large, the industry approaches a level of output that is () the competitive level and () the monopoly level A less than, more than B. more than, less than C. less than, equal to D. equal to, more than

Explanation / Answer

1. Fixed costs are very large for natural monopolist when compared to variable costs. As the output increases, it results in decreasing average total cost.

2. As each consumer is charged according to their price willingness, some consumers who could have received price benefit because of single price doesnt receive such benefits as the benefits are taken by producer, resulting reduction in consumer surplus.

3. Firms in oligopoly can influence market outcome and thus they act strategically to achieve the expected outcome.

4. When number of firms increases, the industry approaches a level of output that is more than the competitive level and less than the Monopoly level. Oligopoly with few firms is more like a monopoly, with outcome control. Answer B

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