#7 If a monopolist or a perfectly competitive firm is producing at a break-even
ID: 1201717 • Letter: #
Question
#7
If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost
#8
A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases
#9
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
#10
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:
#11
A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:
#12
Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:
iExplanation / Answer
7. ii and iv
8. ii and iii
9. they are all barriers to entry
10. to both perfectly competitive firms and monopolies
11. is operating at a loss that is less than the loss incurred by shutting down
12. produce 48 units of output, charge a price of $110, and earn a total profit of $2744
Explanation:
MR = MC
120 - 0.4Q = 4 + 2Q
=> Q = 48
and P = $110
Profit = TR - TC = 5280 - 2536 = 2744
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