1. Which of the following is true? a) A monopoly firm is a price-maker. b) MR =

Question

1. Which of the following is true?
  
a)    A monopoly firm is a price-maker.
  
b)    MR = P if the demand curve is downward sloping.
  
c)    MR = MC is a profit-maximizing rule for firms in perfect competition only.
  
d)    Monopolies tend to charge lower prices than perfectly competitive firms.

2. Look at the figure A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is:
  
a)    $15.
  
b)    $8.
  
c)    $18.
  
d)    $16.

3. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:
  
a)    $350.
  
b)    $450.
  
c)    $400.
  
d)    $500

Explanation / Answer

1. a)    A monopoly firm is a price-maker.

2. d)    $16. The point in the AC curve where the profit maximising output corresponds to is the cost per unit.

3. c)    $400. We have to calculate the profit at each price and check the maximum profit.

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