The process and the answer
1. Which of the following statements is correct? A. Both a competitive firm and a monopolist are price takers. B. Both a con onopolist are price makers. C. A competitive firm is a price taker, whereas a monopolist is a price maker. D. A com onopolist is a price taker. E. A competitive firm so es is both a price taker and a price maker 2. One difference between a perfectly comp itive firm and a monopoly firm is that a perfectly competitive firm produces when A. Marginal cost equals price, while a monopoly firm produces when price exceeds marginal cost. B. Marginal cost equals price, while a monopoly firm produces when ost exceeds price. C. Price exceeds marginal cost, while a mo ost equals price D. Marginal cost exceeds price, while a monopoly firm produces when marginal cost price. E. Marginal cost equals price, while a monopoly firm produces when marginal cost equals price. 3. A perfectly competitive market A. May not be in the best interests of society, whereas a monopoly market promotes general nic well-being. Promotes general econ being, whereas a monopoly market may not be in the interests of society C. And a monopoly market is equally likely to promote general economic well-being. D. Is less likely to promote general economic well-being than a monopoly market. E. Sometimes will cause the deadweight loss, B. Which of the following is a characteristic of a natural monopoly? A. Marginal cost declines over large regions of output B. Average to ines over large regions of output. C. The product sold is a natural resource such as diamonds or water. D. One firm can supply output at a higher cost than two firms. number of firms decreases each firm's average total cost. Price Curve C Curve D Curve B Curve A Quantity 16. Refer to the figure above. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q (H) Q (iii) Q (iv)Q A. (ii) only. B. (1) or (#). C. (i) only. D. (i), (ii), or (hi). E. (1). (Hi). and (ili). 17. Suppose a monopolist chooses the price and production level that maximizes its profit. From that point, to increase society's economic welfare, output would need to be increased as long as A. Average revenue exceeds marginal cost. B. Average revenue exceeds average total cost C. Marginal revenue exceeds marginal cost. D. Marginal revenue exceeds average total cost. E. Average revenue exceeds marginal revenue. 20. For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because A. The average cost of producing units of electricity by one producer in a specific region was lower than that if the same quantity was produced by two or more producers in the same region. B. The average cost of producing units of electricity by one producer in a specific region was higher than that if the same quantity was produced by two or more produced in the same region C. The marginal cost of producing units of electricity by one producer in a specific region was higher than that if the same quantity was produced by two or more same region. D. Electricity is a special non- competitive market. E. Electricity is a special rival good that other people's use. 21. XYZ Company is a profit-maximizing firm. It has a patent for a unique antispyware computer program called Aspy that gives XYZ the exclusive right to produce and market it for a period of time. (a) Assume that XYZ is making economic profit. Draw a correctly labeled graph and show the profit-maximizing price and quantity. (b) Assume that the government imposes a lump-sum tax on XYZ (i) What will happen to output and market price? Explain. (ii) What will happen to XYZ's profits? (c) Assume that the gove ent grants a per-unit subsidy to XYZ for Aspy instead. (i) What will happen to output and market price? Explain. (ii) What will happen to XYZ's profits? (d) Now assume that XYZ's patent on Aspy expires. What will happen to XYZ's economic profits in the long run? Explain. 26. Market structures differ from one another in many respects. Consider two profit-maximizing firms that earn short-ru omie profits. One is a perfectly competitive firm and the other is a monopoly. (a) For each firm, draw a correctly labeled graph showing the following. (i) Price (i ) Quantity of output (Hi) Area of economic profits (b) For each firm, explain the relationship between price and marginal revenue. (c) For each firm, explain how the economic profits would most likely change in the long run. d) Label the area that represents the deadweight loss on the graph for the monopoly firm drawn in (a). Explain what this deadweight loss represents
