Question 1

Strawberry Inc.has a monopoly on the sale of a specialized smartphone.If it sells 9 of these smartphones its total revenue is $1,800,and if it sells 10 smartphones its total revenue is $1,950.The marginal revenue of the tenth smartphone sold is:

Accepted Answer

The marginal revenue is the additional revenue from selling one more unit. The revenue from selling 9 smartphones is $1,800, and from selling 10 is $1,950. The marginal revenue for the tenth smartphone is $1,950 - $1,800 = $150.

Question 2

-Refer to Figure 10.1.The marginal revenue of the fifth pound of cheese is:

Accepted Answer

Marginal revenue is the additional revenue from selling one more unit. If the fifth pound of cheese adds $1 to total revenue, then the marginal revenue is $1.

Question 3

-Refer to Figure 10.1.The marginal revenue of the sixth pound of cheese is:

Accepted Answer

The marginal revenue of the sixth pound of cheese is calculated by the change in total revenue from selling the fifth to the sixth pound. If the total revenue increases by a small amount or decreases (indicating a negative marginal revenue), it reflects the additional revenue generated by selling one more unit. In this case, without the specific figure, the general approach to find marginal revenue is to look at the difference in total revenue between the two quantities. Since the question suggests a decrease, the closest logical answer based on the provided options is -$1, indicating a decrease in total revenue with the sale of the sixth pound, which aligns with how marginal revenue can become negative if additional sales reduce total revenue.

Question 4

Assume that Pura Water,a local monopoly water utility company,is currently selling 10,000 gallons per hour at a price of $0.10 per gallon.If Pura Water wants to sell 1000 gallons more,it will have to lower the price to $0.09 per gallon.The marginal revenue of the 10,001 is approximately:

Accepted Answer

The marginal revenue is calculated as the change in total revenue from selling one more unit. The total revenue at 10,000 gallons is $1,000 (10,000 x $0.10), and at 11,000 gallons is $990 (11,000 x $0.09). The change in revenue is $990 - $1,000 = -$10. Since the marginal revenue for the 10,001st gallon is approximately -$99.91, option A is correct.

Question 5

For a profit maximizing monopolist,price:

Accepted Answer

For a profit-maximizing monopolist, the price charged is always greater than marginal revenue due to the downward-sloping demand curve. This is because, to sell an additional unit, the monopolist must lower the price on all units sold, which makes the marginal revenue less than the price.

Question 6

In a monopoly,the market demand curve is:

Accepted Answer

In a monopoly, there is only one firm in the market, so the demand curve facing the firm is the same as the market demand curve. The firm has the power to set prices and the market demand curve represents the maximum amount consumers are willing to pay for the product, which the firm can charge.

Question 7

To maximize profit,the monopolist produces on the ________ portion of the demand curve where ________.

Accepted Answer

To maximize profit, a monopolist produces where marginal revenue equals marginal cost, which occurs on the elastic portion of the demand curve. This is because, in the elastic portion, lowering the price slightly increases total revenue, allowing for profit maximization.

Question 8

For a non-price discriminating monopolist to sell more units of output:

Accepted Answer

Since a non-price discriminating monopolist faces the market demand curve, in order to sell more units of output, the monopolist has to reduce the price of the product. This will increase the quantity demanded due to the inverse relationship between price and quantity demanded.

Question 9

Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?

Accepted Answer

Economies of scale refer to the cost advantages that a business enjoys as it increases in size. As the electric company grows larger, it is able to produce and distribute electricity more efficiently, which results in lower per-unit costs. This cost advantage makes it difficult for new entrants to compete with the electric company, as they would have to invest a significant amount of money upfront to achieve similar economies of scale. This helps the electric company maintain a monopoly over the production of electricity.

Question 10

The tradeoffs faced by a monopolist in cutting price to sell a larger quantity leads to marginal revenue being:

Accepted Answer

When a monopolist cuts the price to sell a larger quantity, it faces the tradeoff between selling more units and reducing the price. As a consequence, the marginal revenue obtained from selling an additional unit decreases, leading to marginal revenue being less than price. Therefore, the best choice is A.

Question 11

-Refer to Figure 10.2.The marginal revenue of the eighth pound of burritos is:

Accepted Answer

The marginal revenue of the eighth pound of burritos is $5, as shown in Figure 10.2.

Question 12

A monopolist can:

Accepted Answer

A monopolist faces the entire market demand curve, and therefore in order to increase the price of his output, he needs to reduce the quantity sold. However, the extent to which he can increase the price depends on the elasticity of demand. If the demand for his product is inelastic, he may be able to increase the price without reducing output significantly, but in general, he cannot simultaneously increase both price and quantity sold.

Question 13

Barriers to entry are used to:

Accepted Answer

Barriers to entry serve multiple purposes: they enable a firm to have control over its product pricing, prevent new competitors from entering the market, and consequently allow the firm to earn economic profits by reducing competition.

Question 14

-Refer to Figure 10.2.The marginal revenue of the 10th pound of burritos is:

Accepted Answer

Marginal revenue is the change in total revenue from selling one more unit. From the 9th to the 10th pound, total revenue increases from $27 to $28, a change of $1.

Question 15

Which of the following is a barrier to entry for a monopoly?

Accepted Answer

All of the above options are barriers to entry for a monopoly. Government licensing can limit the number of firms allowed to enter a market, patents can prevent competition from products with similar technology, and network externalities can create a situation where consumers are more likely to stick with a particular brand or product, making it more difficult for new firms to gain a foothold.

Question 16

Assume a non-price discriminating monopolist can sell 20 units of a good for 4.00 each and can sell 21 units of that good for $ 3.85 each.The marginal revenue of the 21st unit is:

Accepted Answer

Marginal revenue is the change in total revenue from selling one more unit. In this case, the total revenue from selling 20 units is 20 * $4.00 = $80.00. The total revenue from selling 21 units is 21 * $3.85 = $80.85. Therefore, the marginal revenue from selling the 21st unit is $80.85 - $80.00 = $0.85.

Question 17

Assume a non-price discriminating monopolist can sell 45 units of a good for $ 1.50 each and can sell 46 units of that good for $ 1.45 each.The marginal revenue of the 46th unit is:

Accepted Answer

The marginal revenue of the 46th unit is calculated by the change in total revenue when selling one more unit. Selling 45 units at $1.50 each gives a total revenue of $67.50. Selling 46 units at $1.45 each gives a total revenue of $66.70. The marginal revenue is $66.70 - $67.50 = -$0.80.

Question 18

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10,000 and if it sells 21 services its total revenue is $10,600.The marginal revenue of the 21st service sold is:

Accepted Answer

The marginal revenue is the change in total revenue from selling one more unit. Here, the total revenue increases from $10,000 to $10,600 when the 21st service is sold, so the marginal revenue is $10,600 - $10,000 = $600.

Question 19

The Rare Bird Company has a monopoly in the sale of macaws in Iowa.When the Rare Bird Company sells three macaws its marginal revenue is $30.When the Rare Bird Company sells four macaws its marginal revenue will be:

Accepted Answer

In a monopolistic market, the marginal revenue decreases as the quantity sold increases because the monopolist must lower the price to sell additional units.

Question 20

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10000,and if it sells 21 services its total revenue is $10,600.When the local cable company sells 21 programs,the price per service is closest to:

Accepted Answer

To find the price per service, we need to determine the difference in revenue between selling 21 services and 20 services, and then divide that difference by the one extra service sold.

$10,600 - $10,000 = $600

$600/1 = $600

Therefore, the price per service when selling 21 programs is $600, which is closest to choice C.

Quiz 10: Monopoly and Price Discrimination