Chapter Questions
A firm is a natural monopoly if it exhibits the follow-ing as its output increases:a. decreasing marginal revenue.b. increasing marginal cost.c. decreasing average revenue.d. decreasing average total cost.
For a profit-maximizing monopoly that charges thesame price to all consumers, what is the relationshipbetween price $P,$ marginal revenue $M R,$ and marginalcost $M C ?$a. $P=M R$ and $M R=M C$ .b. $P>M R$ and $M R=M C$ .c. $P=M R$ and $M R>M C$d. $P>M R$ and $M R>M C$
If a monopoly's fixed costs increase, its price will_____ and its profit will _____.a. increase, decreaseb. decrease, increasec. increase, stay the samed. stay the same, decrease
Compared to the social optimum, a monopoly firmchoosesa. a quantity that is too low and a price that istoo high.b. a quantity that is too high and a price that istoo low.c. a quantity and a price that are both too high.d. a quantity and a price that are both too low.
C. consumers who buy the good have to pay morethan marginal cost, reducing their consumersurplus.d. the monopoly firm chooses a quantity that fails toequate price and average revenue.The deadweight loss from monopoly arises becausea. the monopoly firm makes higher profits than acompetitive firm would.b. some potential consumers who forgo buying thegood value it more than its marginal cost.C. consumers who buy the good have to pay morethan marginal cost, reducing their consumersurplus.d. the monopoly firm chooses a quantity that fails toequate price and average revenue.
When a monopolist switches from charging a singleprice to practicing perfect price discrimination, itreducesa. the quantity produced.b. the firm's profit.c. consumer surplus.d. total surplus.