1. Suppose a profit-maximizing monopolist is selling 20,000 units of output at $14 per unit. The...

Question:

1. Suppose a profit-maximizing monopolist is selling 20,000 units of output at $14 per unit. The marginal cost of production is constant at $6. What happens if marginal cost rises to $6.80?

a. The monopolist will increase the price and sell less than 20,000 units of output.

b. The monopolist will increase the price and sell more than 20,000 units of output.

c. Since the monopolist is already maximizing profits, the increase in marginal cost will have no effect on the price or quantity produced.

d. The monopolist will keep price unchanged but will sell more than 20,000 units of output.

2. A firm with market power has a marginal cost function of MC = 40Q, where Q is measured in thousands. The firm has an inverse demand curve of P = 450 - 5Q. What is the dead-weight loss (DWL) from this monopoly at the firm's profit-maximizing output level? (Hint: You will first need to find the MR curve and then you will need to graph the inverse demand function, MC and MR).

a. $9,400

b. $22,500

c. $15,000

d. $280,000

3. Antitrust laws

a. encourage firms to collude on prices and output.

b. are a set of laws that promote monopolies through patents, license and copyrights.

c. encourages smaller firms to merge to achieve economies of scale.

d. restricts firms from engaging in anti-competitive behavior.

Monopoly:

The profit maximizing monopolist produce output in such a way that marginal revenue equals marginal costs. Marginal revenue refers to addition to total revenue when one extra unit of output is produced. Marginal cost is the addition addition to total cost when one extra unit of output is produced.

Answer and Explanation: 1

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(1) The correct option is: (a) The monopolist will increase the price and sell less than 20,000 units of output.

(2)First calculate profit maximizing...

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What is a Monopoly in Economics? - Definition & Impact on Consumers

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Chapter 7 / Lesson 2
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Understand the meaning of a monopoly in economics and what it does. Also, know the characteristics of a monopoly and the different types of monopolies.


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