Operating at a break-even point

Reference no: EM13765543

Similar to a perfectly competitive firm, a monopolist that is confronted with fixed costs in the short run should produce versus shut down if the total revenue that it can generate is sufficient to cover its:

a. total fixed costs

b. marginal costs

c. total variable costs

d. total costs

Suppose that a monopolist finds itself to be operating at a break-even point. It follows that its:

i. total revenue is equal to total variable cost

ii. total revenue is equal to total cost

iii. average revenue is equal to average variable cost

iv. average revenue is equal to average total cost

a. i

b. ii

c. iii

d. i and iii

e. ii and iv

Suppose that at 200 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $5 per unit and is incurring average variable costs of $3 per unit and average total costs of $4 per unit. On the basis of this information we can conclude that the firm:

a. is operating at maximum profit by producing the 200 units of output

b. should increase its use of variables inputs in order to reduce its total variable costs TVC

c. is operating at a loss that is less than the loss incurred by shutting down

d. should close down

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. Therefore:

a. demand is elastic at this price

b. demand is inelastic at this price

c. the firm is maximizing profits

d. total revenue is at a maximum

Suppose that at 500 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. On the basis of this information we:

a. can say that the firm should close down in the short run

b. can say that the firm is maximizing profit in the short run

c. cannot determine whether the firm should produce or shut down in the short run

d. can assume the firm is not using the most efficient technology

If the uniform price of a monopolists good is $50 per unit and its marginal cost is $25, then:

a. to maximize profit the firm should increase output

b. to maximize profit the firm should decrease output

c. to maximize profit the firm should continue to produce the output it is producing

d. there is not enough information to determine whether output should be changed or remain constant to maximize profit

Consider a profit maximizing monopolist that employs a uniform pricing strategy. If it were to produce and price at a point on the inelastic segment of its demand curve, then it could:

a. raise total revenue by raising price

b. reduce total costs by raising price

c. raise profits by raising price

d. all of the above

Suppose that at 100 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average fixed costs of $4 per unit. On the basis of this information we can conclude that the firm is:

a. operating at maximum profit by producing the 100 units of output

b. operating at a loss that could be reduced by shutting down

c. operating at a profit that could be increased by producing more output

d. operating at a loss that is less than the loss incurred by shutting down

Under which of the following situations would a monopolist increase profits by reducing output and raising price:

a. if it were producing where MC < MR

b. if it were producing where MC > MR

c. if it were producing where MC = MR

d. none of the above

The uniform price that is most profitable for the monopolist to charge for its product is:

a. the highest price a consumer is willing to pay for a unit of the good

b. the price at which demand is unit-elastic

c. a price that maximizes the quantity sold

d. the price for which marginal revenue equals marginal cost

Under uniform pricing, a profit maximizing monopolists price is:

a. the same as the price that would prevail if the industry were perfectly competitive

b. less than the price that would prevail if the industry were perfectly competitive

c. greater than the price that would prevail if the industry were perfectly competitive

d. none of the above

If a public utilities regulatory agency requires a local electricity provider (a natural monopoly) to set the price of its output equal to marginal cost and this price is below its average total cost then:

i. the firm will realize an economic profit

ii. the firm will break even

iii. there will be no deadweight loss

iv. the firm will suffer a loss

a. i

b. ii

c. iii

d. iii and iv

Consider a monopolist whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firms good is P = 120 - 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:

a. produce 90 units of output, charge a price of $102, and earn a profit of $9180

b. produce 90 units of output, charge a price of $102, and earn a profit of $7460

c. produce 110 units of output, charge a price of $98, and earn a profit of $6030

d. produce 110 units of output, charge a price of $98, and earn a profit of $10780

a. 0.2

b. 0.9

c. 3.6

d. 4.5

e. 5.2

a. $76

b. $108

c. $303

d. $458

Price discrimination is the practice of:

a. charging different prices for the same good and the price differences are not due to differences in cost

b. charging different prices for the same good and the price differences arise because of differences in cost

c. charging different prices for high quality versus low quality units of a good

d. charging higher prices for brand named goods and lower prices for generic versions of the goods

The ability of a firm to increase profits by practicing discriminatory pricing can be undermined by:

i. arbitrage

ii. the market in which it operates being highly competitive

iii. differences in the price elasticity of demand between groups of consumers

iv. the firm having considerable market share

a. i

b. ii

c. iii

d. i and ii

e. i and iii

Price discrimination is a rational strategy for a profit-maximizing firm to adopt when:

a. it is possible to engage in arbitrage across market segments

b. it is not possible to segment consumers into identifiable markets

c. there is no opportunity for arbitrage across market segments

d. firms want to increase the amount of consumer surplus received by its customers

The act of purchasing a good at a low price and reselling it at a higher price is referred to as:

a. odd pricing

b. arbitrage

c. two-part pricing

d. price discrimination

Children are often charged less than adults for admission to movies, theme parks, and professional sporting events. However, they are charged the same prices as adults at the concession stands. Which of the following best explains such pricing arrangements:

a. children have an elastic demand for admission but an inelastic demand for items at the concession stands

b. children have an inelastic demand for admission but an elastic demand for items at the concession stands

c. sellers can prevent adults from being admitted with a childs ticket but cannot prevent children from buying concession items for adults

d. children can personally use only a single ticket for admission, but can personally consume more than one concession item

If a monopolist engages in perfect (first-degree) price discrimination, then relative to uniform pricing:

a. profits will increase and output will fall

b. both profits and output will increase

c. both profits and output will decrease

d. its demand curve will lie below its marginal revenue curve

With perfect (first-degree) price discrimination there is:

a. no deadweight loss

b. no producer surplus

c. one single price

d. an increase in consumer surplus

A perfectly competitive firm is not able to successfully price discriminate because:

a. it breaks even in the long run and therefore can not afford to engage in yield management

b. it does not advertise and this prevents it from marketing its product to different segments of the market

c. consumers in perfectly competitive markets have the same maximum willingness to pay for units of the good

d. the firm will not be able to sell units to any group of consumers that are confronted with prices above the market price

De Beers, the South African diamond syndicate, has historically had monopoly power in the global diamond market. One source of competition that it confronts comes from individuals who sell diamonds that originated through previous sales by De Beers. Which of the following best explains why these secondary sales might be of concern to De Beers?

a. previously owned diamonds are a close substitute for newly mined diamonds and therefore secondary sales would reduce its market power

b. it will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed

c. the availability of previously owned diamonds would increase the market demand for diamonds and reduce its market power

d. the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force the firm to lower its price

Consider a monopolist whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firms good is P = 120 - 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm is able to practice first degree (or perfect) price discrimination then it will:

a. produce 122.5 units of output and rounded to the nearest dollar it will earn a profit of $5952

b. produce 122.5 units of output and rounded to the nearest dollar it will earn a profit of $6112

c. produce 137.5 units of output and rounded to the nearest dollar it will earn a profit of $7543

d. produce 137.5 units of output and rounded to the nearest dollar it will earn a profit of $5652

Barriers to entering an industry:

i. result in productive efficiency

ii. result in allocative efficiency

iii. are the basis for monopolies to exist

iv. apply in the United States to only to industries dominated by a single firm

a. i

b. ii

c. iii

d. iv

e. both iii and iv

A natural monopoly, such as a local electricity provider, is the result of:

i. a firm owning or controlling a key input used in the production process

ii. long-run average total costs declining continuously as output increases

iii. long-run total costs declining continuously as output increases

iv. economies of scale existing over a wide range of output

a. i

b. ii

c. iii

d. iv

e. ii and iv

f. iii and iv

Like a perfectly competitive firm, if a monopolist wants to know how much it will save by reducing output, it will evaluate its:

a. marginal product function

b. average product function

c. marginal cost function

d.average variable cost function

e. average total cost function

The notion that a firm should produce that level of output such that MR = MC to maximize profit or minimize operating losses applies:

a. in both competitive and monopolistic industries

b. only to monopolies

c. only if the firm is a "price taker"

d. only to firms that can price discriminate

For a monopolist that employs a uniform pricing strategy, marginal revenue is less than price because:

a. the monopolists demand curve is perfectly inelastic

b. the monopolists demand curve is perfectly elastic

c. if the monopolist charges a lower price versus a higher price, the lower price applies to all units of output sold

d. the monopolists total revenue curve is linear and upward sloping

If a monopolist is producing a level of output that maximizes total profit, then it will necessarily be:

a. minimizing total cost

b. maximizing profit per unit of output

c. maximizing total revenue

d. maximizing the difference between total revenue and total cost

Suppose that a monopolist is producing a level of output such that AVC = $6, AFC = $4, P = $8, MR = $10, and MC = $6. Based on this information, the firm is realizing:

a. a loss which could be reduced by reducing price and increasing output

b. a profit which could be increased by reducing price and increasing output

c. a loss which could be reduced by increasing price and reducing output

d. a profit which could be increased by increasing price and reducing output

If a profit maximizing monopolist is producing such that marginal cost is $10 and its marginal revenue is $4, it will increase its profits by:

a. reducing price and increasing output

b. increasing price and reducing output

c. reducing both price and output

d. increasing both price and output

e. raising price while keeping output unchanged

If a monopolist is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

a. marginal revenue and marginal cost

b. total revenue and total cost

c. price and minimum average variable cost

d. total revenue and total fixed cost

A profit-maximizing monopolist that sells all units of its output for a single (uniform) price will set this price:

a. as far above average total cost (ATC) as possible

b. along the elastic portion of its demand curve

c. along the inelastic portion of its demand curve

d. at the minimum of it average total cost (ATC) curve

e. where the marginal cost (MC) curve intersects the demand curve

Suppose a firm has monopoly power in the production of a particular good. If it finds that revenue and cost conditions are such that at all levels of output the price it can charge in order to sell all of the units is less than the average variable costs then it is in the firms best interest to:

a. close down because its operating losses will exceed its shut-down losses at all levels of output

b. maximize profits by producing where MR = MC

c. close down because its total operating cost will exceed its total revenue

d. minimize losses by producing where MR = MC

Reference no: EM13765543

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