Explain how a monopolist always earns an economic profit
1. Which of the following is true under a monopoly?
A. Monopolist chooses the highest possible price.
B. Monopolist chooses a price that is always higher than marginal cost of production.
C. Marginal revenue of a monopolist is price.
D. None of the above are true for monopoly.
2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:
A. 4
B. 5
C. 6
D. 7
3. Which of the following is true?
A. A monopolist produces on the inelastic portion of its demand.
B. A monopolist always earns an economic profit.
C. The more inelastic the demand, the closer marginal revenue is to price.
D. In the short run a monopoly will shutdown if P < AVC.
4. In a competitive industry with identical firms, long rum equilibrium is characterized by:
A. P = AC
B. P = MC
C. MR = MC
D. All of the above
5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm’s cost function is C = 40 + 5Q^2. Your firm’s maximum profits are:
A. 125
B. 250
C. 100
D. 85
6. A perfectly competitive firm faces:
A. A perfectly elastic demand function
B. A perfectly inelastic demand function
C. a demand function with unitary elasticity
D. none of the above