If the demand curve a monopolist faces is perfectly elastic, then the ratio of the firm’s price to the marginal cost is A) 0. B) 1. C) 2. D) None of the abovethe answer cannot be determined. ANSWER B
Date: September 9th, 2020
A small business owner earns $60,000 in revenue annually. The explicit annual costs equal $10,000. The owner could work for someone else and earn $25,000 annually. The owner’s accounting profit is ________ and owner’s economic profit is ________. A) $20,000; $5,000 B) $50,000; $25,000 C) $25,000; -$5,000 D) $45,000; -$5,000 ANSWER B
Date: September 9th, 2020
As other firms enter a monopoly’s market, the monopoly’s market power A) is unaffected. B) declines. C) increases. D) increases according to the Lerner Index but decreases according to the price/marginal cost ratio. ANSWER B
Date: September 9th, 2020
A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization, the implicit demand elasticity is A) -0.2. B) -0.8. C) -1.25. D) -5.0. ANSWER C
Date: September 9th, 2020
If a firm is operating at an output level where losses are minimized, the firm A) has no incentive to stay in the industry. B) is better off exiting the industry. C) is maximizing profits. D) will shut down. ANSWER C
Date: September 9th, 2020
The more elastic the demand curve, a monopoly A) will have a larger Lerner Index. B) will face a lower marginal cost. C) will earn more profit. D) will lose more sales as it raises its price. ANSWER D
Date: September 9th, 2020
If transaction costs are high, then it is more likely a firm’s demand curve is downward sloping. Indicate whether the statement is true or false ANSWER True . Transaction costs increase the costs for consumers to find a new firm. Thus, high transaction costs allow a firm to charge more than others.
Date: September 9th, 2020
If a firm makes zero economic profit, then the firm A) has total revenues greater than its economic costs. B) must shut down. C) can be earning positive business profit. D) must have no fixed costs. ANSWER C
Date: September 9th, 2020
The introduction of satellite television systems would cause the demand curve for cable television to be A) more elastic. B) less elastic. C) perfectly inelastic. D) unchanged. ANSWER A
Date: September 9th, 2020
If a monopoly can produce a good at zero marginal cost, then its Lerner Index is A) zero. B) one. C) infinity. D) undetermined. ANSWER B
Date: September 9th, 2020
