Question

Part VI Multiple Choice: Imperfect Competition 13. If a firm with market power maximizes profit by producing at the unit elastic point on the demand curve, then a. it has no direct competitors. b. its marginal cost must be zero at the profit-maximizing level of output. c. demand must be perfectly elastic. d. it cannot be in long-run equilibrium 14. Which of the following statements is not always true for a monopolist in short-run equilibrium? a. E 21 b. TR> TVC c. MR - SMC d. P> MR 15. If a firm with market power is not making enough profit (in equilibrium), a, it will lower price thereby increasing total revenue because demand is elastic. b. it will raise price thereby increasing total revenue because demand is inelastic, c, it will exit the industry in the long run if economic profit is negative. d. it will expand sales until it reaches the unit elastic point on demand. 16. If a monopolist can find buyers for 4 units at a price of $7, and if the marginal revenue due to the 5th unit is S2, the highest price at which the monopolist can find buyers for 5 units must be a. $2. b. $3. c. $4. d. $5. e. $6.

Answer 1

13. If a firm with market power maximizes profit by producing at the unit elastic point on the demand ,then its marginal cost must be zero at the profit maximizing level of output. Hence, option(B) is correct.

14. TR>TVC is not always true for a monopolist in short-run equilibrium. Hence,option(B) is correct.

15. If a firm with market power is not making enough profit (in equilibrium) it will lower price thereby increasing total revenue because demand is elastic. Hence,option(A) is correct.

16. When Q=4 units , then P=$7 TR=(4)(7)=30

And when Q=5 , then MR= 2 . MR= 2 only when TR=30 , so Price must be ($30/Q)= (30/5)= $6. Hence,option(E) is correct.