Question

1A

Marginal revenue for a monopoly firm is:

not related to the price that the monopolist charges for its products.

less than the price that the monopolist charges for its products.

always greater than the price that the monopolist charges for its products.

equal to the price that the monopolist charges for its products.

1B

Regarding monopoly firms, our text concludes that:

firms which have been granted monopoly status by a government are less-efficient and provide a lower-quality and higher-priced product than firms which have attained this position on their own through efficiency, economies of scale and innovation.

All of the listed choices are correct.

Some monopolies are desirable, because they take advantage of economies of scale, and operate efficiently and cost-effectively.

The existence of monopolies is fine, as long as they act legally and ethically, and as long as they do not harm consumers and the economy.

1C

Consider the following table with a monopolist's cost and revenue data. The profit-maximizing output is _____, and the price which the monopolist will charge at this output is _____ (Hint: find the marginal revenue values):

Output	Price	TR	TC	MC
0	$6.50	$0	$150	-
50	6	300	350	4
100	5.50	550	525	3.5
150	5	750	675	3
200	4.50	900	800	2.5
250	4	1,000	950	3
300	3.5	1,050	1,125	3.5

150; $5.00

50; $6.00

250; $4.00

100; $5.50

200; $4.50

Answer 1

1A. Ans: less than the price that the monopolist charges for its products.

Explanation:

Because the MR curve lies below the Demand or AR curve. So, for a monopoly firm is MR less than the price that the monopolist charges for its products.

1B. Ans: All of the listed choices are correct.

1C. Ans: 200; $4.50

Explanation:

Output	Price($)	TR($)	MR($)	TC($)	MC($)
0	6.50	0.00		150.00	-
50	6.00	300.00	6.00	350.00	4
100	5.50	550.00	5.00	525.00	3.5
150	5.00	750.00	4.00	675.00	3
200	4.50	900.00	3.00	800.00	2.5
250	4.00	1000.00	2.00	950.00	3
300	3.50	1050.00	1.00	1125.00	3.5

The profit maximization condition is MR should be equal to or greater than MC. From the table it is clear that at 200 units of output MR is greater than MC. Thus, the profit maximizing output is 200 and price is $4.50