 # Similar to a perfectly competitive firm

November 26, 2014| Papers Haven

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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

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