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LOS b: Explain the relation between price, marginal revenue, and elasticity for a monopoly and determine a monopoly's profit-maximizing price and quantity.

A)	If a monopolist produces the quantity of output for which marginal cost equals marginal revenue, it will earn an economic profit.

B)	Monopolists are price searchers and must experiment with different prices to find the one that maximizes profit.

C)	For price discrimination to increase economic profit, the seller must identify at least two groups of customers, each with a different price elasticity of demand.

Monopolists expand output until marginal revenue equals marginal cost. However, to realize an economic profit, the demand curve must lie above the firm’s average total cost curve at that quantity.

A)	MR = MC and the price of the product will be determined by the MR curve.

B)	MR = MC and the price of the product will be determined by the demand curve.

C)	P = MC and the price of the product will be determined by the MC curve.

A monopolist will expand production until MR = MC. The demand curve lies above the intersection of the MR and MC curve and the price charged is the price on the demand curve for the output where MR = MC.

If a profit maximizing firm finds that its marginal revenue exceeds its marginal cost, it should increase output:

A)	if it is a price taker, but not if it is a price searcher.

B)	if it is a price searcher, but not if it is a price taker.

C)	regardless of whether it is a price taker or a price searcher.

Any firm will maximize profits by producing the output where MR = MC.

A)	A profit-maximizing monopolist will expand output until marginal revenue equals marginal cost.

B)	A monopolist will always be able to earn economic profit.

C)	A profit-maximizing monopolist will supply less of his product than the amount consistent with the conditions of ideal static efficiency for an economy.

Monopolists maximize profit when MR = MC. If the ATC curve lies above the demand curve, monopolists will lose money.

At an output quantity equal to 250, a monopoly firm faces a demand curve with a price (P) of $50, a marginal cost (MC) and marginal revenue (MR) equal to $10, and an average total cost (ATC) equal to $12. The economic profit for this monopoly firm is closest to:

Economic profit = Total revenue – total cost, where total revenue = PQ and total cost = ATC × Q. So, Economic profit = $9,500 = ($50)(250) – ($12)(250).

Monopolists will maximize profit by producing at an output level where which of the following conditions exists?

A)	Marginal revenue = marginal cost < price.

B)	Price = marginal revenue = marginal cost.

C)	Price = demand = marginal revenue = marginal cost.

To maximize profit, monopolists will expand output until marginal revenue equals marginal cost. Price will be greater than marginal revenue because a monopolist faces a downward sloping demand curve.

Which of the following is least relevant when explaining why monopoly firms can earn positive economic profits over the long term?

A)	Control over production input resources.

B)	The existence of economies of scale.

C)	The ability to use price discrimination.

High entry barriers due to economies of scale, government licensing, resource controls, and patents prevent new firms from entering the market to exploit positive economic profit opportunities.

What is the relationship between price and marginal revenue for a price searcher?

A)	Marginal revenue > price.

B)	Marginal revenue < price.

C)	Marginal revenue = price.

For a price searcher, demand is downward sloping, marginal revenue is less than price since price must be reduced to sell additional units of output.

Which of the following is least accurate regarding the relationship between price (P), marginal revenue (MR), average total cost (ATC), and marginal cost (MC) at the profit maximizing output under monopoly?

To maximize profit, all firms expand output until marginal revenue equals marginal cost. Price is determined from the demand curve, which is above the marginal revenue curve since a monopoly faces a downward sloping demand curve.

A)	A monopolist, like any other profit-maximizing firm, will sell at the output level where marginal revenue equals marginal cost.

B)	A monopolist will maximize the average profit per unit sold.

C)	A monopolist will charge the highest price for which he can sell his product.

The demand curve for monopolists slopes downward to the right reflecting the fact that a higher price results in lower demand. Monopolists maximize profits by expanding output until marginal revenue equals marginal cost.

A)	marginal revenue is positive.

B)	marginal revenue is greater than marginal cost.

C)	economic profit is greater than zero.

The optimum behavior of all firms is to produce until the point where MR = MC. So, the monopolist can increase total profit by increasing production as long as marginal revenue is greater than marginal costs.

A)	producing at the output level where marginal revenue equals marginal cost and charging a price on the demand curve that corresponds to the output rate.

B)	producing at the point where price is equal to MR.

C)	producing at the output level where marginal revenue equals average variable cost and charging a price along the demand curve that corresponds to the output rate.

A monopolist will maximize profits by producing at the output level where marginal revenue equals marginal cost and charging a price on the demand curve that corresponds to the output rate.