Maximizing Profit under Monopoly Practice Questions | Marginal Revolution University

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Practice Questions

Maximizing Profit under Monopoly Practice Questions

Want more pratice? Mary Clare Peate, MRU's Instructional Designer, goes over more questions in this video.

In the textbook, The Applied Theory of Price, D. N. McCloskey refers to the equation MR= MC as the rule of rational life. Who follows this rule: monopolies, competitive firms, both or neither? *

a. Monopolies

b. Competitive firms

c. Both

d. Neither

Rapido, the shoe company, is so popular that it has monopoly power. It’s selling 20 million shoes per year. The marginal cost of making extra shoes is quite low, and it doesn’t change much if they produce more shoes. Rapido’s marketing experts tell the CEO of Rapido that if it decreased prices by 20%, it would sell so many more shoes that profits would rise. If the expert is correct, at its current output, is MC=MR, is MC >MR, or is MC < MR? *

a. MC=MR

b. MC greater than MR

c. MC less than MR

If the expert is correct and Rapido’s CEO follows the experts’ advice, will Rapido’s total revenue rise, fall, or be unchanged? *

a. Total revenue will rise.

b. Total revenue will fall.

c. Total revenue will remain unchanged.

Apollo, another highly profitable shoe company, also has market power. It’s selling 15 million shoes per year, and it faces marginal costs quite similar to Rapido. Apollo’s marketing experts conclude that if they increased prices by 20%, profits would rise. For Apollo, is MC=MR, is MC greater than MR, or is MC less than MR? *

a. MC=MR

b. MC greater than MR

c. MC less than MR

When selling e-books, music on iTunes, and downloadable software, the marginal cost of producing and selling one more unit of output is essentially zero: MC = 0. Let’s think about a monopoly in this kind of market. If the monopolist is doing its best to maximize profits, what will marginal revenue equal at a firm like this? *

a. Greater than 0

b. Less than 0

c. 0

d. Indeterminate from the given information.

All firms are trying to maximize their profits (profit = TR - TC). The rule from the previous question tells us that in the special case where marginal cost is zero, “profit maximization” is equivalent to which of the following statements? *

a. “Maximize total revenue”

b. “Minimize total cost”

c. “Minimize average cost”

d. “Maximize average revenue”

Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true. *

a. Marginal revenue = Average cost

b. Total cost = Total revenue

c. Monopoly Price = Marginal cost

d. Marginal revenue = Marginal cost

e. A & C

f. C & D

For the following statements, decide whether it is true or false. When a monopoly is maximizing its profits, price is greater than marginal cost. *

a. True

b. False

For a monopoly producing a certain amount of output, price is less than marginal revenue. *

a. True

b. False

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Principles of Economics Microeconomics

Course (108 videos)

Introduction

Introduction to Microeconomics

Practice Questions

Opportunity Cost and Tradeoffs

Practice Questions

Marginal Thinking and the Sunk Cost Fallacy

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Interactive Practice

Supply, Demand, and Equilibrium

The Demand Curve

Practice Questions

The Supply Curve

Practice Questions

Interactive Practice

The Equilibrium Price and Quantity

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Graphing a Demand Curve from a Demand Schedule, and How to Read a Demand Graph

Practice Questions

Interactive Practice

What Shifts the Demand Curve?

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Change in Demand vs. Change in Quantity Demanded

Interactive Practice

Consumer Surplus

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Understanding the Supply Curve: Shifts and Producer Surplus

Practice Questions

What Shifts the Supply Curve?

Practice Questions

Interactive Practice

Equilibrium in Economics: How a Supply and Demand Graph Dot Explains Producer and Consumer Surplus

Practice Questions

Interactive Practice

Interactive Practice

Supply and Demand Terminology

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Does the Equilibrium Model Work?

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Elasticity and Its Applications

Elasticity of Demand

Practice Questions

Interactive Practice

Calculating the Elasticity of Demand

Practice Questions

Office Hours: Elasticity of Demand

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Elasticity of Supply

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Interactive Practice

Elasticity of Supply: Why Housing is Unaffordable

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Elasticity of Supply: Do Gun Buybacks Work?

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Taxes and Subsidies

Commodity Taxes

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Who Pays the Tax?

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Tax Revenue and Deadweight Loss

Practice Questions

Practice Questions

Practice Questions

The Price System

A Price Is a Signal Wrapped up in an Incentive

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Markets Link the World

Practice Questions

The Great Economic Problem

Practice Questions

Information and Incentives

Practice Questions

Practice Questions

Prediction Markets

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Price Ceilings and Price Floors

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Price Ceilings: Shortages and Quality Reduction

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Price Ceilings: Lines and Search Costs

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Price Ceilings: Deadweight Loss

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Price Ceilings: Misallocation of Resources

Interactive Practice

Price Ceilings: Rent Controls

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Rent Control in Mumbai

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Price Floors: The Minimum Wage

Practice Questions

Price Floors: Airline Fares

Interactive Practice

Why Do Governments Enact Price Controls?

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Price Controls and Communism

Practice Questions

Trade

The Big Ideas of Trade

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Comparative Advantage

Practice Questions

Another Look at Comparative Advantage

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Comparative Advantage Homework

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Tariffs and Protectionism

Interactive Practice

Arguments Against International Trade

Practice Questions

Avengers: The Story of Globalization (Optional)

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Externalities

What Are Negative Externalities?

Practice Questions

Pigouvian Taxes

What Are Positive Externalities?

Practice Questions

Pigouvian Subsidies

Command and Control Solutions

Practice Questions

The Coase Theorem

Practice Questions

Trading Pollution

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A Deeper Look at Tradable Allowances

Practice Questions

Externalities and Incentives: The Economics of COVID

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Costs and Profit Maximization Under Competition

Introduction to the Competitive Firm

Practice Questions

Maximizing Profit Under Competition

Practice Questions

Maximizing Profit and the Average Cost Curve

Practice Questions

Entry, Exit, and Supply Curves: Increasing Costs

Practice Questions

Entry, Exit, and Supply Curves: Constant Costs

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Entry, Exit, and Supply Curves: Decreasing Costs

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Competition and the Invisible Hand

Minimization of Total Industry Costs of Production

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The Balance of Industries and Creative Destruction

Practice Questions

Monopoly

Maximizing Profit Under Monopoly

Practice Questions

Office Hours: Calculating Monopoly Profit

Practice Questions

The Monopoly Markup

Practice Questions

The Costs and Benefits of Monopoly

Practice Questions

Price Discrimination

Introduction to Price Discrimination

Practice Questions

The Social Welfare of Price Discrimination

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Practice Questions

Practice Questions

Labor Markets

The Marginal Product of Labor

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Econ Duel: Is Education Signaling or Skill Building?

Human Capital and Signaling

Practice Questions

The Tradeoff Between Fun and Wages

Practice Questions

Compensating Differentials

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Do Unions Raise Wages?

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Public Goods and the Tragedy of the Commons

Public Goods and Asteroid Defense

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A Deeper Look at Public Goods

Practice Questions

Practice Questions

The Tragedy of the Commons

Practice Questions

Asymmetric Information

Asymmetric Information and Used Cars

Practice Questions

Asymmetric Information in Health Insurance

Practice Questions

Practice Questions

Solutions to Moral Hazard

Practice Questions

Practice Questions

Consumer Choice

Introduction to Consumer Choice

Practice Questions

Budget Constraints

Practice Questions

Indifference Curves

Practice Questions

Consumer Optimization

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Bonus Topics

Office Hours: Game Theory

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Exam

Principles of Economics: Microeconomics

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