A firm is producing where its marginal costs are at the lowest level. What can one most likely infer from this? a. there is either lost opportunity for further profits by producing more, or the firm should shut-down if it is competitive and price is at that low level. b. It is a price-taker who is producing too much. c. It is a monopolist who is producing the socially optimal quantity. d. The firm is producing rationally.

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6. A single-price monopolist sets price a. where MR=demand. b. where supply=demand c. from the demand curve at the quantity for which MC=MR. d. where MR=MC.

7. Assume that the Law of Diminishing Marginal Product applies at the current output level of a competitive firm. The price is $20 and, at the current output level, marginal cost is $16 and average total cost is $20. To maximize profits the firm should: a. produce the current output level, since average revenue (price) = average cost. b. produce more since marginal revenue exceeds marginal cost at current output. c. produce less since marginal revenue is always below average revenue. d. any of the above is possible, without further information.

8. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

9. If a firm in a competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true.

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10. When a competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.


1.When a monopoly charges a higher price, fewer of its goods aresold.A) TrueB) False2.A firm can price discriminate if it operates in a competitivemarket.A) TrueB) False3.Declining average total cost with increased production is one ofthe defining characteristics of a natural monopoly.A) TrueB) False4.In a natural monopoly,if the government requires marginal costpricing, it must pay the monopolist a subsidy.A) TrueB) False5.A discriminating monopolist will produce a larger output than anon-discriminating monopolist.A) TrueB) False6.By selling hardcover books to die-hard fans and paperback books toless enthusiastic readers, the publisher is able to pricediscriminate and raise its profit.A) TrueB) False7.For a monopoly, marginal revenue is often greater than the pricethey charge for their good.A) TrueB) False8.A monopoly that engages in perfect price discrimination produces asmuch as a firm in perfect competitionA) TrueB) False9.The monopolist is a price makerA) TrueB) False10.A monopolist will always pick a price in the elastic region of thedemand curveA) TrueB) False

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1. A monopolist can increase profits by decreasing production if its currently producing at a point where: