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Micro Monopoly Practice Questions

The document outlines a Continuous Assessment for an Intermediate Microeconomics course, covering various topics such as price discrimination, elasticity of demand, monopolistic behavior, and market structures. It includes multiple-choice questions and calculations related to profit maximization, market pricing strategies, and the effects of taxation on monopolists. The assessment aims to evaluate students' understanding of microeconomic principles and their application in real-world scenarios.

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2023eco1015
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14 views3 pages

Micro Monopoly Practice Questions

The document outlines a Continuous Assessment for an Intermediate Microeconomics course, covering various topics such as price discrimination, elasticity of demand, monopolistic behavior, and market structures. It includes multiple-choice questions and calculations related to profit maximization, market pricing strategies, and the effects of taxation on monopolists. The assessment aims to evaluate students' understanding of microeconomic principles and their application in real-world scenarios.

Uploaded by

2023eco1015
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Continuous Assessment I

Semester: IV (2023-24)
Name of the paper: Intermediate Microeconomics
Maximum Marks: 15 (10 +5)
1. A firm is selling its product in two markets. In market A the demand is given by QA = 100 − 2P and
in market B the demand is QB = 80 − 4P. The firm’s total cost is C = Q2 /12 where Q = QA + QB is the
total output. Find the profit maximizing quantity, and price if firm can successfully price discriminate
a. QA = 40, QB = 20
b. QA = 30, QB = 20
c. QA = 30, QB = 30
2. Calculate the price elasticities of demand at the equilibrium prices and quantities (as per the above
question)
a. εA = -1.5, εB =- 3
b. . εA = -3 , εB =- 1.5
c. . εA = -1 , εB =- 3

3. A perfectly competitive firm should reduce output or shut down in the short run if market price is
equal to marginal cost and price is

a. greater than average total cost.


b. less than average total cost.
c. greater than average variable cost.
d. less than average variable cost.

4 A natural monopoly refers to a monopoly that is defended from direct competition by

a. economies of scale over a broad range of output.


b. a government franchise.
c. control over a vital input.
d. a patent or copyright.

5 A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8,
its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9.
The monopolist should

a. increase output, which will result in an increase in the firm's positive economic profit.
b. increase output, which will reduce the firm's economic losses.
c. shut down, which will reduce the firm's economic losses.
d. decrease output, which will result in an increase in the firm's positive economic profit.

6. In which type of price discrimination does the seller capture the entire consumer surplus?
a) First-degree price discrimination
b) Second-degree price discrimination
c) Third-degree price discrimination
d) Uniform price discrimination
7. A specialized rice grower sells rice in two markets, the United States and Japan, and the marginal
cost is the same in both markets. The price elasticity of demand in the United States is -2.0, and the
price elasticity of demand in Japan is -1.5. If the grower practices multi-market price discrimination,
which country’s consumers will pay a higher price and by how much?
a. The price in the United States will be 3/2 the price in Japan
b. The price in the United States will be 2/3 the price in Japan
c. The price in the United States will be 1/3 the price in Japan
8. A discriminating monopolist will charge a higher price from which group of customers?
a. Group with more elastic
b. Group with less elastic
c. Group with Unitary Elastic
d. Group with Infinitely Elastic
Q9. True/False: A profit maximizing monopolist will always produce an output that is less than the
output that maximizes sales revenue.

Q10. The supply curve for a monopoly is

a MC above ATC

b. MC above AVC

c. MC Curve

d. None of the above

Q11. What is the effect of a lump sum tax on a monopolist?


Q12. Determine the ʺrule-of-thumbʺ price when the monopolist has a marginal cost of $25 and the
price elasticity of demand of -3.0.
a. P = 37.50
b. P = 16.67
c. P = 36.50
Q13. American Tire and Rubber Company sells identical radial tires under the firm’s own brand name
and to discount stores for private labelling. Marginal cost is a constant $10 per tire, regardless of the
sub -market in which the tire is sold. The firm has estimated the following demand curves for each of
the markets. PB = 70 - 0.0005QB (brand name) and PP = 20 - 0.0002QP (private label). Quantities are
measured in thousands per month and price refers to the wholesale price. American currently sells
brand name tires at a wholesale price of $28.50 and private label tires for a price of $17. Are these
prices optimal for the firm?
A Yes
B No
Q14. A monopolist has a cost function given by c (q) = q 2 and faces an inverse demand curve given by
p (q) = 120 – q (5 mks)

(a) What is his profit-maximizing output level? What price will the monopolist charge?

(b) If a lump-sum tax of £ 100 were put on this monopolist, what would be its profit maximizing
output level?

(c) If you wanted to choose a price ceiling for this monopolist to maximize consumer plus producer
surplus, what price ceiling should you choose? How much output will the monopolist produce at this
price ceiling?

(d) Suppose that you put a specific tax on the monopolist of £ 20 per unit of output. What would its
profit-maximizing level of output be? Explain how profit equation will change if tax is advalorem?

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