1			A monopolist…
			A)	always charges a price that is higher than marginal revenue.
			B)	can earn a greater than normal rate of return in the long run.
			C)	can raise its price without losing any sales because it is the only supplier in the market.
			D)	both a and b
			E)	both b and c
2			In a monopolistically competitive market,
			A)	no firm has any market power.
			B)	firms are small relative to the total market.
			C)	there is easy entry and exit in the market.
			D)	a and b
			E)	b and c
3			Which of the following would indicate a relatively large amount of market power?
			A)	High demand elasticity
			B)	Low Lerner index
			C)	Low cross-price elasticity with other products
			D)	all of the above
			E)	none of the above
4			A monopolistic competitor is similar to a monopolist in that:
			A)	both earn positive economic profit in the long run.
			B)	both have market power.
			C)	both produce the output at which long-run average cost is at a minimum.
			D)	a and b
			E)	all of the above

The next two questions refer to the following figure showing demand and marginal revenue for a monopoly.

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5			At any price above $______ demand is elastic.
			A)	$10
			B)	$15
			C)	$20
			D)	$30
			E)	Zero
6			If the cost of production is zero, what price will the monopoly charge?
			A)	$10
			B)	$15
			C)	$20
			D)	$30
			E)	Zero
7			In a monopolistically competitive market,
			A)	a firm earns economic profits in the long run because it has market power.
			B)	a firm has market power because it produces a differentiated product.
			C)	there are a large number of firms.
			D)	both a and b
			E)	both b and c

Use the following figure to answer the next 3 questions.

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The figure shows the demand and cost curves facing a monopoly in the short run.

8			The profit-maximizing level of output is…
			A)	50 units
			B)	60 units
			C)	100 units.
			D)	125 units.
9			The firm will sell its output at a price of…
			A)	$2.
			B)	$3.
			C)	$3.75.
			D)	$5.
			E)	$6.
10			The firm earns profits of…
			A)	$ 0.
			B)	$75.
			C)	$120.
			D)	$225.
			E)	$600.
11			Which of the following is true of a monopolist in the long run?
			A)	The firm will charge a price that is higher than long-run marginal cost.
			B)	The firm will produce that level of output at which long-run average cost is at its minimum.
			C)	The firm will charge a price that is equal to or greater than long-run average cost.
			D)	both a and c
			E)	none of the above

The next 6 questions refer to the following:

The market demand for a monopoly firm is estimated to be:

Q_d = 80,000 -400P + 3M + 2000P_R

where Q is output, P is price, M is income, and P_R is the price of a related good. The manager has forecasted the values of M and P_R will be $60,000 and $15, respectively, in 2008.

12			For 2008, the forecasted demand function is…
			A)	Q = 80,000 - 400P
			B)	Q = 290,000 - 400P
			C)	Q = 300,000 - 200P
			D)	Q = 210,000 - 400P
			E)	none of the above
13			For 2008, the marginal revenue function is…
			A)	MR = 80 - 0.002P.
			B)	MR = 800 - 0.008Q.
			C)	MR = 725 - 0.004Q.
			D)	MR = 725 - 0.0015Q.
			E)	none of the above

The average variable cost function is estimated to be

AVC = 725 - 0.01Q + 0.000001Q²

Total fixed cost in 2008 is expected to be $50,000.

14			The profit-maximizing level of output for 2008 is…
			A)	1,000 units.
			B)	4,000 units.
			C)	5,000 units.
			D)	10,000 units.
			E)	20,000 units.
15			The profit-maximizing price for 2008 is…
			A)	$80.75.
			B)	$712.50.
			C)	$362.50
			D)	$725.
			E)	$700.
16			The manager should ________________ because_____________.
			A)	shut down; P = $362.50 < TVC = $820
			B)	shut down; P = $712.50 < AVC = $725
			C)	operate; P = $725 > AVC = $700
			D)	operate; P = $712.50 > AVC = $700
			E)	none of the above
17			The firm's profit is…
			A)	$35,000.
			B)	$15,000.
			C)	-$50,000.
			D)	$62,500.
			E)	$12,500.
18			To maximize its profit, a firm with two plants should…
			A)	choose the profit-maximizing output then allocate it equally between the two plants.
			B)	produce the output at which total marginal cost equals marginal revenue
			C)	allocate output so that marginal cost is the same in two plants
			D)	both a and b
			E)	both b and c

The next 2 questions refer to the following:

A manufacturer has two plants — one in Ohio and one in Tennessee. At the current allocation of total output between the two plants, the last unit of output produced in the Ohio plant added $10 to total cost, while the last unit of output produced in the Tennessee plant added $8 to total cost.

19			In order to decrease total costs, the firm should…
			A)	keep the allocation between plants unchanged.
			B)	produce all its output in the Tennessee plant.
			C)	produce all its output in the Ohio plant.
			D)	switch some output from the Ohio to the Tennessee plant.
			E)	switch some output from the Tennessee to the Ohio plant.
20			If the firm switches one unit of output from the Tennessee plant to the Ohio plant, then…
			A)	total cost will decrease $8.
			B)	total cost will decrease $18.
			C)	total cost will increase $10.
			D)	total cost will increase $2.