6 For a monopoly marginal revenue A is equal to the change i

6) For a monopoly, marginal revenue A) is equal to the change in total revenue brought about by a one-unit increase in quantity sold. B) is equal to the price taken from the competitive market. C) increases as the output level increases. D) is equal to the amount people buy at a given price. E) is equal to the price multiplied by the quantity sold. is equal to the price taken from the competitive market 7) For a monopoly, the marginal revenue curve is A) horizontal and the same as the demand curve B) horizontal and below the the demand curve. C) down-sloping and the same as the demand curve. D) down-sloping and below the demand curve E) horizontal and above the demand curve. 8) For a single-price monopoly, price is A) equal to marginal revenue. B) greater than marginal revenue C) less than marginal revenue because the firm cannot increase its total revenue when the demand curve is downward sloping. D) equal to zero because the firm is not a price taker. E) less than marginal revenue because the firm must lower its price in order to sell another unit of output. 9) A monopolist maximises its profit when A) the total revenue is maximised. B) the price is the highest. C) the total cost is minimised D) the marginal revenue is equal to the marginal cost. E) the quantity sold is equal to the price.

Solution

1)For a monopoly, marginal revenue is equal to the change in total revenue brought about by a one-unit increase in quantity sold

The change in total revenue resulting from a change in the quantity of output sold. Marginal revenue indicates how much extra revenue a monopoly receives for selling an extra unit of output. It is found by dividing the change in total revenue by the change in the quantity of output.

A monopoly maximizes profit by equating marginal revenue, the extra revenue generated from production, with marginal cost, the extra cost of production.

Hence option A

2)For a monopoly, the marginal revenue curve is down-sloping and below the demand curve.

Marginal revenue can also be defined as the private benefit to the monopolist of selling one more unit. So if we look at the graph marginal revenue is less than demand and demand represents marginal social benefit and marginal revenue represents marginal private benefit, hence marginal social benefit is greater than industry marginal private benefit in monopoly.

Hence option D

3)For the single-price monopoly, price is greater than marginal revenue  

This is because there is only one seller/producer in the market, which means there are no substitutes for the product sold by the monopolist. The demand for the product therefore is inelastic, which enables the monopolist to charge a price higher than his marginal cost (what it would cost him to produce extra one unit of the product).

Hence option B

4) A monopolist maximises its profit when the marginal revenue is equal to the marginal cost

The monopoly maximises profit where MR=MC. This enables the firm to make supernormal profits. The firm could produce more and still make normal profit. But, to maximise profit, it involves setting a higher price and lower quantity than a competitive market.

Hence option D

5) A monopolist can make economic profit in the long run because of barriers to entry

The existence of high barriers to entry prevents firms from entering the market in the long?run. Therefore, monopolist avoid competition and continue making positive economic profits in the long?run.

Hence option E