TAYLOR’S BUSINESS FOUNDATIONBUS0615/PRINCIPLES OF ECONOMICS

TUTORIAL 8

SECTION A

1. A pure monopoly is an industry with a single firm that produces a product that has __________ close substitutes and in which there are __________ barriers to entry.a. many; highb. many, noc. no; highd. no, no

2. The monopolist faces a downward sloping demand curve. This means that the marginal revenue isa. greater than price.b. less than price.c. equal to price.d. equal to average revenue.

3. Faisal and Steven Caterers, a monopoly in Timbucktoo will cease operations in the short run if at its profit maximizing output a. average cost exceeds price.b. marginal cost exceeds marginal revenue.c. price is lesser than average variable cost.d. average cost exceeds marginal revenue.

4. Which of the following statements about a monopoly is FALSE?a. Monopolies have no barriers to entry or exit.b. The good produced by a monopoly has no close substitutes.c. A monopoly is the only supplier of the good.d. A monopoly is a price maker.

5. The average revenue curve for a monopoly a. lies below its demand curve.b. coincides with its demand curve.c. lies above its demand curve.d. is horizontal.

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6.

For a monopoly, when its profit is maximized, output will bea. 4 units per year and the price will be $6.b. 4 units per year and the price will be $4.c. 6 units per year and the price will be $4.d. None of the above answers is correct.

7. Why can a monopoly earn supernormal profit in the long run?a. Because there are close substitutes for the firm’s product.b. Because the firm is protected by barriers to entry.c. Because there are many firms in the market.d. All of the above are correct.

8. The following table for the market of yam refers.

Quantity (in kg)

Price (in RM per kg)

Marginal revenue

Marginal cost Average cost

200 1.07 0.74 0.50 1.50300 0.92 0.62 0.46 0.75400 0.80 0.44 0.44 0.70500 0.66 0.10 0.43 0.65600 0.50 -0.30 0.50 0.50

Given the above cost information, a monopoly would charge a price of RM_____ per kg and produce __________ kg of yam.a. 80 cents; 400b. 44 cents; 400c. 50 cents; 600d. 30 cents; 600

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9. Based on the above table, a profit maximizing monopoly would earn an economic profit of a. RM144b. RM38.50c. RM40d. Zero

10. Price discrimination takes place when a firma. charges the same price for all the units of its product that it sells.b. charges different prices to different buyers of different markets.c. is discriminated against by consumers.d. None of the above answers is correct.

SECTION B

1. The following is a diagram for a monopoly.

R, C MC

AC

AR Q Q1 Q2 Q3 Q4

a) At which level of output will the monopoly maximize its profits?

b) Show and indicate on the diagram the type of profit that this monopoly is enjoying.

2. ABC, Incorporated has a local monopoly in the sale of automatic paper towel

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MR

dispensers. The table below shows the demand for these towel dispensers at various prices. The total cost of production of the various levels of output is also shown. Calculate total revenue and profit for the firm. What level of output maximizes profit? What price should the firm charge?

Quantity Price QuantityTotal Cost

0 $100 0 $80

1 85 1 100

2 70 2 125

3 55 3 155

4 40 4 190

5 25 5 230

SECTION C

1. List four types of barriers to entry.

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