Practice MCQs Sessions 7 To 10 - Class

1.
To maximize, a monopolist will produce the level of output where:

A) marginal revenue is equal to average cost.
B) average revenue is equal to marginal cost.
C) marginal revenue is equal to marginal cost.
D) average revenue is equal to average cost.
Use the following to answer question 2:
Table: Mary, Silvia Payoff Table
Silvia
Cooperate Cheat
Mary Cooperate 20, 20 10, 40
Cheat 40, 10 15, 15
2. (Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If it
is known that Silvia cooperates, what is Mary's dominant strategy?
A) to cheat and earn 40
B) to cheat and earn 15
C) to cooperate and earn 20
D) to cooperate and earn 40
3. A perfect price-discriminating seller:

A) cannot prevent arbitrage.
B) charges a single price.
C) maximizes consumer surplus.
D) eliminates deadweight loss.
4. A firm with no competitors:

A) faces a perfectly inelastic demand curve.
B) faces a perfectly elastic demand curve.
C) still faces a downward-sloping demand curve.
D) has a perfectly elastic supply curve.
Page 1
5. Microsoft Word and Microsoft Excel are typically:
A) tied.
B) bundled.
C) aggregated.
D) separated.
6. Monopolistically competitive firms earn zero profits on average because:

A) they price above marginal cost.
B) new firms cannot enter the market.
C) positive profits cause competitors to enter the market, decreasing demand for each
individual firm.
D) they price at marginal cost.
Use the following to answer questions 7-8:
Figure: Demand 1
7. (Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry
output to:
A) increase from 5 to 10.
B) increase from 3 to 6.
C) decrease from 6 to 3.
D) decrease from 5 to 2.
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8. (Figure: Demand 1) A successful cartel facing the market in this diagram would cause the
industry price to:
A) decrease from $8 to $4.
B) increase from $4 to $8.
C) increase from $7 to $8.
D) increase from $4 to $7.
Table: Profit-Maximizing Monopolist
Quantity Total Average Average Marginal Marginal

Price ($) (Units) Cost ($) Cost ($) Revenue ($) Cost ($) Revenue ($)
11 6 17
10 7 19
9 8 21
8 9 23
7 10 25
9. (Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist is

producing 9 units,:
A) its marginal cost is below the marginal revenue level.
B) its average revenue is greater than the price it receives for the product.
C) it could increase its profit by raising the price and selling fewer units.
D) it is producing at the socially optimal level.
10. Price discrimination is used when a seller faces different demand curves in different
markets because:
A) no other pricing methods are feasible.
B) the practice eliminated waste.
C) profits are greater than selling at a single price.
D) profits are less than when selling at monopoly prices.
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Table: Ozzie's, Manny's Payoff Table
Ozzie's Cement
(profit in 1,000s)
Low Price High Price
Manny's Cement Low Price $60, $60 $130, $20
(profit in 1,000s) High Price $20, $130 $80, $80
11. (Table: Ozzie's, Manny's Payoff Table) Refer to the table. The equilibrium outcome is:
A) undefined in this game.
B) $80, $80.
C) $60, $60.
D) ($20, $130) or ($130, $20).
12. A network good is a good that people benefit ______ from as ______ people use it.
A) more; fewer
B) more; more
C) less; more
D) the most; no other
13. Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and
Excel at $60. If the programs are sold as a bundle, what is the profit-maximizing price?
A) $90
B) $110
C) $140
D) $190
14. When comparing a monopoly with a competitive industry, monopoly quantity:

A) and monopoly price will be lower than that of a competitive firm.
B) will be higher, and monopoly price will be lower, than that of a competitive firm.
C) will be lower, and monopoly price will be higher, than that of a competitive firm.
D) and monopoly price will be higher than that of a competitive firm.
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Figure: Monopolistic Competition
15. (Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a
firm that operates in a monopolistic competitive market. In the long run you would
expect prices in this market to:
A) stay the same.
B) increase as unprofitable firms leave the industry.
C) decrease to the point that P = AC.
D) decrease to the point that P = MC.
16. Software development has high fixed costs and marginal costs that are close to zero.
What would happen if software firms sold their product for marginal cost?
A) They would have the incentive to produce new software programs.
B) They would produce better software.
C) They would increase their profits.
D) They would not be able to afford their fixed costs and would go out of business.
17. A cartel member has _____ incentive to increase quantity than a standard monopolist.
A) less
B) equal
C) more
D) no
Page 5
Figure: PPD
18. (Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell:
A) a units of output.
B) b units of output.
C) c units of output.
D) d units of output.
Use the following to answer questions 19-24:
Table: Willingness to Pay
Maximum Willingness to Pay for Good A and Good B

John Mary
Good A $90 $35
Good B $30 $70
19. (Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the firm
were to set individual prices for each of the two goods, how much total profit does it earn
from Good A?
A) $90
B) $35
C) $120
D) $125
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20. (Table: Willingness to Pay) Refer to the table. What is John's maximum willingness to
pay for the bundled goods?
A) $90
B) $30
C) $120
D) $105
21. (Table: Willingness to Pay) Refer to the table. What is Mary's maximum willingness to
pay for the bundled goods?
A) $70
B) $30
C) $120
D) $105
22. (Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling,
total surplus is:
A) $65.
B) $50.
C) $160.
D) $225.
23. (Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the firm
were to set individual prices for each of the two goods, how much total profit does it earn
from Good B?
A) $70
B) $30
C) $100
D) $120
24. (Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, its
profits would increase by how much relative to setting individual prices for each good?
A) $65
B) $225
C) $50
D) $210
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Figure: Monopolist
25. (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's
product in two different markets—Market A and Market B—through the process of price
discrimination, how much profit is the monopolist making in Market A?
A) $270
B) $450
C) $830
D) $627.50
26. Which of the following is NOT a case of bundling?

A) Disneyland selling many attractions for a single entrance fee
B) the buffet at China Garden
C) cable TV offering multiple channels to its customers.
D) HP selling printers and ink cartridges
Page 8
27. Figure: Paint Market
What is the profit or loss for this monopoly?

A) –$200,000
B) $10,000
C) $100,000
D) $250,000
28. In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to
HP ink cartridges, and:
A) no firm can enter the market for HP ink.
B) no firm can enter the market for HP printers.
C) HP must sell its printers at relatively high price.
D) HP must always sell its printers and ink cartridges in a package.
29. Microsoft software is considered a network good because it is:

A) free to use.
B) the best product.
C) most likely to be compatible with other products and other readers, writers, and
publishers.
D) All of the answers are correct.
Page 9

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1.

To maximize, a monopolist will produce the level of output where:

Use the following to answer question 2:

Table: Mary, Silvia Payoff Table

3. A perfect price-discriminating seller:

4. A firm with no competitors:

6. Monopolistically competitive firms earn zero profits on average because:

Use the following to answer questions 7-8:

Use the following to answer question 9:

Table: Profit-Maximizing Monopolist

Quantity Total Average Average Marginal Marginal

9. (Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist is

Table: Ozzie's, Manny's Payoff Table

14. When comparing a monopoly with a competitive industry, monopoly quantity:

Figure: Monopolistic Competition

Use the following to answer questions 19-24:

Table: Willingness to Pay

Maximum Willingness to Pay for Good A and Good B

26. Which of the following is NOT a case of bundling?

What is the profit or loss for this monopoly?

29. Microsoft software is considered a network good because it is:

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