Price And Quantity Determination Under Monopoly - SS2 Economics Past Questions and Answers - page 1
What is the goal of a monopoly in setting prices and quantities?
To maximize profits
To maximize market share
To increase competition
To minimize costs
What is the determinant of the quantity of goods a monopoly produces?
Marginal cost
Average cost
Fixed cost
Total cost
(Marginal cost. A monopoly will produce and sell the quantity of goods where the marginal cost equals the marginal revenue, as this is the point where the company's profits are maximised)
What is the determinant of the price a monopoly charges for its product?
The point on the demand curve where the quantity produced intersects
The point on the supply curve where the quantity produced intersects
The total revenue earned by the monopoly
The average cost of production
How does a monopoly's pricing and quantity determination compare to perfect competition?
The price is higher and the quantity is lower
The price is lower and the quantity is higher
The price and quantity are the same
The price and quantity can vary greatly
(The price is higher and the quantity is lower because under a monopoly, the price of the product or service is generally higher than it would be under perfect competition, and the quantity produced is generally lower.)
What is the consequence of the monopoly's pricing and quantity determination?
Inefficiencies in the market and a reduction in overall economic welfare
Increased competition and lower profits
Lower prices for consumers but higher costs for the monopoly
Increased innovation and product development
(Inefficiencies in the market and a reduction in overall economic welfare. To s is because the price of the product or service is generally higher than it would be under perfect competition)
What is the formula used by a monopoly to determine the quantity of goods produced?
The monopoly produces the quantity of goods where marginal cost equals marginal revenue.
How does a monopoly determine the price of its product?
The monopoly finds the point on the demand curve where the quantity produced intersects, and this is the price that consumers are willing to pay for that quantity of goods.
A monopoly's marginal cost equation is MC = 5Q, and its marginal revenue equation is MR = 50 - 2Q. What quantity of goods will the monopoly produce, and what price will it charge?
Setting MC equal to MR to determine the quantity:
5Q = 50 - 2Q
Solving for Q, we get:
7Q = 50
Q = 7.14
To determine the price, we need to substitute the quantity back into the MR equation:
MR = 50 - 2Q
MR = 50 - 2(7.14)
MR = 35.72
Thus, the monopoly will charge a price of $35.72 per unit andl produce 7.14 units of goods.