Department of Economics Spring Semester 2010
University of Pacific

ECONOMICS 53 Problem Set 6 Due before lecture on April 1 Part 1: Multiple Choice (15 Questions, 1 Point Each)
1. If a monopolist's marginal revenue is $35 a unit and its marginal cost is $25, then
A) to maximize profit the firm should decrease output.
B) to maximize profit the firm should continue to produce the output it is producing.
C) to maximize profit the firm should increase output.
D) Not enough information is given to say what the firm should do to maximize profit.
Figure 1 2. Refer to Figure 1. If the firm's average total cost curve is ATC1, the firm will
A) make a profit.
B) suffer a loss.
C) shut down
D) break even.

3. Refer to Figure 1. If the firm's average total cost curve is ATC2, the firm will
A) make a profit.
B) suffer a loss.
C) shut down
D) break even.

4. For a monopolist to sell more units of output,
A) the price must be increased.
B) the price must be reduced.
C) demand must become more elastic.
D) the other competing firms must sell fewer units.
5. For a monopolist, price
A) equals marginal revenue at all output levels.
B) is less than marginal revenue.
C) is greater than marginal revenue.
D) can be greater than or less than marginal revenue.
6. In the long run, a monopoly
A) will always earn zero economic profits.
B) may earn positive economic profits due to entry barriers.
C) will never exit the industry.
D) will yield an efficient outcome.
7. The Exclusive Gift Company has a monopoly over the sale of gold hula hoops. This company is currently pricing and producing where marginal revenue is equal to marginal cost. It is selling 50 gold hula hoops at a price of $5,000 each. Total costs for the company are $300,000 of which fixed costs are