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# Mikro PS.7 Use the following table of numbers to answer questions 1 through 5.

## Total Revenue 35 64 Average Revenue 32 Marginal Revenue 29 17 11 120 17 99 8 11 80 -1 -7 -13

Quantity 1 2 3 4 5 6 7 8 9 10 1.

Price 35 29 23

If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale? a. 40 b. 112 c. 164 d. It cannot be determined from the information provided. ANSWER: b. 2. If the monopolist wants to maximize its revenue, how many units of its product should it sell? a. 4 b. 5 c. 6 d. 8 ANSWER: c. 3. When 4 units of output are produced and sold, what is average revenue? a. 17 b. 21 c. 23 d. 26 ANSWER: d. 4. What is the marginal revenue for the monopolist for the sixth unit sold? a. 3 b. 5 c. 11 d. 17 ANSWER: b. Assume this monopolists marginal cost is constant at \$11. What quantity of output (Q) will it produce and what price (P) will it charge? a. Q = 4, P = \$27 b. Q = 4, P = \$25 c. Q = 5, P = \$23 d. Q = 7, P = \$17 ANSWER: c. 5.

The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer questions 6 through 13.

6.

The demand curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. ANSWER: a. 7. The marginal revenue curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. ANSWER: b. 8. The marginal cost curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. ANSWER: c. 9. The average total cost curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. ANSWER: d.

If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. increase as long as the new level of output is at least Q1. ANSWER: c.

10.

Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q0 . (ii) Q1. (iii) Q2. (iv) Q3. a. (i) or (ii) b. (i), (ii) or (iii) c. (iii) or (iv) d (iv) only ANSWER: a. 12. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to a. Q1. b. Q2. c. Q3. d. Q4. ANSWER: b. 13. Profit will be maximized by charging a price equal to a. P0. b. P1. c. P2. d. P3. ANSWER: d. 14.

11.

A monopoly firm can sell 150 units of output for \$12.00 per unit. Alternatively, it can sell 151 units of st output for \$11.95 per unit. The marginal revenue of the 151 unit of output is a. \$11.95. b. \$4.45. c. \$4.45. d. \$11.95. ANSWER: c. Use the information below to answer question 15 through 20 The information in the table below depicts the total demand for premium channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of \$100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. Quantity 0 3,000 6,000 9,000 12,000 15,000 18,000 15. Price (per year) \$120 \$100 \$80 \$60 \$40 \$20 \$0

If there is only one digital cable TV company in this market, what price would it charge for a premium digital channel subscription to maximize its profit? a. \$40 b. \$60 c. \$80 d. \$100 ANSWER: b.

Assume that there are two digital cable TV companies operating in this market. If they are able to "collude" on price and quantity of subscriptions to sell, what price (P) will they charge, and how many subscriptions (Q) will they collectively sell? a. P = \$40, Q = 12,000 b. P = \$60, Q = 9,000 a. P = \$80, Q = 6,000 b. P = \$100, Q = 3,000 ANSWER: b. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are able to "collude" on price and quantity of premium digital channel subscriptions to sell. As part of their collusive agreement they decide to take an equal share of the market. How much profit will each company make? a. \$170,000 b. \$40,000 c. \$480,000 d. \$540,000 ANSWER: a. 18. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to "collude" on price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be collectively sold (by both firms) when this market reaches a Nash equilibrium? a. 3,000 b. 6,000 c. 9,000 d. 12,000 ANSWER: d. 19. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to "collude" on price and quantity of premium digital channel subscriptions to sell. What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium? a. \$40 b. \$60 c. \$80 d. \$100 ANSWER: a. 20. 17.

16.

Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to "collude" on price and quantity of premium digital channel subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium? a. \$0 b. \$140,000 c. \$170,000 d. \$220,000 ANSWER: b.