Test Your Knowledge!

A monopoly is an industry in which there is/are _________ seller(s) or in which _______ seller(s) have a dominant market share. In Latin the word monopoly means _______ _______.

Our text distinguishes between ___________ and ______________ monopolies. Because _____________, by law, face no competition, they tend to be _____ efficient.

A monopolist maximizes profits by choosing that output and price at which:

According to our text, regarding government-granted monopolies:

According to our text, which of the following is accurate about a monopoly industry?

Let’s say that a monopolist produces at an output where its price is greater than its average variable cost, but its price is less than its average total cost. In this case, the monopolist:

Output Price Total Cost
300 $9 $4,000
400 $8 $4,100
500 $7 $4,300
600 $6 $4,550
700 $5 $4,900
800 $4 $5,700

Consider the above data for a monopolist firm. At which quantity does the monopoly firm maximize its profits (or minimize its losses)?

Let’s say that you are looking at a table with output and cost data for a firm and you observe the following: At a quantity of 10 units, the firm’s marginal cost and marginal revenue both equal $.75. At a quantity of 18 units, the firm’s marginal cost reaches its lowest point at $.35. At a quantity of 26 units, the firm’s average total cost reaches a minimum of $.50. At a quantity of 28 units, the firm’s marginal cost and marginal revenue also both equal $.75. At a quantity of 30 units, the firm’s marginal cost is $1.00 and its marginal revenue is $.65. If this firm wants to maximize its profits, which quantity should it produce?

Let’s say that you know the following information for a monopoly firm:
Total Revenue equals $27 million.
Total Costs are $30 million.
Fixed Costs equal $2 million.
The firm is currently producing 2,000 products at the MC = MR point (and the MC curve is rising).
What recommendation do you have for this firm?

In the graph above, the monopolist: