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1.  The price
elasticity of demand for a monopolist's output is –3. If the
monopolist
produces its output at a marginal cost of £5 per unit, what price will 1/1
it
charge?
(a) £5
(b) £7.50
(c) £10
(d) £15

2.  A price mark-up on marginal cost of 20% would be

profit maximising if the
price elasticity of demand were approximately: 1/1
(a) –1/6
(b) –6.0
(c) +0.2
(d) –5.0

3.  If a profit-maximising monopolist discovers that MR

< MC, it will respond by:
1/1
(a) increasing output and lowering price
(b) decreasing output and increasing price
(c) increasing both output and price
(d) decreasing both output and price

4.  The total cost function for a monopolist is TC = 100 + 4Q2. If the demand for
the monopolist's output can be expressed as P = 120 – 2Q, the deadweight loss 1/1
to society of this monopoly is equal to:
(a) 4
(b) 16
 (c) 500
(d) 20

5.  Suppose the demand for a movie ticket can be written as P = 10 - QS for
senior citizens and P = 18 - QG for all other consumers. If the cinema can offer 0/1
tickets to a movie at zero marginal cost and can verify the purchaser's age, what prices
will be charged?
(a) Everyone pays £7.
(b) Seniors pay £10; everyone else pays £18
(c) Seniors pay £5; everyone else pays £9
(d) Seniors get in for free; everyone else pays £18

6.  A market is supplied by a monopolist. The demand curve

for the product is P
= 150 – Q/10. The marginal cost is unknown to you. What is
the lowest price you 1/1
would expect the monopolist to charge in this market?
(a) 50
(b) 75
(c) 100
(d) 150
(e) none of the above

7.  The total cost function for a monopolist is TC = 100 + 4Q2. If the demand for
the monopolist's output can be expressed as P = 50 – Q, what level of output 1/1
maximizes the monopolist's profit?
(a) 5 units
(b) 5.55 units
(c) 8.33 units
(d) 10 units
(e) none of the above

8.  If a market is controlled by a monopolist who can

practice first-degree price
discrimination, the level of consumer surplus will
equal 1/1
(a) the same as under perfect competition
(b) the same as under single-price monopoly
(c) the monopoly profit that a single-price monopolist would have received
 (d) each consumer is paying his or her reservation price and receives no
consumer surplus
(e) None of the above

9.  A third-degree price discriminator sells the same

cologne under two different
labels. The price elasticity of demand for
"High Class" is –2. The price elasticity 0/1
of demand for
"Splash-This-Stuff-On" is –5. Which one of the following
statements
is true?
(a) The price of "High Class" will be 2/5 times the price of "Splash-This-Stuff-On"
(b) The price of "High Class" will be 5/2 times the price of "Splash-This-Stuff-On"
(c) The price of "High Class" will be 5/8 times the price of "Splash-This-Stuff-On"
(d) The price of "High Class" will be 8/5 times the price of "Splash-This-Stuff-On"

10.  Consumer A's reservation price is £5 for a sandwich

and £1 for a bowl of
soup. Consumer B's reservation price for a sandwich is £4
and £3 for a bowl of 1/1
soup. Consumer C's reservation price is £1 for a sandwich
and £5 for a bowl of
soup. Assuming all marginal costs are zero, which of the
following strategies
maximises profit?
(a) £4 for a sandwich, £5 for a bowl of soup, £6 for a soup and sandwich combo
(b) £6 soup and sandwich combo; no individual pricing
(c) £4 for a sandwich, £3 for soup, no combos
(d) £5 for a sandwich, £5 for a bowl of soup, £7 for a combo

11.  A price discriminating monopolist produces a product that has the same
cost structure no matter where it is sold. The price elasticity is -2 in the North 1/1
and -4 in the South. A profit maximizing solution would imply:
(a) Price is twice as high in the North as in the South
(b) Price is twice as high in the South as in the North
(c) Price is the same in the South and in the North
(d) Price is 1.5 as high in the North as in the South
(e) Price is 1.5 as high in the South as in the North

12.  A pharmaceutical company (A) sells a product which is protected by a

patent in its own country (1). The demand curve is given by p1 = 3 - Q1 where Q1 1/1
is the total amount supplied for sale in country 1. The marginal cost of
production is 1. In country 2 demand is estimated to be of the form p2 = 4 - Q2.
Suppose that company A sells a license to produce in country 2 to company B, who
will be a monopolist in country 2. Company B has the same marginal cost of
production as company A. Assume that company B is not allowed to sell its output in
country 1.What is the value of the license?
(a) 1
(b) 1.5
(c) 2
(d) 2.25

13.  A monopolist faces a demand curve of the form Q = 20 – P, where Q is the

number of units produced (and sold) and P is the market price. The firm’s cost of 1/1
production is given by C = 50 + 4Q. Suppose that by an investment in new
technology that increases fixed cost the monopolist can halve marginal cost. What is
the maximum increase in fixed cost that it would be worthwhile incurring in order to
achieve this reduction in marginal cost?

(a) 31
(b) 14
(c) 17
(d) None of the above

14.  The total cost function for a monopolist is TC = 4Q.

If the demand for the
monopolist's output can be expressed as P = 124 – 2Q, the
deadweight loss to 1/1
society of this monopoly is equal to:
(a) 9
(b) 18
(c) 1800
(d) 900

15.  Consider a duopoly with market demand curve P = 90 - Q

and marginal cost
of 10 for each firm. The equilibrium industry output is: 1/1
(a) 30
(b) 23.33
(c) 26.66
(d) 53.33

16. A homogeneous products duopoly faces a market demand given by P = 300 –

Q, where Q = Q1 + Q2. Both firms have a constant marginal cost MC = 100. What 1/1
is the Cournot equilibrium quantity per firm in this market?
(a) 400/3
 (b) 200/3
(c) 300
(d) 100
(e) none of the above

17. In the duopoly Cournot model of

output, marginal revenue of firm A is
derived under the assumption that: 1/1
(a) Firm B’s output is zero
(b) Firm B’s output is fixed
(c) Firm B’s output is profit maximizing
(d) Firm B’s price does not change when firm A’s price changes
(e) Firm B supplies the same quantity as firm A

18.  Demand for a

product is P = 100 – Q, where Q is the total quantity produced
by a pair of
Cournot competitors with identical marginal costs of £40 per unit. 1/1
Assume that
firm 1 only can undertake R&D, which costs C that will reduce only
its
marginal cost to £20. What is the value of C below which firm 1 would be
willing to
undertake the R&D effort?

(a) 400
(b) 1111.11
(c) 711.11
(d) 311.11

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