Multiple Choice Questions

CORE-ECON USA Workshop

Marc Duhamel

June 25, 2018

Unit 7, Section 7.5 Setting price and quantity to maximize profit

Question 1: In many U.S. states and Canadian provinces wine retailing is operated by a state
monopoly. In the Canadian province of Quebec, the provincial monopoly, the Société des
alcools du Québec, recently reported substantially higher profits following a general drop in
wine prices.The Figure below (adapted from Figure 7.11) represents the monopoly’s isoprofit
curves and the demand curve for wine, which price and quantity combinations could best
describe the situation reported by the monopoly retailer.

A
B
Price per bottle

Number of bottles

a) The increase in profit can be described as a move from point A to point B along the
demande curve
b) The increase in profit can be described as a move from point C to point D along the
demand curve
c) The increase in profit can only be described a move from point E to point C along the
demand curve
d) It is impossible for a monopoly to increase profit by decreasing price. None of the above.
Question 2 (EINSTEIN): In many restaurants in New York City, you find that the price of any
bottle of wine is 2.5 times the price your would pay at a local wine retail shop for the same
bottle of wine. What is the implied price elasticity of a bottle of wine in a restaurant if the owner
maximizes profit?

a) -2.5
b) -1.67
c) -1
d) None of the above