AP MICROECONOMICS Test Booklet

Monopoly Quiz

1. The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight’s
departure date rather than on the day of departure. This pricing strategy is based on the assumption that
(A) travelers are not aware of how airline prices change across time
(B) travelers do not have alternative modes of transportation
(C) travelers will pay any price to travel as the departure date approaches
(D) the marginal cost of the last few seats on an airplane is higher than that for the first few seats
(E) travelers’ demand becomes less elastic as the departure date approaches

The question refers to the following diagram of a natural monopolist.

2. The firm shown in the diagram above qualifies as a natural monopoly because
(A) the demand curve is downward sloping
(B) the demand curve lies above the marginal revenue curve
(C) the average total cost is decreasing in the relevant range of market demand
(D) the firm can maximize profit with any output level it chooses
(E) marginal revenue is positive at the profit-maximizing output level

3. Which of the following is true for a price-discriminating firm?

(A) The firm charges different prices to different consumers for the same product.
(B) The firm charges different prices for different products.
(C) The firm pays more per unit of labor than it pays per unit of capital.
(D) The firm pays more per unit of capital than it pays per unit of labor.
(E) The firm sells different quantities to its consumers but charges each of them the same price.

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Monopoly Quiz

The following questions refer to the monopoly graph below, where MC = marginal cost, ATC = average total cost,
D = demand, and MR = marginal revenue.

4. If the monopolist could engage in perfect price discrimination, the monopolist’s total output and the price charged
for the last unit of output sold would be
(A) Q1 and P1
(B) Q1 and P2
(C) Q1 and P4
(D) Q2 and P3
(E) Q3 and P2

5. The profit-maximizing combination of output and price for a single-price monopoly is

(A) Q1 and P1
(B) Q1 and P2
(C) Q1 and P4
(D) Q2 and P3
(E) Q3 and P2

6. Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and
charge each consumer what he or she is willing to pay, which of the following will occur?
(A) The quantity of output produced will increase.
(B) Total cost will decrease.
(C) Economic profit will decrease.
(D) Consumer surplus will increase.
(E) Demand will decrease.

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Monopoly Quiz

7. If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist’s price and
output?

Price Output
(A)
Decrease Increase

Price Output
(B)
Decrease Decrease

Price Output
(C)
Increase No change

Price Output
(D)
Increase Increase

Price Output
(E)
Increase Decrease

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Monopoly Quiz

The following questions are based on the graph below, which shows the cost and revenue curves of a monopoly
firm.

8. If this were a perfectly competitive industry with the same costs as shown on the graph, the equilibrium price and
output would be which of the following?

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Monopoly Quiz

Price Output
(A)
0R Q1

Price Output
(B)
0S Q2

Price Output
(C)
0T Q3

Price Output
(D)
0U Q1

Price Output
(E)
0U Q4

9. A monopolist’s demand curve is necessarily

(A) the same as the market demand curve
(B) the same as its marginal revenue curve
(C) upward sloping
(D) perfectly elastic
(E) perfectly inelastic

10. Which of the following is true if a monopolist’s marginal revenue is negative at the current level of output?
(A) Demand for its product is unit elastic.
(B) Demand for its product is price elastic.
(C) Demand for its product is price inelastic.
(D) Marginal cost is equal to price.
(E) Marginal revenue is equal to price.

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Monopoly Quiz

An electric utility is operating without price regulation under conditions of a natural monopoly and is currently earning
economic profits.

a. Draw a graph and indicate each of the following for the firm.

i. The equilibrium price and output

ii. Economic profits

b. The government now wants to regulate the price. Indicate what price the government will set to achieve each of
the following.

i. Normal profits only (zero economic profits)

ii. Efficient use of available resources

c. If the regulators set the price as indicated in part b(ii), will the firm continue to operate in the long run? Why or
why not?

11. Respond to all parts of the question.

In answering the questions, you should emphasize the line of reasoning that generated your results; it is not enough to list
the results of your analysis. Include diagrams, if useful or required, in explaining your answers. All diagrams should be
clearly labeled.

a. Using one graph for a monopoly firm and one for a perfectly competitive firm, draw and label the demand curve
and the marginal revenue-curve for each of these firms.

b. For the perfectly competitive (a price taker) firm, explain why the relationship between demand and marginal
revenue exists.

c. For the monopoly firm, explain why the relationship between demand and marginal revenue exists.

12. Respond to all parts of the question.

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