Trivia Quiz: Economics Test For Students!
Are you undertaking microeconomics in school and think that you are well on your way to passing that economics test that is coming up? To help you better prepare for it, I have prepared a quick trivia that is designed to help you prepare adequately for it. Why don’t you try it out and see how well you will do?
- 1.
Which of the following is correct?
- A.
Both purely competitive and monopolistic firms are "price takers."
- B.
Both purely competitive and monopolistic firms are "price makers."
- C.
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
- D.
A purely competitive firm is a "price maker," while a monopolist is a "price taker."
Correct Answer
C. A purely competitive firm is a "price taker," while a monopolist is a "price maker."Explanation
A purely competitive firm is a "price taker" because it has no control over the price of its product. In a perfectly competitive market, there are many buyers and sellers, and each firm is small relative to the market. As a result, the firm must accept the market price determined by supply and demand. On the other hand, a monopolist is a "price maker" because it has the power to set the price for its product. A monopolist has significant market power and can control the price by adjusting its level of production.Rate this question:
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- 2.
Barriers to entering an industry:
- A.
Are justified because they result in allocative efficiency.
- B.
Are justified because they result in productive efficiency.
- C.
Are the basis for monopoly.
- D.
Apply only to purely monopolistic industries.
Correct Answer
C. Are the basis for monopoly.Explanation
Barriers to entering an industry are the basis for monopoly. This means that when there are barriers preventing new firms from entering a particular industry, it creates a situation where there is only one dominant firm or a small number of firms with significant control over the market. This lack of competition allows these firms to have more control over pricing and output, leading to higher profits. Therefore, barriers to entry can lead to the establishment and maintenance of a monopoly in the industry.Rate this question:
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- 3.
The nondiscriminating pure monopolist's demand curve
- A.
Is the industry demand curve
- B.
Shows a direct or positive relationship between price and quantity demanded.
- C.
Tends to be inelastic at high prices and elastic at low prices.
- D.
Is identical to its marginal revenue curve.
Correct Answer
A. Is the industry demand curveExplanation
The correct answer is that the nondiscriminating pure monopolist's demand curve is the industry demand curve. This means that the monopolist faces the same demand curve as the entire industry, indicating that the monopolist is the sole provider of the product or service in the market. As a result, the monopolist has control over the quantity supplied and can influence the market price.Rate this question:
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- 4.
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:
- A.
-$1,000
- B.
$9,000
- C.
$10,000
- D.
$1,000
Correct Answer
D. $1,000Explanation
The marginal revenue of the tenth unit of sales per week is $1,000. This can be determined by calculating the difference in total revenue between selling 9 units and selling 10 units. When the firm sells 9 units at $11,000 each, the total revenue is $99,000. When the firm sells 10 units at $10,000 each, the total revenue is $100,000. The difference between these two total revenues is $1,000, which represents the marginal revenue of the tenth unit.Rate this question:
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- 5.
The pure monopolist's demand curve is:
- A.
Identical with the industry demand curve
- B.
Of unit elasticity throughout
- C.
Perfectly inelastic
- D.
Perfectly elastic
Correct Answer
A. Identical with the industry demand curveExplanation
The pure monopolist's demand curve is identical with the industry demand curve because the monopolist is the sole supplier in the market, and therefore, the entire market demand is attributed to the monopolist. As a result, the monopolist faces the same demand curve as the industry as a whole.Rate this question:
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- 6.
The marginal revenue curve for a monopolist:
- A.
Is a straight, upward sloping curve.
- B.
Rises at first, reaches a maximum, and then declines.
- C.
Becomes negative when output increases beyond some particular level.
- D.
Is a straight line, parallel to the horizontal axis.
Correct Answer
C. Becomes negative when output increases beyond some particular level.Explanation
The correct answer is that the marginal revenue curve for a monopolist becomes negative when output increases beyond some particular level. This is because as a monopolist increases production, it faces diminishing returns and the additional revenue gained from selling one more unit of output becomes smaller. Eventually, the monopolist reaches a point where the marginal revenue is negative, meaning that the revenue lost from reducing the price to sell an additional unit outweighs the revenue gained. This is a key characteristic of monopolistic behavior and helps explain why monopolists often restrict output to maximize their profits.Rate this question:
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- 7.
When the pure monopolist's demand curve is elastic, marginal revenue:
- A.
May be either positive or negative.
- B.
Is zero.
- C.
Is negative.
- D.
Is positive.
Correct Answer
D. Is positive.Explanation
When the pure monopolist's demand curve is elastic, it means that a small decrease in price will lead to a relatively large increase in quantity demanded. In this situation, the monopolist can increase its total revenue by lowering the price, as the increase in quantity sold will compensate for the decrease in price. Therefore, the marginal revenue will be positive.Rate this question:
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- 8.
If a pure monopolist is operating in a range of output where demand is elastic:
- A.
It cannot possibly be maximizing profits.
- B.
Marginal revenue will be positive but declining.
- C.
Marginal revenue will be positive and rising.
- D.
Total revenue will be decling.
Correct Answer
B. Marginal revenue will be positive but declining.Explanation
When demand is elastic, it means that a small change in price will result in a proportionally larger change in quantity demanded. In this scenario, a pure monopolist can increase its total revenue by lowering the price, as the increase in quantity demanded will outweigh the decrease in price. However, since the monopolist is the only supplier in the market, it must consider the impact of the lower price on its marginal revenue. As the monopolist lowers the price, the marginal revenue generated from each additional unit sold will decrease, although it remains positive. Therefore, the correct answer is that marginal revenue will be positive but declining.Rate this question:
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- 9.
A pure monopolist is selling 6 units at a price of $12. If the marginal revenue of the seventh unit is $5, then:
- A.
Price of the seventh unit is $10.
- B.
Price of the seventh unit is $11.
- C.
Price of the seventh unit is greater than $12.
- D.
Firm's demand curve is perfectly elastic.
Correct Answer
B. Price of the seventh unit is $11.Explanation
The marginal revenue is the change in total revenue resulting from selling one additional unit. Since the monopolist is selling 6 units at a price of $12, the total revenue is $72. If the marginal revenue of the seventh unit is $5, it means that selling the seventh unit will increase the total revenue to $77. To achieve this, the monopolist should lower the price of the seventh unit to $11. This is because the monopolist faces a downward-sloping demand curve, and to sell more units, they must lower the price. Therefore, the correct answer is that the price of the seventh unit is $11.Rate this question:
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- 10.
The MR = MC rule:
- A.
Applies only to pure competition.
- B.
Applies only to pure monopoly.
- C.
Does not apply to pure monopoly because price exceeds marginal revenue.
- D.
Applies both to pure monopoly and pure competition.
Correct Answer
D. Applies both to pure monopoly and pure competition.Explanation
The MR = MC rule applies to both pure monopoly and pure competition. In pure competition, firms are price takers and the market sets the price. The rule states that firms should produce at the quantity where marginal revenue equals marginal cost in order to maximize profits. In pure monopoly, the firm is the sole seller and has control over the price. Even though the price exceeds marginal revenue, the rule still applies as the firm should produce at the quantity where marginal cost equals marginal revenue to maximize profits.Rate this question:
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- 11.
Refer to the data for a nondiscriminating monopolist. This firm will maximize its profit by producing: Total Marginal Average MarginalOutput Price Revenue Total Cost Cost 1 100 100 100.00 302 90 80 63.00 263 80 60 52.67 324 70 40 49.50 405 60 20 49.60 506 50 0 50.00 527 40 -20 52.29 668 30 -40 55.75 809 20 -60 60.67 10010 10 -80 67.60 130
- A.
3 units.
- B.
4 units.
- C.
5 units.
- D.
6 units.
Correct Answer
B. 4 units.Explanation
Based on the given data, the firm will maximize its profit by producing 6 units. This can be determined by comparing the marginal revenue and marginal cost. At 6 units, the marginal revenue is $60 and the marginal cost is $52.67. Since the marginal revenue is greater than the marginal cost, producing an additional unit will result in an increase in profit. Therefore, producing 6 units will maximize the firm's profit.Rate this question:
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- 12.
Which of the following statements is incorrect?
- A.
A monopolist's 100 percent market share ensures economic profits.
- B.
The monopolist's marginal revenue is less than price for any given output greater than
- C.
A monopolistic firm produces a product having no close substitutes.
- D.
A pure monopolist's demand curve is the industry demand curve.
Correct Answer
A. A monopolist's 100 percent market share ensures economic profits.Explanation
A monopolist's 100 percent market share does not necessarily ensure economic profits. While a monopolist has control over the market and can set prices, it does not guarantee profitability. Factors such as production costs, demand elasticity, and competition from potential substitutes can affect the monopolist's ability to generate economic profits. Therefore, it is incorrect to assume that a monopolist with 100 percent market share will always have economic profits.Rate this question:
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- 13.
Demand Data Cost DataPrice Qty Demanded Output Total Output5.50 3 3 5.005.00 4 4 6.004.50 5 5 6.503.85 6 6 7.503.35 7 7 9.002.90 8 8 11.002.50 9 9 14.00Refer to the above data. The profit-maximizing price for the monopolist will be:
- A.
$5.00
- B.
$2.90
- C.
$3.35
- D.
$3.50
Correct Answer
D. $3.50Explanation
The profit-maximizing price for the monopolist will be $3.50. This can be determined by finding the quantity demanded at each price level and calculating the total revenue for each level. The monopolist will choose the price that maximizes their total revenue. In this case, the total revenue is highest at a price of $3.50, resulting in the highest profit for the monopolist.Rate this question:
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- 14.
In the short run a pure monopolist's profit:
- A.
Will be maximized where price equals average total cost.
- B.
May be positive, zero, or negative.
- C.
Are always positive.
- D.
. will be zero.
Correct Answer
B. May be positive, zero, or negative.Explanation
In the short run, a pure monopolist's profit may be positive, zero, or negative. This is because the monopolist has the power to set the price for its product, which can result in different profit outcomes. If the monopolist sets a high price and faces limited competition, it may earn positive profits. If the price is set at the level of average total cost, the monopolist may break even and earn zero profits. On the other hand, if the price is set too low or if there is intense competition, the monopolist may incur losses and have negative profits. Therefore, the profit outcome for a pure monopolist in the short run can vary.Rate this question:
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- 15.
Monopolistic competition means:
- A.
A market situation where competition is based entirely on product differentiation and advertising.
- B.
A large number of firms producing a standardized or homogeneous product.
- C.
Many firms producing differentiated products.
- D.
A few firms producing a standardized or homogeneous product.
Correct Answer
C. Many firms producing differentiated products.Explanation
Monopolistic competition refers to a market structure where there are many firms producing differentiated products. This means that each firm offers a product that is unique or slightly different from its competitors, allowing them to have some degree of control over price and a certain level of market power. In this type of competition, firms engage in advertising and product differentiation strategies to attract customers and create brand loyalty. This market structure allows for a wide variety of choices for consumers while still maintaining some level of competition among firms.Rate this question:
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- 16.
Which of the following is not characteristic of monopolistic competition?
- A.
Relatively large numbers of sellers
- B.
Production at minimum ATC in the long-run
- C.
Product differentiation
- D.
Relatively easy entry to the industry
Correct Answer
B. Production at minimum ATC in the long-runExplanation
Monopolistic competition is characterized by relatively large numbers of sellers, product differentiation, and relatively easy entry to the industry. However, production at minimum average total cost (ATC) in the long-run is not a characteristic of monopolistic competition. In monopolistic competition, firms have some degree of market power and can set their own prices, which may not necessarily result in production at minimum ATC. In the long-run, firms in monopolistic competition may operate at a level of output where ATC is higher than the minimum, in order to maintain product differentiation and perceived uniqueness.Rate this question:
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- 17.
A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:
- A.
A relatively large number of firms and the monopolistic element from product differentiation.
- B.
Product differentiation and the monopolistic element from high entry barriers.
- C.
A perfectly elastic demand curve and the monopolistic element from low entry barriers.
- D.
A highly inelastic demand curve and the monopolistic element from advertising and product promotion.
Correct Answer
A. A relatively large number of firms and the monopolistic element from product differentiation.Explanation
In a monopolistically competitive industry, there is a relatively large number of firms, which creates competition among them. This competitive element is the result of having multiple firms in the market. Additionally, the monopolistic element comes from product differentiation, which means that each firm offers slightly different products or services. This product differentiation allows firms to have some control over the price and gives them a certain level of monopoly power in their specific niche. Therefore, the correct answer is that the competitive element results from a relatively large number of firms and the monopolistic element from product differentiation.Rate this question:
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- 18.
The price elasticity of a monopolistically competitive firm's demand curve varies:
- A.
Inversely with the number of competitors and the degree of product differentiation.
- B.
Directly with the number of competitors and the degree of product differentiation.
- C.
Directly with the number of competitors, but inversely with the degree of product differentiation.
- D.
Inversely with the number of competitors, but directly with the degree of product differentiation.
Correct Answer
C. Directly with the number of competitors, but inversely with the degree of product differentiation.Explanation
The price elasticity of a monopolistically competitive firm's demand curve is directly related to the number of competitors, meaning that as the number of competitors increases, the price elasticity also increases. However, it is inversely related to the degree of product differentiation, meaning that as the degree of product differentiation increases, the price elasticity decreases. This is because when there are more competitors, consumers have more options and are more likely to switch to a substitute product if the price increases. On the other hand, when there is a high degree of product differentiation, consumers may be more loyal to a particular brand and less sensitive to price changes.Rate this question:
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- 19.
In the short run a monopolistically competitive firm's economic profit:
- A.
Will be maximized where price equals average total cost
- B.
May be positive, zero, or negative.
- C.
Are always positive.
- D.
Will always be zero.
Correct Answer
B. May be positive, zero, or negative.Explanation
In the short run, a monopolistically competitive firm's economic profit may be positive, zero, or negative. This is because in monopolistic competition, firms have some degree of market power, allowing them to set their own prices. If the firm is able to differentiate its product and create a strong brand, it may be able to charge a higher price and earn positive economic profit. However, if there is intense competition and the firm is unable to differentiate its product effectively, it may only earn zero economic profit. In some cases, the firm may even incur losses, resulting in negative economic profit.Rate this question:
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- 20.
Which of the following is not characteristic of long-run equilibrium under monopolistic competition?
- A.
Price equals minimum average total cost
- B.
Marginal cost equals marginal revenue
- C.
Price is equal to average total cost
- D.
Price exceeds marginal cost
Correct Answer
A. Price equals minimum average total costExplanation
In long-run equilibrium under monopolistic competition, the price is equal to minimum average total cost. This means that the firm is producing at the most efficient level where it is minimizing its average costs. This condition ensures that the firm is not overcharging consumers and is able to cover all its costs while maximizing its profits. Therefore, the statement "price equals minimum average total cost" is characteristic of long-run equilibrium under monopolistic competition.Rate this question:
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- 21.
In the long run, new firms will enter a monopolistically competitive industry:
- A.
Provided economies of scale are being realized.
- B.
Even though losses are incurred in the short run
- C.
Until minimum average total cost is achieved.
- D.
Until economic profits are zero
Correct Answer
D. Until economic profits are zeroExplanation
In a monopolistically competitive industry, new firms will continue to enter until economic profits are zero. This is because when there are economic profits in the industry, it signals that there is an opportunity for firms to make money. As new firms enter, competition increases, causing prices to decrease and reducing the economic profits. This process continues until the economic profits reach zero, at which point there is no longer an incentive for new firms to enter the industry.Rate this question:
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- 22.
Demand Data Cost Data(1) (2) (3)Price Price Qty Output Total Cost11.00 10.00 6 6 61 9.99 8.85 7 7 629.00 8.00 8 8 648.00 7.00 9 9 677.10 6.10 10 10 726.00 5.00 11 11 795.15 4.15 12 12 86 Refer to the above data. If columns (1) and (3) of the demand data shown above are this firm's demand schedule, the profit-maximizing level of output will be:
- A.
12 Units
- B.
8 Units
- C.
10 Units
- D.
9 Units
Correct Answer
B. 8 UnitsExplanation
Based on the given data, the profit-maximizing level of output can be determined by finding the quantity at which the difference between the price and the cost is the highest. Looking at the data, the difference between the price and the cost is the highest at 8 units of output, where the difference is $1.15. This means that producing 8 units of output will result in the highest profit for the firm. Therefore, the correct answer is 8 Units.Rate this question:
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- 23.
An important similarity between a monopolistically competitive firm and a purely competitive firm is that:
- A.
Both face perfectly elastic demand schedules.
- B.
Economic profit tends toward zero for both.
- C.
Both realize productive efficiency
- D.
Both realize allocative efficiency.
Correct Answer
B. Economic profit tends toward zero for both.Explanation
Both monopolistically competitive firms and purely competitive firms tend to have economic profit that tends toward zero. In a purely competitive market, firms are price takers and there is free entry and exit, leading to intense competition and eroding profits. Similarly, in a monopolistically competitive market, firms have some degree of market power due to product differentiation, but they still face competition from other firms. Over time, this competition leads to economic profit being driven down to zero as firms adjust their prices and output levels to attract customers. Therefore, economic profit tends to approach zero for both types of firms.Rate this question:
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- 24.
The economic inefficiencies of monopolistic competition may be offset by the fact that:
- A.
Advertising expenditures shift the average cost curve upward
- B.
Available capacity is fully utilized.
- C.
Resources are optimally allocated to the production of the product
- D.
Consumers have a number of variations of the product from which to choose.
Correct Answer
D. Consumers have a number of variations of the product from which to choose.Explanation
In monopolistic competition, firms have some degree of market power and can differentiate their products from competitors. This leads to a variety of options for consumers to choose from, which can be seen as a positive aspect. Having a range of product variations allows consumers to find the product that best suits their needs and preferences. This competition among firms to differentiate their products can also lead to innovation and improvements in product quality. Therefore, the fact that consumers have multiple choices in monopolistic competition helps to offset some of the economic inefficiencies associated with this market structure.Rate this question:
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- 25.
The mutual interdependence that characterizes oligopoly arises because:
- A.
The products of various firms are homogeneous.
- B.
The products of various firms are differentiated.
- C.
A small number of firms produce a large proportion of industry output.
- D.
The demand curves of firms are kinked at the prevailing price.
Correct Answer
C. A small number of firms produce a large proportion of industry output.Explanation
Oligopoly is a market structure in which a small number of firms dominate the industry. These firms have a significant market share and can influence market conditions. The mutual interdependence in oligopoly arises because when a small number of firms produce a large proportion of industry output, their actions and decisions have a direct impact on each other's profits and market position. They must consider the reactions of their competitors when making pricing, production, or marketing decisions. This interdependence leads to strategic behavior, such as price wars or collusion, as firms try to gain a competitive advantage in the market.Rate this question:
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- 26.
Prices are likely to be least flexible:
- A.
In oligopoly.
- B.
In monopolistic competition.
- C.
Where product demand is inelastic.
- D.
In pure competition.
Correct Answer
A. In oligopoly.Explanation
In oligopoly, there are only a few sellers in the market, which reduces competition and makes prices less flexible. Oligopolistic firms often engage in collusion or strategic behavior to maintain their market power, leading to less price responsiveness. On the other hand, in monopolistic competition, there are many sellers offering differentiated products, giving them some flexibility in adjusting prices. In markets with inelastic product demand, consumers are less sensitive to price changes, allowing firms to have less flexibility in adjusting prices. In pure competition, there are many buyers and sellers, resulting in perfect price flexibility as no individual seller can influence the market price.Rate this question:
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- 27.
An industry having a four-firm concentration ratio of 85 percent:
- A.
Approximates pure competition.
- B.
Is monopolistically competitive.
- C.
Is a pure monopoly.
- D.
Is an oligopoly.
Correct Answer
D. Is an oligopoly.Explanation
An industry with a four-firm concentration ratio of 85 percent indicates that a small number of firms dominate the market. This suggests that the industry is characterized by an oligopoly, where a few large firms have significant market power and can influence prices and competition. In an oligopoly, firms may engage in strategic behavior such as price fixing or collusion to maintain their market position. Therefore, the correct answer is that the industry is an oligopoly.Rate this question:
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- 28.
Suppose the Herfindahl Indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that:
- A.
Market power is greatest in industry A.
- B.
Market power is greatest in industry B.
- C.
Market power is greatest in industry C.
- D.
Industry A is more monopolistic than industry C.
Correct Answer
C. Market power is greatest in industry C.Explanation
The Herfindahl Index measures the concentration of market power in an industry. A higher Herfindahl Index indicates a higher concentration of market power. In this case, industry C has the highest Herfindahl Index of 7,500, suggesting that it has the greatest market power compared to industries A and B. Therefore, the correct answer is that market power is greatest in industry C.Rate this question:
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- 29.
Oligopolistic firms engage in collusion to:
- A.
Minimize unit costs of production.
- B.
Realize allocative efficiency, that is, the P = MC level of output.
- C.
Earn greater profits.
- D.
Increase production.
Correct Answer
C. Earn greater profits.Explanation
Oligopolistic firms engage in collusion to earn greater profits. Collusion refers to an agreement between firms in an industry to cooperate rather than compete with each other. By colluding, firms can effectively reduce competition, control prices, and limit output, allowing them to charge higher prices and earn higher profits. This is a common strategy employed by oligopolistic firms to maximize their financial gains in the market.Rate this question:
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- 30.
A pure monopolist:
- A.
Will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
- B.
Will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.
- C.
Will realize an economic loss if MC intersects the downsloping portion of MR.
- D.
Always realizes an economic profit.
Correct Answer
A. Will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.Explanation
A pure monopolist will realize an economic profit if price exceeds average total cost (ATC) at the profit-maximizing/loss-minimizing level of output. This means that the revenue generated from selling the product at a higher price is greater than the cost of production per unit. In this situation, the monopolist is able to cover all costs and still have a surplus left over as profit. However, if the price falls below the ATC, the monopolist will experience an economic loss as the cost of production exceeds the revenue generated.Rate this question:
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Sep 27, 2024Quiz Edited by
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Apr 06, 2010Quiz Created by
Lynz143
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