Points Earned: ECON 120 Homework Problem Set #3-Fall 2017 For all multiple choic
ID: 1110769 • Letter: P
Question
Points Earned: ECON 120 Homework Problem Set #3-Fall 2017 For all multiple choice questions, circle the letter of the ONE best answer. 1. (8 points) Assume a monopolist does not practice price discrimination. Which of the following must be true for a profit maximizing monopolist at an output level where price (P) is equal to marginal cost (MC)? A. the monopolist is maximizing profit B. the monopolist is not maximizing profit and should increase output C. the monopolist is not maximizing profit and should decrease output D. the monopolist is earning a positive profit E. None of the answer choices AD are correct. 2. (8 points) The XYZ Company is a profit-maximizing firm with a monopoly in the production of UIC sweatshirts. The firm sells UIC sweatshirts for $25 each. We carn conclude, therefore, that XYZ Company is producing at a level of output at which: A. average total cost is equal to $25 B. average total cost is greater than $25 marginal revenue is equal to $25Explanation / Answer
1
Correct Answer:
C.
To achieve the profit maximizing output, the marginal revenue should be equal to the marginal cost at a given output. Hence, output should be decreased from the level when P = MC. A decrease in the output to the level of MR = MC will help the monopolist to achieve the maximum profit.