Page 658 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Multiple-Choice Questions
Refer to the graph provided for questions 1–4. d. $300.
e. $480.
Price, cost,
marginal 3. The monopolist’s total cost equals
revenue of a. $20.
diamond
$100 b. $80.
c. $160.
d. $240.
B
60 e. $480.
4. The monopolist is earning a profit equal to
a. $0.
20 MC = ATC
A C b. $40.
0 D
4 5 8 10 c. $80.
–20 d. $160.
MR
–40 e. $240.
Quantity of diamonds 5. How does a monopoly differ from a perfectly competitive
industry with the same costs?
1. The monopolist’s profit-maximizing output is
I. It produces a smaller quantity.
a. 0.
II. It charges a higher price.
b. 4.
III. It earns normal profits in the long run.
c. 5.
a. I only
d. 8.
b. II only
e. 10.
c. III only
2. The monopolist’s total revenue equals d. I and II only
a. $80. e. I, II, and III
b. $160.
c. $240.

Tackle the Test: Free-Response Questions
1. a. Draw a correctly labeled graph showing a monopoly
1 point: Axes are correctly labeled.
incurring a loss in the short run.
b. How can the monopolist determine whether to shut down 1 point: The demand curve is labeled and negatively sloped.
or produce at a loss in the short run?
1 point: The marginal revenue curve is labeled, negatively sloped, and below
the demand curve.
Answer (10 points) 1 point: The marginal cost curve is labeled and slopes upward in the shape of
a swoosh.
Price, cost,
marginal 1 point: The profit-maximizing quantity is labeled on the horizontal axis
revenue ATC where MC = MR.
MC 1 point: Price is determined on the demand curve above the point where
MC = MR.

P
M 1 point: The average total cost curve is labeled and U–shaped.
1 point: Average total cost is above price at the profit-maximizing output.
1 point: The marginal cost curve crosses the average total cost curve at the
D lowest point on the average total cost curve.
1 point: The firm will produce despite a loss in the short run if P ≥ AVC.
MR 2. a. Draw a graph showing a monopoly earning a normal
profit in the short run.
b. Can a monopoly earn a normal profit in the long run?
Q Quantity
M
Explain.
616 section 11 Market Structures: Perfect Competition and Monopoly