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BM1101 Business Economics (PRD2 A 2025/26)

BM1101 Business Economics (PRD2 A 2025/26)

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A monopoly is an inefficient way to produce a product because

it faces a downward-sloping demand curve.

it can earn both short-run and long-run profits.

the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers.

it produces a smaller level of output than would be produced in a competitive market.

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Figure 15-22

The diagram depicts the market situation for a monopoly pastry shop called Bearclaws.

Refer to Figure 15-22. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

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A natural monopoly occurs when

the product is sold in its natural state, such as water or diamonds.

the firm is characterized by a rising marginal cost curve.

production requires the use of free natural resources, such as water or air.

there are economies of scale over the relevant range of output.

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Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of wholesale diamonds $10,000 per carat?

All of the remaining answers are correct.

because the company would sell so few diamonds that it would earn higher profits by selling at a lower price

because stockholders would not allow such a high price

because the government would not allow such a high price

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For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

production of the 100th unit of output increases the firm's profit by $3.

production of the101st unit of output must increase the firm's profit by more than $3.

firm's profit-maximizing level of output is less than 100 units.

production of the 100th unit of output increases the firm's average total cost by $7.

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Figure 14-7

Refer to Figure 14-7. At what price is the firm's maximum profit zero?

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Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's total revenue if it instead produced and sold 4 units of output?

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Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will

decrease his revenue, since his output has decreased and the price remains the same.

decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom's output.

increase his revenue, since the output decrease leads to a higher market price.

increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output.

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A seller in a competitive market

All of the remaining answers are correct.

considers the market price to be a "take it or leave it" price.

can sell all he wants at the going price, so he has little reason to charge less.

will lose all his customers to other sellers if he raises his price.

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Figure 10-9

Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

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