<p>EC 200 Practice problems for MT3</p><p>MONOPOLY Practice Problems</p><p>1. True, false or uncertain? Explain your answer. a. A decrease in the firm’s fixed cost will change its profits, but will not influence the firm’s decision about how much good to produce. b. When the fixed cost of a firm increases, the best thing the firm can do is to increase its price in order to compensate for the cost increase.</p><p>2. If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will a) earn greater profits than if MR = MC. b) increase output. c) decrease output. d) shut down. </p><p>3. Suppose you have found out that the good your firm produces and sells has unit price elasticity of demand in a wide range of prices. Given that, can you increase your profits by changing the price of this good? If yes, explain carefully what that change should be. If not, explain why it is not possible.</p><p>4. Two tables below contain information about the total cost of the firm and the demand it is facing. </p><p>Cost Data Demand Data</p><p>Output Total Cost, $ Price, $ Quantity demanded 100 1500 6 100 200 1550 5.50 200 300 1650 5 300 400 1800 4.50 400 500 2250 4 500</p><p> a. Can you tell whether this firm operates in a perfectly competitive industry? Explain your answer.</p><p> b. Create and fill marginal revenue and marginal cost columns.</p><p> c. Find the output quantity that is optimal for the firm.</p><p> d. State the size of economic profit the firm earns at this quantity of output. </p><p> e. Can you tell whether the firm earns accounting profit? Explain.</p><p>1</p>