Monopoly Practice Questions

8 representative multiple-choice questions on monopoly for AP Microeconomics, drawn from our 15-question bank for this module. Work through each one, then open “Show answer” for the correct choice and an explanation. For scored, timed practice across the full bank, take a full practice test.

1. 1. Why is a monopolist's marginal revenue curve below its demand curve?

   • A. Because the monopolist has high fixed costs
   • B. Because to sell more, it must lower the price on ALL units
   • C. Because consumers don't value monopoly products
   • D. Because the government regulates monopoly prices
   Show answer

   Correct answer: B. Because to sell more, it must lower the price on ALL units

   Selling one additional unit forces the monopolist to drop the price on every unit already being sold. The revenue gained from the new buyer is partly offset by the revenue lost on all previous units, which puts MR below price at every quantity. (A) has nothing to do with it. Fixed costs don't affect marginal revenue, which measures the change in revenue from one additional unit. (C) doesn't make sense; consumer valuation doesn't explain the gap between MR and price. (D) describes regulated monopoly, which is a separate topic entirely.

2. 2. A monopolist maximizes profit by producing where:

   • A. Price = MC
   • B. Price = ATC
   • C. MR = MC, then charging the price from the demand curve
   • D. MR = 0
   Show answer

   Correct answer: C. MR = MC, then charging the price from the demand curve

   Two steps: find the quantity where MR = MC, then go up to the demand curve to read the price. (A) is the competitive firm's rule. Since MR < P for a monopolist, using P = MC would push output past the profit-maximizing point. (B) is just the break-even condition where economic profit equals zero; it doesn't maximize anything. (D) maximizes total revenue, not profit. A firm ignoring costs entirely will overshoot its optimal output.

3. 3. Deadweight loss from a monopoly represents:

   • A. The monopolist's total profit
   • B. The revenue lost by not producing at competitive quantity
   • C. The total surplus that is lost because the monopolist restricts output
   • D. The difference between price and marginal cost
   Show answer

   Correct answer: C. The total surplus that is lost because the monopolist restricts output

   DWL is surplus from transactions that would have made both buyer and seller better off but never happen because the monopolist restricts output. Every unit between Qm and Qc has buyers willing to pay more than the production cost, and that potential surplus simply disappears. (A) confuses a transfer with a loss. Profit shifts surplus from consumers to the producer, but it still exists. DWL is surplus that nobody receives. (B) is misleading; the monopolist deliberately skips those units because producing them would push MR below MC. (D) describes the per-unit markup, not total lost surplus.

4. 4. If a monopolist's demand curve is P = 100 − Q and MR = 100 − 2Q, what is marginal revenue when Q = 30?

   • A. $70
   • B. $40
   • C. $100
   • D. $60
   Show answer

   Correct answer: B. $40

   MR = 100 − 2(30) = 100 − 60 = $40. At Q = 30, price would be P = 100 − 30 = $70, and MR ($40) is below P ($70), which is exactly the pattern we'd expect. (A) is the price, not MR. Reading the demand curve when the question asks for marginal revenue is probably the most common computational error on monopoly questions. (C) is the vertical intercept when Q = 0. (D) doesn't correspond to any correct calculation with these numbers.

5. 5. A monopolist produces where MR = MC. At this quantity, if P > ATC, the monopolist earns:

   • A. Normal profit (zero economic profit)
   • B. Positive economic profit equal to (P − ATC) × Q
   • C. A loss equal to (ATC − P) × Q
   • D. Maximum total revenue
   Show answer

   Correct answer: B. Positive economic profit equal to (P − ATC) × Q

   Profit per unit is (P − ATC), and total economic profit is that margin times quantity. On the graph, it shows up as the shaded rectangle from ATC up to P, with width Qm. (A) requires P = ATC exactly, which is the break-even case and isn't what the question describes. (C) has the inequality flipped; P > ATC means the firm is profitable, not losing money. (D) confuses revenue maximization (where MR = 0) with profit maximization (where MR = MC), because a firm chasing maximum revenue ignores costs and produces too much.

6. 6. For a monopolist with a linear demand curve P = a − bQ, the marginal revenue curve:

   • A. Has the same slope as the demand curve
   • B. Has twice the slope of the demand curve and the same vertical intercept
   • C. Is horizontal at the market price
   • D. Lies above the demand curve at every quantity
   Show answer

   Correct answer: B. Has twice the slope of the demand curve and the same vertical intercept

   For P = a − bQ, total revenue = aQ − bQ², so MR = a − 2bQ. Same y-intercept (a), but the slope is −2b instead of −b, so MR falls twice as fast. (A) is wrong because the slope doubles. (C) describes the demand curve facing a perfectly competitive firm, not a monopolist. (D) has it backwards. MR lies *below* demand at every positive quantity because selling more means cutting the price on all existing units.

7. 7. A monopolist practices third-degree price discrimination by charging different prices to two groups of consumers. Compared to charging a single monopoly price, total output will:

   • A. Always decrease because the monopolist restricts supply to the high-price group
   • B. Always stay the same because the firm still produces where MR = MC
   • C. Increase if the lower-price group's demand is sufficiently elastic
   • D. Decrease to zero because consumers refuse to pay different prices
   Show answer

   Correct answer: C. Increase if the lower-price group's demand is sufficiently elastic

   With third-degree price discrimination, the monopolist sets MR = MC independently in each market segment. The low-price group gets a lower price because their demand is more elastic, which means more units sold to that segment. If the expansion in the elastic market outweighs any contraction in the inelastic one, total output rises, and this is especially likely when the low-price group was largely priced out under the single monopoly price. (A) ignores the output gain in the low-price segment. (B) wrongly treats it as a single MR = MC condition when the firm actually equalizes MR to MC separately per segment. (D) is unrealistic; separated consumer groups generally can't observe each other's prices.

8. 8. A monopolist faces demand P = 200 − 5Q, has MC = ATC = $50 (constant costs). The monopolist's maximum economic profit is:

   • A. $1,125
   • B. $2,250
   • C. $750
   • D. $562.50
   Show answer

   Correct answer: A. $1,125

   MR = 200 − 10Q. Set MR = MC: 200 − 10Q = 50, giving Q = 15. Price = 200 − 5(15) = $125. Profit per unit = $125 − $50 = $75. Total profit = $75 × 15 = $1,125. (B) doubles the correct answer, probably from a quantity error or forgetting to subtract costs. (C) uses the wrong quantity somewhere. (D) incorrectly halves the correct profit, possibly by confusing the profit rectangle with a triangle.