If P = Q/15 Represents Marginal Cost for a Monopolist

question 174

Multiple Choice

If P = Q/15 represents marginal cost for a monopolist and market supply for a competitive industry and market demand is given by Q_d = 500 - 10P, the difference between the monopoly equilibrium and the competitive equilibrium is that a monopolist would produce:

• A) 187.5 units of output at a price of $31.25 each, whereas competitive output would be 300 units at a price of $20.
• B) 300 units of output at a price of $20, whereas competitive output would be 187.5 units at a price of $31.25.
• C) 250 units of output at a price of $25, whereas competitive output would be 300 units at a price of $20.
• D) 187.5 units of output at a price of $31.25, whereas competitive output would be 250 units at a price of $25.

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Definitions:

Pure Discount Bond

A type of bond that is issued at a discount to its face value, pays no interest, and is redeemed at its face value at maturity.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, typically represented by the yield on government bonds.

Equity

The ownership interest in a company, represented by the amount of money that would be returned to shareholders after paying off all liabilities.

Option Premium

The price paid by the buyer of an options contract to the seller, representing the cost of acquiring the option.