Question 1

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

Accepted Answer

A) True 
 B)False  True

Question 2

What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.

Accepted Answer

The defining characteristic of a natural monopoly is when a firm can supply a good or service to an entire market at a lower cost than could two or more firms. The example in the text is a bridge.

Question 3

Firms with substantial monopoly power are quite common because many goods are unique.

Accepted Answer

A) True 
 B)False  False

Question 4

Scenario 15-2
Vincent operates a scenic tour business in Boston. He has one bus that can fit 50 people per tour and each tour lasts 2 hours. His total cost of operating one tour is fixed at $450. Vincent's cost is not reduced if he runs a tour with a partially full bus. While his cost is the same for all tours, Vincent charges each passenger his/her willingness to pay: adults $18 per trip, children $10 per trip, and senior citizens $12 per trip. At those rates, on a typical day Vincent's demand is:
​
​
 $$\begin{array} { | c | c | c | } 
\hline \text { Passenger Type } & \begin{array} { c } 
\text { Willingness to Pay } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Units) }
\end{array} \
\hline \text { Adult } & 18 & 70 \
\hline \text { Children } & 10 & 25 \
\hline \text { Senior Citizens } & 12 & 55 \
\hline
\end{array}$$ Assume that Vincent's customers are always available for the tour; therefore, he can fill his bus for each tour as long as there is sufficient total demand for the day.
​
-Refer to Scenario 15-2. What is Vincent's total revenue on a typical day?

Accepted Answer

A) $1,500 
B) $1,800 
C) $2,170 
D) $2,700 
A) $1,500 
B) $1,800 
C) $2,170 
D) $2,700

Question 5

Figure 15-6   ​
​
-Refer to Figure 15-6. What is the area of deadweight loss?

Accepted Answer

A) The rectangle (X − Z) × J 
B) The triangle 1/2[(X − Z) × (K − J)] 
C) The triangle 1/2[(X − Y) × (K − J)] 
D) The rectangle (X − Z) × J plus the triangle 1/2[(X − Z) × (K − J)] 
A) The rectangle (X − Z) × J 
B) The triangle 1/2[(X − Z) × (K − J)] 
C) The triangle 1/2[(X − Y) × (K − J)] 
D) The rectangle (X − Z) × J plus the triangle 1/2[(X − Z) × (K − J)]

Question 6

In a natural monopoly,

Accepted Answer

A) society would be better off if antitrust laws were used to create many different firms in the market. 
B) the marginal cost curve is positively sloped. 
C) if the government requires marginal cost pricing, it will likely have to subsidize the firm. 
D) the marginal revenue curve is horizontal. 
A) society would be better off if antitrust laws were used to create many different firms in the market. 
B) the marginal cost curve is positively sloped. 
C) if the government requires marginal cost pricing, it will likely have to subsidize the firm. 
D) the marginal revenue curve is horizontal.

Question 7

Table 15-1
The following table provides information on the price, quantity, and average total cost for a monopoly.
​
​
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Average Total Cost } \
\text { (Dollars per unit) }
\end{array} \
\hline 24 & 0 & - \
\hline 18 & 5 & 14.00 \
\hline 12 & 10 & 11.00 \
\hline 6 & 15 & 10.67 \
\hline 0 & 20 & 11.00 \
\hline
\end{array}$$ ​
-Refer to Table 15-1. What is the maximum profit that the monopolist can earn?

Accepted Answer

A) $10 
B) $20 
C) $30 
D) $40 
A) $10 
B) $20 
C) $30 
D) $40

Question 8

A monopoly can earn positive profits because it

Accepted Answer

A) can sell unlimited quantities at any price it chooses. 
B) takes the market price as given and can sell unlimited quantities. 
C) can set the price it charges for its output but faces a horizontal demand curve. 
D) can maintain a price such that total revenues will exceed total costs. 
A) can sell unlimited quantities at any price it chooses. 
B) takes the market price as given and can sell unlimited quantities. 
C) can set the price it charges for its output but faces a horizontal demand curve. 
D) can maintain a price such that total revenues will exceed total costs.

Question 9

The deadweight loss associated with a monopoly occurs because the monopolist

Accepted Answer

A) maximizes profits. 
B) produces an output level less than the socially optimal level. 
C) produces an output level greater than the socially optimal level. 
D) equates marginal revenue with marginal cost. 
A) maximizes profits. 
B) produces an output level less than the socially optimal level. 
C) produces an output level greater than the socially optimal level. 
D) equates marginal revenue with marginal cost.

Question 10

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.

Accepted Answer

A) True 
 B)False

Question 11

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

Accepted Answer

A) True 
 B)False

Question 12

Monopoly firms face

Accepted Answer

A) downward-sloping demand curves, so they can sell as much output as they desire at the market price. 
B) downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. 
C) horizontal demand curves, so they can sell as much output as they desire at the market price. 
D) horizontal demand curves, so they can sell only a limited quantity of output at each price. 
A) downward-sloping demand curves, so they can sell as much output as they desire at the market price. 
B) downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. 
C) horizontal demand curves, so they can sell as much output as they desire at the market price. 
D) horizontal demand curves, so they can sell only a limited quantity of output at each price.

Question 13

Which of the following would be most likely to have monopoly power?

Accepted Answer

A) A large hotel chain 
B) A local water company 
C) A large department store 
D) A convenient store 
A) A large hotel chain 
B) A local water company 
C) A large department store 
D) A convenient store

Question 14

Figure 15-10
​   ​
-Refer to Figure 15-10. If a regulator requires the firm to charge an average cost price, what price will the firm charge?

Accepted Answer

The answer of Figure 15-10
​   ​
-Refer to Figure...

Question 15

Dontrell's Fish Market is the only place within 125 miles that sells yellowfin tuna. Assuming that Dontrell is a monopolist and maximizing his profit, which of the following statements is true?

Accepted Answer

A) The price of Dontrell's yellowfin tuna will be less than Dontrell's marginal cost. 
B) The price of Dontrell's yellowfin tuna will exceed Dontrell's marginal cost. 
C) The price of Dontrell's yellowfin tuna will equal Dontrell's marginal cost. 
D) Costs are irrelevant to Dontrell because he is a monopolist. 
A) The price of Dontrell's yellowfin tuna will be less than Dontrell's marginal cost. 
B) The price of Dontrell's yellowfin tuna will exceed Dontrell's marginal cost. 
C) The price of Dontrell's yellowfin tuna will equal Dontrell's marginal cost. 
D) Costs are irrelevant to Dontrell because he is a monopolist.

Question 16

Figure 15-2   ​
-Refer to Figure 15-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at

Accepted Answer

A) Q4 only. 
B) Q1 or Q2 only. 
C) Q5 only. 
D) Q3, Q4, or Q5 only. 
A) Q4 only. 
B) Q1 or Q2 only. 
C) Q5 only. 
D) Q3, Q4, or Q5 only.

Question 17

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

Accepted Answer

A) earn economic losses. 
B) earn economic profits. 
C) earn zero economic profits. 
D) produce a lower quantity of output than is socially optimal. 
A) earn economic losses. 
B) earn economic profits. 
C) earn zero economic profits. 
D) produce a lower quantity of output than is socially optimal.

Question 18

Price discrimination can increase both the monopolist's profits and society's welfare.

Accepted Answer

A) True 
 B)False

Question 19

Average revenue for a monopoly is the total revenue divided by the quantity produced.

Accepted Answer

A) True 
 B)False

Question 20

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.

Firms with substantial monopoly power are quite common because many goods are unique.

Figure 15-6 ​ ​ -Refer to Figure 15-6. What is the area of deadweight loss?

In a natural monopoly,

A monopoly can earn positive profits because it

The deadweight loss associated with a monopoly occurs because the monopolist

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

Monopoly firms face

Which of the following would be most likely to have monopoly power?

Figure 15-10 ​ ​ -Refer to Figure 15-10. If a regulator requires the firm to charge an average cost price, what price will the firm charge?

Dontrell's Fish Market is the only place within 125 miles that sells yellowfin tuna. Assuming that Dontrell is a monopolist and maximizing his profit, which of the following statements is true?

Figure 15-2 ​ -Refer to Figure 15-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

Price discrimination can increase both the monopolist's profits and society's welfare.

Average revenue for a monopoly is the total revenue divided by the quantity produced.

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 15-6 -Refer to Figure 15-6. What is the area of deadweight loss?

Figure 15-10 -Refer to Figure 15-10. If a regulator requires the firm to charge an average cost price, what price will the firm charge?

Figure 15-2 -Refer to Figure 15-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at