Question 1

As other firms enter a monopoly's market, the monopoly's market power

Accepted Answer

A) is unaffected. 
B) declines. 
C) increases. 
D) increases according to the Lerner Index but decreases according to the price/marginal cost ratio. 
A) is unaffected. 
B) declines. 
C) increases. 
D) increases according to the Lerner Index but decreases according to the price/marginal cost ratio. B

Question 2

A monopolist that chooses price

Accepted Answer

A) necessarily produces less than a monopolist that chooses quantity, hence the laws against price fixing. 
B) produces the same amount as a monopolist that chooses quantity. 
C) produces more than a monopolist that chooses quantity, thus the irony of laws against price fixing. 
D) can set price higher than the demand curve and earn additional profits, whereas a firm that chooses quantity cannot. 
A) necessarily produces less than a monopolist that chooses quantity, hence the laws against price fixing. 
B) produces the same amount as a monopolist that chooses quantity. 
C) produces more than a monopolist that chooses quantity, thus the irony of laws against price fixing. 
D) can set price higher than the demand curve and earn additional profits, whereas a firm that chooses quantity cannot. B

Question 3

A profit maximizing monopolist

Accepted Answer

A) is guaranteed to lose money because of a lack of competition. 
B) is not guaranteed to make a positive profit. 
C) is guaranteed to make a positive profit, hence the desire to be a monopolist. 
D) is guaranteed to make a non-negative profit, otherwise government would step in to assist. 
A) is guaranteed to lose money because of a lack of competition. 
B) is not guaranteed to make a positive profit. 
C) is guaranteed to make a positive profit, hence the desire to be a monopolist. 
D) is guaranteed to make a non-negative profit, otherwise government would step in to assist. B

Question 4

A patent

Accepted Answer

A) always gives rise to a monopoly. 
B) may not provide a barrier to entry. 
C) allows the patent owner to capture all of the consumer surplus. 
D) increases total welfare. 
A) always gives rise to a monopoly. 
B) may not provide a barrier to entry. 
C) allows the patent owner to capture all of the consumer surplus. 
D) increases total welfare.

Question 5

If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then the firm's Lerner Index equals

Accepted Answer

A) 58/16. 
B) 16/42. 
C) 58/42. 
D) 42/58. 
A) 58/16. 
B) 16/42. 
C) 58/42. 
D) 42/58.

Question 6

Since there are no close substitutes for the monopoly's product, the monopoly can charge any price it wishes.

Accepted Answer

A) True 
 B)False

Question 7

If a monopoly can advertise and as a result the demand curve will become more inelastic, the monopoly

Accepted Answer

A) should always engage in the advertising. 
B) should engage in the advertising until the demand curve becomes more elastic. 
C) will earn higher gross profit if it advertises. 
D) None of the above. 
A) should always engage in the advertising. 
B) should engage in the advertising until the demand curve becomes more elastic. 
C) will earn higher gross profit if it advertises. 
D) None of the above.

Question 8

When a monopoly lowers its price to increase quantity

Accepted Answer

A) it is not maximizing its profit. 
B) it will increase its profit. 
C) it will make less money on the units it would have originally sold. 
D) the quantity produced drives down marginal revenue. 
A) it is not maximizing its profit. 
B) it will increase its profit. 
C) it will make less money on the units it would have originally sold. 
D) the quantity produced drives down marginal revenue.

Question 9

A monopoly can be formed by a bandwagon effect. Which of the following products would most closely match the bandwagon effect?

Accepted Answer

A) The Atlanta Braves baseball club 
B) The Dell Computer 
C) The Apple Watch 
D) The Chevrolet Corvette 
A) The Atlanta Braves baseball club 
B) The Dell Computer 
C) The Apple Watch 
D) The Chevrolet Corvette

Question 10

If the inverse demand curve a monopoly faces is p = 100 - 2Q, then profit maximization

Accepted Answer

A) is achieved when 25 units are produced. 
B) is achieved by setting price equal to 25. 
C) is achieved only by shutting down in the short run. 
D) cannot be determined solely from the information provided. 
A) is achieved when 25 units are produced. 
B) is achieved by setting price equal to 25. 
C) is achieved only by shutting down in the short run. 
D) cannot be determined solely from the information provided.

Question 11

Government actions that create monopolies

Accepted Answer

A) spur product innovation by the monopoly. 
B) create deadweight loss. 
C) result in lower average costs of production. 
D) ensure that firms price at marginal cost. 
A) spur product innovation by the monopoly. 
B) create deadweight loss. 
C) result in lower average costs of production. 
D) ensure that firms price at marginal cost.

Question 12

If the demand for a monopoly's output shifts rightward, the change in quantity produced is NOT predictable because

Accepted Answer

A) the monopoly is a profit maximizer. 
B) the monopoly is a price taker. 
C) the monopoly has no supply curve. 
D) the monopoly's marginal cost curve might not be upward sloping. 
A) the monopoly is a profit maximizer. 
B) the monopoly is a price taker. 
C) the monopoly has no supply curve. 
D) the monopoly's marginal cost curve might not be upward sloping.

Question 13

A monopoly shuts down when

Accepted Answer

A) the short run price is below its average variable costs. 
B) the long run price is below its average variable costs. 
C) the average cost is less than price. 
D) never, because it can raise its prices as high as necessary to keep operating and maximize profits. 
A) the short run price is below its average variable costs. 
B) the long run price is below its average variable costs. 
C) the average cost is less than price. 
D) never, because it can raise its prices as high as necessary to keep operating and maximize profits.

Question 14

A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because

Accepted Answer

A) the mill has a very inelastic supply curve. 
B) the mill is a natural monopoly. 
C) the mill controls a key input. 
D) the government will declare it a monopoly. 
A) the mill has a very inelastic supply curve. 
B) the mill is a natural monopoly. 
C) the mill controls a key input. 
D) the government will declare it a monopoly.

Question 15

In a monopoly market, total surplus

Accepted Answer

A) cannot be determined because there is no supply curve. 
B) is less than in a competitive market. 
C) is equal to consumer surplus. 
D) is completely captured by the monopolist. 
A) cannot be determined because there is no supply curve. 
B) is less than in a competitive market. 
C) is equal to consumer surplus. 
D) is completely captured by the monopolist.

Question 16

All of the following government actions create barriers to entry EXCEPT

Accepted Answer

A) limiting the number of airlines that may operate at an airport. 
B) granting a patent to a drug company. 
C) requiring a pizza parlor to get a business license. 
D) giving a power company exclusive use of the city's transmission lines. 
A) limiting the number of airlines that may operate at an airport. 
B) granting a patent to a drug company. 
C) requiring a pizza parlor to get a business license. 
D) giving a power company exclusive use of the city's transmission lines.

Question 17

The monopolist's marginal revenue curve

Accepted Answer

A) doesn't exist. 
B) lies below the demand curve. 
C) is identical to the demand curve. 
D) lies above the demand curve. 
A) doesn't exist. 
B) lies below the demand curve. 
C) is identical to the demand curve. 
D) lies above the demand curve.

Question 18

-The above figure shows the demand and cost curves facing a monopoly. If a $100 per unit tax is charged, what is the incidence of the tax on consumers?

Accepted Answer

A) 100% 
B) 50% 
C) 25% 
D) 0% 
A) 100% 
B) 50% 
C) 25% 
D) 0%

Question 19

The Lerner Index is

Accepted Answer

A) the ratio of the difference between price and marginal cost to price. 
B) equal to (Price - M
C) /Price 
C) a measure of market power. 
D) All of the above. 
A) the ratio of the difference between price and marginal cost to price. 
B) equal to (Price - M
C) /Price 
C) a measure of market power. 
D) All of the above.

Question 20

If a monopoly's Lerner Index exceeds 1, then

Accepted Answer

A) it is earning maximum profit. 
B) it has ultimate market power. 
C) it must be pricing below marginal cost. 
D) marginal revenue is negative. 
A) it is earning maximum profit. 
B) it has ultimate market power. 
C) it must be pricing below marginal cost. 
D) marginal revenue is negative.

As other firms enter a monopoly's market, the monopoly's market power

A monopolist that chooses price

A profit maximizing monopolist

A patent

If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then the firm's Lerner Index equals

Since there are no close substitutes for the monopoly's product, the monopoly can charge any price it wishes.

If a monopoly can advertise and as a result the demand curve will become more inelastic, the monopoly

When a monopoly lowers its price to increase quantity

A monopoly can be formed by a bandwagon effect. Which of the following products would most closely match the bandwagon effect?

If the inverse demand curve a monopoly faces is p = 100 - 2Q, then profit maximization

Government actions that create monopolies

If the demand for a monopoly's output shifts rightward, the change in quantity produced is NOT predictable because

A monopoly shuts down when

A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because

In a monopoly market, total surplus

All of the following government actions create barriers to entry EXCEPT

The monopolist's marginal revenue curve

-The above figure shows the demand and cost curves facing a monopoly. If a $100 per unit tax is charged, what is the incidence of the tax on consumers?

The Lerner Index is

If a monopoly's Lerner Index exceeds 1, then

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters

Exam 9: Monopoly

As other firms enter a monopoly's market, the monopoly's market power

A monopolist that chooses price

A profit maximizing monopolist

A patent

If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then the firm's Lerner Index equals

Since there are no close substitutes for the monopoly's product, the monopoly can charge any price it wishes.

If a monopoly can advertise and as a result the demand curve will become more inelastic, the monopoly

When a monopoly lowers its price to increase quantity

A monopoly can be formed by a bandwagon effect. Which of the following products would most closely match the bandwagon effect?

If the inverse demand curve a monopoly faces is p = 100 - 2Q, then profit maximization

Government actions that create monopolies

If the demand for a monopoly's output shifts rightward, the change in quantity produced is NOT predictable because

A monopoly shuts down when

A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because

In a monopoly market, total surplus

All of the following government actions create barriers to entry EXCEPT

The monopolist's marginal revenue curve

-The above figure shows the demand and cost curves facing a monopoly. If a $100 per unit tax is charged, what is the incidence of the tax on consumers?

The Lerner Index is

If a monopoly's Lerner Index exceeds 1, then

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters