Question 1

In which of the following industries would we expect collusion to be most effective?

Accepted Answer

A) retail gasoline, where most gas is sold by a large number of small dealers 
B) crude oil production, where most oil is sold by a small number of large sellers 
C) housing construction, an industry dominated by local firms that produce unique products 
D) soybean production, where there are large numbers of farmers in many countries 
A) retail gasoline, where most gas is sold by a large number of small dealers 
B) crude oil production, where most oil is sold by a small number of large sellers 
C) housing construction, an industry dominated by local firms that produce unique products 
D) soybean production, where there are large numbers of farmers in many countries B

Question 2

Licensing is a process in which a firm wanting to enter a market must

Accepted Answer

A) require all potential customers to obtain government permission to purchase the product. 
B) notify the government within a certain period after it has entered the market. 
C) pay all overdue taxes before entering the market. 
D) obtain permission from the government to enter the market. 
A) require all potential customers to obtain government permission to purchase the product. 
B) notify the government within a certain period after it has entered the market. 
C) pay all overdue taxes before entering the market. 
D) obtain permission from the government to enter the market. D

Question 3

Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?

Accepted Answer

A) when the monopolist operates on the inelastic portion of the demand curve 
B) when the monopolist is a profit maximizer rather than a revenue maximizer 
C) when substantial diseconomies of scale are present 
D) when substantial economies of scale are present 
A) when the monopolist operates on the inelastic portion of the demand curve 
B) when the monopolist is a profit maximizer rather than a revenue maximizer 
C) when substantial diseconomies of scale are present 
D) when substantial economies of scale are present D

Question 4

From the viewpoint of allocative efficiency, which of the following is a defect of pure monopoly?

Accepted Answer

A) The monopolist undersupplies the market and charges too high a price. 
B) The monopolist is a revenue maximizer not a profit maximizer. 
C) A monopolist has little incentive to produce efficiently (at a low cost). 
D) All of the above are true. 
A) The monopolist undersupplies the market and charges too high a price. 
B) The monopolist is a revenue maximizer not a profit maximizer. 
C) A monopolist has little incentive to produce efficiently (at a low cost). 
D) All of the above are true.

Question 5

Patent laws that allow the inventor to maintain monopoly rights to an invention increase the price of the product and

Accepted Answer

A) increase the profitability of inventive activities, thereby speeding up technological developments. 
B) increase the profitability of inventive activities, thereby slowing down technological developments. 
C) decrease the profitability of inventive activities, thereby speeding up technological developments. 
D) decrease the profitability of inventive activities, thereby slowing down technological developments. 
A) increase the profitability of inventive activities, thereby speeding up technological developments. 
B) increase the profitability of inventive activities, thereby slowing down technological developments. 
C) decrease the profitability of inventive activities, thereby speeding up technological developments. 
D) decrease the profitability of inventive activities, thereby slowing down technological developments.

Question 6

Why does the U.S. government maintain a monopoly in the delivery of first-class mail? Does the Postal Service nevertheless face other forms of competition?

Accepted Answer

The Postal Service is designed to provid

Question 7

Which of the following is a characteristic of an oligopolistic industry?

Accepted Answer

A) interdependence of a firm's price and output decisions 
B) low barriers to entry 
C) small output of individual firms relative to the total market 
D) a large number of competing firms 
A) interdependence of a firm's price and output decisions 
B) low barriers to entry 
C) small output of individual firms relative to the total market 
D) a large number of competing firms

Question 8

Suppose all automobile manufacturers have collusively agreed to sell their cars at a uniform price. If a firm wanted to break this agreement and not be detected, what would be one way to do this?

Accepted Answer

One answer might be secret price cuts to

Question 9

Since its beginning, the cable television industry has been viewed as a natural monopoly. Typically, cities would grant individual firms local monopolies and then regulate them. Is this a valid approach from an economic perspective? What do you expect the future of the television-viewing market to hold?

Accepted Answer

Economies of scale would appear to be im

Question 10

Which of the following statements is true for a monopolist?

Accepted Answer

A) a monopolist will charge the highest price for which he can sell units of his product. 
B) unregulated monopolists can gain by producing their chosen output at a low cost. 
C) if a firm has a monopoly, it will always be able to earn economic profit. 
D) none of the above statements are true. 
A) a monopolist will charge the highest price for which he can sell units of his product. 
B) unregulated monopolists can gain by producing their chosen output at a low cost. 
C) if a firm has a monopoly, it will always be able to earn economic profit. 
D) none of the above statements are true.

Question 11

Economic theory suggests that government-operated monopolies will

Accepted Answer

A) be highly efficient and follow policies that are in the consumers' interest. 
B) be dominated by persons who, while seeking to serve the public interest, are not hard-nosed enough to run a business efficiently. 
C) be inefficient because of poor incentives for operational efficiency. 
D) favor the consumer at the expense of special interest groups in and out of government. 
A) be highly efficient and follow policies that are in the consumers' interest. 
B) be dominated by persons who, while seeking to serve the public interest, are not hard-nosed enough to run a business efficiently. 
C) be inefficient because of poor incentives for operational efficiency. 
D) favor the consumer at the expense of special interest groups in and out of government.

Question 12

Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because

Accepted Answer

A) a price maintained above each cartel member's marginal cost provides each member with an incentive to offer secret price reductions to attract additional customers. 
B) the profits earned by cartel members will induce others to enter the industry. 
C) cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members. 
D) all of the above are correct. 
A) a price maintained above each cartel member's marginal cost provides each member with an incentive to offer secret price reductions to attract additional customers. 
B) the profits earned by cartel members will induce others to enter the industry. 
C) cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members. 
D) all of the above are correct.

Question 13

As Adam Smith indicated, the trouble with monopoly is that

Accepted Answer

A) firms have no incentive to produce efficiently. 
B) regardless of what is produced, the firm will use too many resources. 
C) a producer has no incentive to keep his costs down. 
D) the monopolist "understocks" the market and charges too high a price. 
A) firms have no incentive to produce efficiently. 
B) regardless of what is produced, the firm will use too many resources. 
C) a producer has no incentive to keep his costs down. 
D) the monopolist "understocks" the market and charges too high a price.

Question 14

One answer to the problem of natural monopoly is provision of the good by a government-owned and operated firm. Why is that option not used very often?

Accepted Answer

We cannot necessarily expect more effici

Question 15

Which of the following is true for a firm that is a monopolist?

Accepted Answer

A) the firm will make an economic profit in the short run. 
B) the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency. 
C) the additional revenue that can be generated from an increase in output will exceed the firm's price. 
D) the firm can charge whatever it wants for its product since consumers have no alternatives. 
A) the firm will make an economic profit in the short run. 
B) the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency. 
C) the additional revenue that can be generated from an increase in output will exceed the firm's price. 
D) the firm can charge whatever it wants for its product since consumers have no alternatives.

Question 16

Which of the following is the best explanation of why a lack of information is a problem when the government wants to impose price regulation on a monopolist?

Accepted Answer

A) the government does not have information about which firms are monopolies. 
B) firms that are monopolies do not have information about their level of profit or about potential competition. 
C) consumers do not have information about which firms are competitive and which firms are monopolies. 
D) regulators do not have information about the demand and marginal costs of the firms that they regulate. 
A) the government does not have information about which firms are monopolies. 
B) firms that are monopolies do not have information about their level of profit or about potential competition. 
C) consumers do not have information about which firms are competitive and which firms are monopolies. 
D) regulators do not have information about the demand and marginal costs of the firms that they regulate.

Question 17

The Redwood City Council has decided that there is an overallocation of resources in the lawn-care industry. Almost every homeowner owns a lawnmower, hose and sprinkler, seeder, spreader, etc., and these items are used, at most, once a week. The council will establish a legal monopoly and select a private firm that will be responsible for all lawn care in the city. What types of rent-seeking activities can be expected as a result of this action?

Accepted Answer

As firms vie for this contract, they wil

Question 18

If a local community has only one doctor, the monopoly power of the physician will

Accepted Answer

A) be small if entry barriers into the local market are high. 
B) depend on how many other physicians there are in the national market. 
C) be total since there are not any other providers of the same service in the local market. 
D) be minimal if the entry barriers restricting competition from other physicians are low. 
A) be small if entry barriers into the local market are high. 
B) depend on how many other physicians there are in the national market. 
C) be total since there are not any other providers of the same service in the local market. 
D) be minimal if the entry barriers restricting competition from other physicians are low.

Question 19

Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not?

Accepted Answer

A) There is always more than one firm in competitive price-searcher and competitive price-taker markets. 
B) Both competitive price-searcher and competitive price-taker markets are characterized by firms producing identical goods, but a monopoly is not. 
C) In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low; this is not true under a monopoly. 
D) A monopoly firm has a downward-sloping demand curve; firms in the other types of markets do not. 
A) There is always more than one firm in competitive price-searcher and competitive price-taker markets. 
B) Both competitive price-searcher and competitive price-taker markets are characterized by firms producing identical goods, but a monopoly is not. 
C) In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low; this is not true under a monopoly. 
D) A monopoly firm has a downward-sloping demand curve; firms in the other types of markets do not.

Question 20

For which of the following reasons do regulatory agencies sometimes fail to bring the price and output of a natural monopoly to the ideal level?

Accepted Answer

A) The regulatory agency does not have all the information concerning a firm's true costs. 
B) Monopolists may conceal profits by inflating the costs of production by spending money to achieve personal objectives (a very nice office building, for example). 
C) Regulatory agencies often come to reflect the views of the industries they are supposed to regulate. 
D) All of the above are reasons. 
A) The regulatory agency does not have all the information concerning a firm's true costs. 
B) Monopolists may conceal profits by inflating the costs of production by spending money to achieve personal objectives (a very nice office building, for example). 
C) Regulatory agencies often come to reflect the views of the industries they are supposed to regulate. 
D) All of the above are reasons.

Exam 11: B: Price-Searcher Markets With High Entry Barriers

In which of the following industries would we expect collusion to be most effective?

Licensing is a process in which a firm wanting to enter a market must

Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?

From the viewpoint of allocative efficiency, which of the following is a defect of pure monopoly?

Patent laws that allow the inventor to maintain monopoly rights to an invention increase the price of the product and

Why does the U.S. government maintain a monopoly in the delivery of first-class mail? Does the Postal Service nevertheless face other forms of competition?

Which of the following is a characteristic of an oligopolistic industry?

Suppose all automobile manufacturers have collusively agreed to sell their cars at a uniform price. If a firm wanted to break this agreement and not be detected, what would be one way to do this?

Which of the following statements is true for a monopolist?

Economic theory suggests that government-operated monopolies will

Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because

As Adam Smith indicated, the trouble with monopoly is that

One answer to the problem of natural monopoly is provision of the good by a government-owned and operated firm. Why is that option not used very often?

Which of the following is true for a firm that is a monopolist?

Which of the following is the best explanation of why a lack of information is a problem when the government wants to impose price regulation on a monopolist?

If a local community has only one doctor, the monopoly power of the physician will

Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not?

For which of the following reasons do regulatory agencies sometimes fail to bring the price and output of a natural monopoly to the ideal level?

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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