Question 1

Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from taxation?

Accepted Answer

A profit-maximising monopolist will choose to produce Q₀ units of output and sell at price P₀. However, marginal cost is MC₀. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost.

A profit-maximising monopolist will choose to produce Q<sub>0</sub> units of output and sell at price P<sub>0</sub>. However, marginal cost is MC<sub>0</sub>. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost.

Question 2

For a profit-maximising monopolist, output should be increased to enhance economic wellbeing as long as:

Accepted Answer

A)  marginal revenue exceeds marginal cost 
B)  marginal revenue exceeds average total cost 
C)  average revenue exceeds average total cost 
D)  average revenue exceeds marginal cost 
A)  marginal revenue exceeds marginal cost 
B)  marginal revenue exceeds average total cost 
C)  average revenue exceeds average total cost 
D)  average revenue exceeds marginal cost D

Question 3

Perfect price discrimination describes a situation in which the monopolist:

Accepted Answer

A)  knows the exact willingness to pay of each of its customers 
B)  cannot charge each customer a different price 
C)  collects a part but not all of the consumer surplus in the form of higher profit 
D)  all of the above are correct 
A)  knows the exact willingness to pay of each of its customers 
B)  cannot charge each customer a different price 
C)  collects a part but not all of the consumer surplus in the form of higher profit 
D)  all of the above are correct D

Question 4

Competitive firms have:

Accepted Answer

A)  horizontal demand curves and can sell only a limited amount at each price 
B)  horizontal demand curves and can sell as much as they want at the market price 
C)  downward-sloping demand curves and can sell as much as they want at the market price 
D)  downward-sloping demand curves and can sell only a limited amount at each price 
A)  horizontal demand curves and can sell only a limited amount at each price 
B)  horizontal demand curves and can sell as much as they want at the market price 
C)  downward-sloping demand curves and can sell as much as they want at the market price 
D)  downward-sloping demand curves and can sell only a limited amount at each price

Question 5

Identify the true statements below. (i) when a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price
(ii) when a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price
(iii) marginal revenue is the same for both competitive and monopoly firms

Accepted Answer

A)  (i) and (ii) 
B)  (i) and (iii) 
C)  (ii) and (iii) 
D)  (ii) only 
A)  (i) and (ii) 
B)  (i) and (iii) 
C)  (ii) and (iii) 
D)  (ii) only

Question 6

A monopoly is able to charge a price that is greater than its marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is an impossible feat for a monopolist to accomplish?

Accepted Answer

A)  control of the price of its good 
B)  maximisation of its profit 
C)  operation at any point on the demand curve 
D)  charging a higher price and continuing to sell the same quantity 
A)  control of the price of its good 
B)  maximisation of its profit 
C)  operation at any point on the demand curve 
D)  charging a higher price and continuing to sell the same quantity

Question 8

Graph 15-6
   This graph depicts the demand, marginal-revenue and marginal-cost curves of a profit-maximising monopolist. Use the graph to answer the following question(s).
-Refer to Graph 15-6. If the monopoly firm perfectly price discriminates, what will the consumer surplus be?

Accepted Answer

A)  ABC 
B)  ADF 
C)  CEF 
D)  consumer surplus will equal zero 
A)  ABC 
B)  ADF 
C)  CEF 
D)  consumer surplus will equal zero

Question 9

Which of the following statements about a firm's market pricing of its product is true?

Accepted Answer

A)  a competitive firm is a price taker and a monopoly is a price maker 
B)  a competitive firm is a price maker and a monopoly is a price taker 
C)  both competitive firms and monopolies are price makers 
D)  both competitive firms and monopolies are price takers 
A)  a competitive firm is a price taker and a monopoly is a price maker 
B)  a competitive firm is a price maker and a monopoly is a price taker 
C)  both competitive firms and monopolies are price makers 
D)  both competitive firms and monopolies are price takers

Question 10

Excessive monopoly profits themselves represent:

Accepted Answer

A)  a deadweight loss 
B)  a shrinkage in total surplus 
C)  a shrinkage in consumer surplus 
D)  all of the above 
A)  a deadweight loss 
B)  a shrinkage in total surplus 
C)  a shrinkage in consumer surplus 
D)  all of the above

Question 11

When a firm operates under conditions of a monopoly, its price is constrained by marginal cost.

Accepted Answer

A) True 
 B)False

Question 12

Authors are allowed to be monopolists in the sale of their books in order to:

Accepted Answer

A)  satisfy literary advocacy groups that exercise their lobbying power 
B)  promote a society in which people think for themselves and learn from whichever books they please 
C)  encourage authors to write more and better books 
D)  correct for the negative externalities that the Internet and television impose 
A)  satisfy literary advocacy groups that exercise their lobbying power 
B)  promote a society in which people think for themselves and learn from whichever books they please 
C)  encourage authors to write more and better books 
D)  correct for the negative externalities that the Internet and television impose

Question 13

Graph 15-3
   This graph reflects the cost and revenue structure for a monopoly firm. Use the graph to answer the following question(s).
-Refer to Graph 15-3. A profit-maximising monopoly would have a total cost equal to:

Accepted Answer

A)  P0 * Q1 
B)  P0 * Q2 
C)  P0 * Q3 
D)  (P1 - P0) *  Q2 
A)  P0 * Q1 
B)  P0 * Q2 
C)  P0 * Q3 
D)  (P1 - P0) *  Q2

Question 14

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often efficient, but not equitable.

Accepted Answer

A) True 
 B)False

Question 15

Graph 15-2
   This graph reflects the cost and revenue structure for a monopoly firm. Use the graph to answer the following question(s).
-Refer to Graph 15-2. If the monopoly firm wants to maximise its profit, it should operate at a level of output equal to:

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4 
A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4

Question 16

In many cases additional firms do not try to compete with a natural monopoly because:

Accepted Answer

A)  the natural monopoly doesn't make a huge profit 
B)  they are unsure of the size of the market in general 
C)  they know they cannot achieve the same low costs that the monopolist enjoys 
D)  they fear retaliation in the form of pricing wars from the natural monopolist 
A)  the natural monopoly doesn't make a huge profit 
B)  they are unsure of the size of the market in general 
C)  they know they cannot achieve the same low costs that the monopolist enjoys 
D)  they fear retaliation in the form of pricing wars from the natural monopolist

Question 17

Consider a profit-maximising monopoly pricing under the following conditions. The profit-maximising price charged for goods produced is $32. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $16. The socially efficient level of production is 12 units. The demand curve and marginal-cost curves are linear. What is the deadweight loss?

Accepted Answer

A)  $8 
B)  $16 
C)  $48 
D)  none of the above 
A)  $8 
B)  $16 
C)  $48 
D)  none of the above

Question 18

A monopoly firm is able to charge a price that is higher than their marginal revenue.

Accepted Answer

A) True 
 B)False

Question 19

A monopoly firm has an upward-sloping supply curve.

Accepted Answer

A) True 
 B)False

Question 20

Suppose a monopolist lowers the price of its good, this would cause consumers to:

Accepted Answer

A)  buy more 
B)  buy less 
C)  continue to buy the same amount 
D)  buy more or less, depending on elasticity of demand 
A)  buy more 
B)  buy less 
C)  continue to buy the same amount 
D)  buy more or less, depending on elasticity of demand

Exam 15: Monopoly

Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from taxation?

For a profit-maximising monopolist, output should be increased to enhance economic wellbeing as long as:

Perfect price discrimination describes a situation in which the monopolist:

Competitive firms have:

A monopoly is able to charge a price that is greater than its marginal cost.

Which of the following is an impossible feat for a monopolist to accomplish?

Graph 15-6 This graph depicts the demand, marginal-revenue and marginal-cost curves of a profit-maximising monopolist. Use the graph to answer the following question(s). -Refer to Graph 15-6. If the monopoly firm perfectly price discriminates, what will the consumer surplus be?

Which of the following statements about a firm's market pricing of its product is true?

Excessive monopoly profits themselves represent:

When a firm operates under conditions of a monopoly, its price is constrained by marginal cost.

Authors are allowed to be monopolists in the sale of their books in order to:

Graph 15-3 This graph reflects the cost and revenue structure for a monopoly firm. Use the graph to answer the following question(s). -Refer to Graph 15-3. A profit-maximising monopoly would have a total cost equal to:

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often efficient, but not equitable.

Graph 15-2 This graph reflects the cost and revenue structure for a monopoly firm. Use the graph to answer the following question(s). -Refer to Graph 15-2. If the monopoly firm wants to maximise its profit, it should operate at a level of output equal to:

In many cases additional firms do not try to compete with a natural monopoly because:

A monopoly firm is able to charge a price that is higher than their marginal revenue.

A monopoly firm has an upward-sloping supply curve.

Suppose a monopolist lowers the price of its good, this would cause consumers to:

Ten Lessons From 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

Application: 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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