Question 1

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

Accepted Answer

A) True 
 B)False  False

Question 2

U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?

Accepted Answer

Patents are designed to encourage creative activity and promote the development of new technologies. Firms can spend years on research and development in the search for new and better production processes and consumer products. Research and development is costly-many potential new ideas are ultimately not technically feasible or never become commercially successful. If research and development results in a successful product, competing firms can easily copy the product and sell it without incurring the research costs of the firm that developed the product, if patent protection is not granted. Most people would object to this form of "free riding" on equity grounds; but patents also encourage firms to conduct research that leads to social benefits: new technologies result in a higher standard of living for all and a more efficient allocation of society's scarce resources.

Question 3

Because a monopoly's demand curve is the same as the market demand curve for its product,

Accepted Answer

A)  the monopoly's marginal revenue equals its price. 
B)  the monopoly is a price taker. 
C)  the monopoly must lower its price to sell more of its product. 
D)  the monopoly's average total cost always falls as it increases its output. 
A)  the monopoly's marginal revenue equals its price. 
B)  the monopoly is a price taker. 
C)  the monopoly must lower its price to sell more of its product. 
D)  the monopoly's average total cost always falls as it increases its output. C

Question 4

Figure 15-12   Figure 15-12 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of consumer surplus?

Accepted Answer

A)  $21 
B)  $124 
C)  $186 
D)  $332 
A)  $21 
B)  $124 
C)  $186 
D)  $332

Question 5

Which of the following statements is true?

Accepted Answer

A)  Monopolists are price makers. All other firms are price takers. 
B)  Unlike other industries, monopoly industries have high barriers to entry. 
C)  Only monopoly firms are granted patents and copyrights. 
D)  Unlike other firms, a monopolist's demand curve is the same as the market demand curve. 
A)  Monopolists are price makers. All other firms are price takers. 
B)  Unlike other industries, monopoly industries have high barriers to entry. 
C)  Only monopoly firms are granted patents and copyrights. 
D)  Unlike other firms, a monopolist's demand curve is the same as the market demand curve.

Question 6

Figure 15-9   Figure 15-9 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

Accepted Answer

A)  The monopoly's price is higher by $9.50. 
B)  The monopoly's price is higher by $13. 
C)  The monopoly's price is higher by $3.50. 
D)  The monopoly's price is higher by $21. 
A)  The monopoly's price is higher by $9.50. 
B)  The monopoly's price is higher by $13. 
C)  The monopoly's price is higher by $3.50. 
D)  The monopoly's price is higher by $21.

Question 7

Which two factors make regulating mergers complicated?

Accepted Answer

A)  First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B)  First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and managers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. 
C)  First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D)  First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually. 
A)  First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B)  First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and managers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. 
C)  First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D)  First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.

Question 8

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-In regulating a natural monopoly, the price strategy that ensures the highest possible output and zero profit is one that sets price

Accepted Answer

A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  corresponding to the demand curve where marginal revenue equals zero. 
A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  corresponding to the demand curve where marginal revenue equals zero.

Question 9

Wendell can sell five motor homes per week at a price of $22,000. If he lowers the price of motor homes to $20,000 per week he will sell six motor homes. What is the marginal revenue of the sixth motor home?

Accepted Answer

A)  $10,000 
B)  $12,000 
C)  $20,000 
D)  $22,000 
A)  $10,000 
B)  $12,000 
C)  $20,000 
D)  $22,000

Question 10

The demand curve for the monopoly's product is

Accepted Answer

A)  the market demand for the product. 
B)  more elastic than the market demand for the product. 
C)  more inelastic than the market demand for the product. 
D)  undefined. 
A)  the market demand for the product. 
B)  more elastic than the market demand for the product. 
C)  more inelastic than the market demand for the product. 
D)  undefined.

Question 11

Which of the following is true for a monopolist?

Accepted Answer

A)  Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve. 
B)  Being the only seller in the market, the monopolist faces a perfectly elastic demand curve. 
C)  Being the only seller in the market, the monopolist faces the market demand curve. 
D)  Being the only seller in the market, the monopolist faces a downward-sloping demand curve that lies below the marginal revenue curve. 
A)  Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve. 
B)  Being the only seller in the market, the monopolist faces a perfectly elastic demand curve. 
C)  Being the only seller in the market, the monopolist faces the market demand curve. 
D)  Being the only seller in the market, the monopolist faces a downward-sloping demand curve that lies below the marginal revenue curve.

Question 12

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

Accepted Answer

A)  government antitrust laws. 
B)  the pricing decisions of its suppliers. 
C)  the pricing decisions of firms that produce complementary products. 
D)  the actions of all other firms. 
A)  government antitrust laws. 
B)  the pricing decisions of its suppliers. 
C)  the pricing decisions of firms that produce complementary products. 
D)  the actions of all other firms.

Question 13

Figure 15-2   Figure 15-2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

Accepted Answer

A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. 
A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition.

Question 14

The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because

Accepted Answer

A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite. 
A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite.

Question 15

If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 16

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Economic efficiency requires that a natural monopoly's price be

Accepted Answer

A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  equal to the lowest price the firm can charge and still make a normal profit. 
A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  equal to the lowest price the firm can charge and still make a normal profit.

Question 17

Using a broad definition, a firm would have a monopoly if

Accepted Answer

A)  it produced a product that has no close substitutes. 
B)  it does not have to collude with any other producer to earn an economic profit. 
C)  there is no other firm selling a substitute for its product close enough that its economic profits are competed away in the long run. 
D)  it can make decisions regarding price and output without violating antitrust laws. 
A)  it produced a product that has no close substitutes. 
B)  it does not have to collude with any other producer to earn an economic profit. 
C)  there is no other firm selling a substitute for its product close enough that its economic profits are competed away in the long run. 
D)  it can make decisions regarding price and output without violating antitrust laws.

Question 18

If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43, then the incremental profit from the last unit sold is $7.

Accepted Answer

A) True 
 B)False

Question 19

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

Accepted Answer

A) True 
 B)False

Question 20

In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly and Antitrust Policy

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?

Because a monopoly's demand curve is the same as the market demand curve for its product,

Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. -Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of consumer surplus?

Which of the following statements is true?

Figure 15-9 Figure 15-9 shows the demand and cost curves for a monopolist. -Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

Which two factors make regulating mergers complicated?

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -In regulating a natural monopoly, the price strategy that ensures the highest possible output and zero profit is one that sets price

Wendell can sell five motor homes per week at a price of $22,000. If he lowers the price of motor homes to $20,000 per week he will sell six motor homes. What is the marginal revenue of the sixth motor home?

The demand curve for the monopoly's product is

Which of the following is true for a monopolist?

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because

If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Economic efficiency requires that a natural monopoly's price be

Using a broad definition, a firm would have a monopoly if

If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43, then the incremental profit from the last unit sold is $7.

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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