Deck 10: Self-Adjustment or Instability

Question 1

The marginal revenue curve is below the demand curve

A) If a firm must lower its price to sell additional output.
B) For a competitive firm.
C) When a market is characterized by economies of scale.
D) For all firms.

Answer 1

A

Question 2

For a monopolist, marginal revenue equals

A) Price.
B) Price times quantity.
C) The change in quantity divided by the change in total revenue.
D) The change in total revenue divided by the change in quantity.

Answer 2

D

Question 3

Both a competitive industry and a monopoly

A) Use marginal cost pricing.
B) Maximize profit per unit where P = MC.
C) Face downward-sloping market demand curves.
D) Produce products that have many identical substitutes.

Answer 3

C

Question 4

Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. In order to increase sales by one bicycle per month, the monopolist must lower the price of its bicycles by $50 to $650 per bicycle. The marginal revenue of the 11th bicycle is

A) $150.
B) -$50.
C) $50.
D) $7,150.

Question 5

Monopolists set prices

A) On the marginal revenue curve.
B) Without constraints since there is no competition.
C) At the output where marginal revenue equals marginal cost.
D) At the minimum of the long-run average total cost curve.

Question 6

Which of the following rules is satisfied when a monopoly maximizes profits?

A) Price = AVC.
B) Price < MC.
C) MR = MC.
D) MR > MC.

Question 7

Which of the following is likely to be a monopolist?

A) A drug firm that has a patent granting it the exclusive right to produce a drug.
B) A large firm like GM, which has a substantial portion of the car market.
C) The Boeing Company, which is one of the largest producers of airplanes.
D) An Indonesian restaurant in a large city.

Question 8

If the entire output of a market is produced by a single seller, the firm

A) Is a monopoly.
B) Faces perfectly inelastic demand.
C) Can charge any price it wants and not lose customers.
D) Is producing a new product.

Question 9

Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is

A) $500.
B) $199,500.
C) -$500.
D) $9,500.

Question 10

If a firm can change market prices by altering its output, then it

A) Has market power.
B) Faces a flat demand curve.
C) Is a price taker.
D) Engages in marginal cost pricing.

Question 11

If a monopolist is producing a level of output where MR exceeds MC, then it should

A) Raise its price.
B) Increase its output.
C) Lower its output.
D) Shift its marginal cost curve upward.

Question 12

The marginal revenue of a monopolist

A) Is equal to price at all output levels.
B) Is above a downward-sloping demand curve.
C) Is positive up to the rate of output that maximizes total revenue.
D) Is negative up to the rate of output that maximizes total revenue.

Question 13

The marginal revenue of a monopolist falls below price because the firm

A) Is not limited by market demand.
B) Faces a market demand curve that is inelastic.
C) Confronts a downward-sloping demand curve.
D) Has an upward-sloping marginal cost curve.

Question 14

A monopolist has market power because it

A) Faces a downward-sloping demand curve for its own output.
B) Can raise price as much as it wishes and not lose any customers.
C) Is a price taker.
D) Is regulated by the government.

Question 15

Monopolists are price

A) Takers, as are competitive firms.
B) Takers, but competitive firms are price makers.
C) Makers, but competitive firms are price takers.
D) Makers, as are competitive firms.

Question 16

Market power is

A) A characteristic of all market structures.
B) The ability to alter the market price of a product.
C) Most common for competitive firms.
D) Enjoyed by all firms at high levels of output.

Question 17

Which of the following is true for a monopolist?

A) It faces a perfectly elastic demand curve.
B) It must lower its price on all of its units in order to sell any additional units.
C) Its marginal revenue curve is equal to its demand curve.
D) It faces many competitors.

Question 18

If a firm can raise market price by reducing its output, then

A) It has no market power.
B) It faces a downward-sloping demand curve.
C) It is a price taker.
D) It engages in marginal cost pricing.

Question 19

A monopolist will find that its marginal revenue curve

A) Is the same as its demand curve.
B) Lies above its demand curve and is flatter than its demand curve.
C) Lies below its demand curve and is steeper than its demand curve.
D) Lies below its demand curve and has the same slope as its demand curve.

Question 20

In monopoly and perfect competition, a firm should expand production when

A) Marginal revenue is below marginal cost.
B) Price is below marginal cost.
C) Marginal revenue is above marginal cost.
D) Price is above marginal cost.

Question 21

Which of the following is the same for monopoly and competition under the same cost and demand conditions?

A) The amount of output that is produced.
B) Economic profits.
C) The goal of maximizing profits.
D) Efficiency of production at the profit-maximizing output.

Question 22

Which of the following would definitely not be used by any unregulated monopolist?

A) Marginal cost pricing.
B) The profit-maximizing rule.
C) Price discrimination.
D) Economies of scale.

Question 23

If a monopolist is producing a level of output where MR is less than MC, then it should

A) Shift its marginal cost curve upward.
B) Increase its output.
C) Lower its output.
D) Lower its price.

Question 24

In Figure 24.1, total revenue is represented by the area

A) ABFE.
B) CDFE.
C) ABGHE.
D) ABDC.

Question 25

In Figure 24.1, total profit is represented by the area

A) ABFE.
B) CDFE.
C) ABGHE.
D) ABDC.

Question 26

In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, total revenue is

A) $900.
B) $1,200.
C) $650.
D) $950.

Question 27

In Figure 24.1 total cost is represented by the area

A) ABFE.
B) CDFE.
C) ABGHE.
D) ABDC.

Question 28

The shaded area in Figure 24.1 represents

A) Total revenue.
B) Total cost.
C) Total profit.
D) Total loss.

Question 29

In Table 24.1, using the profit maximization rule, a monopolist will charge a price of

A) $450.
B) $400.
C) $350.
D) $300.

Question 30

In Table 24.1, using the profit maximization rule, a monopolist that is able to practice price discrimination will charge

A) A price of $450.
B) A price of $400.
C) A price of $500.
D) Different prices to different customers.

Question 31

In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, total cost is

A) $900.
B) $1,200.
C) $650.
D) $950.

Question 32

In Table 24.1, using the profit maximization rule, a monopolist will produce

A) 1 unit.
B) 3 units.
C) 4 units.
D) 5 units.

Question 33

In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output marginal, cost is

A) $200.
B) $250.
C) $300.
D) $350.

Question 34

In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, the average total cost is

A) $316.67.
B) $325.
C) $400.
D) $340.

Question 35

In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, marginal revenue is

A) $300.
B) $200.
C) $100.
D) $250.

Question 36

Which of the following statements is not correct?

A) A monopolist's ability to act as a price setter guarantees economic profits in the short run.
B) The monopolist's marginal revenue is less than the price for any output greater than one.
C) A monopolist's demand curve is the same as the market demand curve for the product.
D) In the long run, a monopolist will experience only positive or zero economic profits.

Question 37

Which of the following is true about the output level where marginal revenue equals marginal cost?

A) Economic profits are equal to zero.
B) The firm should increase its output.
C) The firm is maximizing profit.
D) The firm should reduce its output.

Question 38

A profit-maximizing monopolist produces the rate of output where

A) MR = MC and determines price based on the demand curve.
B) Price = MC.
C) MR = MC and can set price at any amount it chooses.
D) MR = MC and determines price based on ATC.

Question 39

In Table 24.1, the maximum profit that can be achieved is

A) -$200.
B) $100.
C) $250.
D) $500.

Question 40

In Table 24.1, marginal revenue at the profit-maximizing level of output is

A) $150.00
B) $250.00
C) $300.00
D) $550.00

Question 41

Refer to Figure 24.3. Which of the following statements is true about the price elasticity of demand at price P₃?

A) The price elasticity is elastic.
B) The price elasticity is unitary.
C) The price elasticity is inelastic.
D) The price elasticity is zero.

Question 42

Reductions in minimum average costs that come about through increases in the size of plants and equipment are called

A) Barriers to entry.
B) Economies to monopoly power.
C) Economies of scale.
D) Diseconomies of entry.

Question 43

Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market?

A) The market price of the product will fall.
B) The total market quantity of output produced will fall.
C) Profits for the market will increase.
D) The industry demand curve for the product will shift.

Question 44

In Figure 24.2, total revenue at the profit-maximizing rate of output is

A) $22.00.
B) $6.40.
C) $4.00.
D) $16.00.

Question 45

Like a competitive industry, a monopoly must

A) Practice marginal cost pricing.
B) Deal with the law of demand.
C) Confront a demand curve equal to its marginal revenue curve.
D) Earn only zero economic profit in the long run.

Question 46

A monopolist will not use marginal cost pricing because at that output

A) MR is greater than MC.
B) MR is below the ATC curve.
C) MC is greater than MR.
D) MC is greater than the monopolist's price.

Question 47

In Figure 24.2, the profit-maximizing monopolist will earn a profit per unit of

A) $1.50.
B) $4.00.
C) $4.70.
D) $5.50.

Question 48

In Figure 24.2, a profit-maximizing monopolist will charge a price of

A) $6.40.
B) $4.70.
C) $4.00.
D) $5.50.

Question 49

Which of the following is a barrier to entry in a monopoly market?

A) Economic profit of the monopolist.
B) Antitrust laws.
C) A rising long-run average total cost curve.
D) Economies of scale.

Question 50

Any firm that has economies of scale will

A) Try to spread production over many plants.
B) Be able to produce at a lower unit cost as it increases production.
C) Face an upward-sloping long-run average total cost curve.
D) Prefer to produce a small amount of total industry output.

Question 51

In Figure 24.2, the profit-maximizing level of output is

A) Between 2 and 3 units.
B) Between 4 and 5 units.
C) 4 units.
D) Between 5 and 6 units.

Question 52

Refer to Figure 24.3. Which of the following statements is true about the price elasticity of demand at price P₂?

A) The price elasticity is elastic.
B) The price elasticity is unitary.
C) The price elasticity is inelastic.
D) The price elasticity is zero.

Question 53

In Figure 24.2, total cost at the profit-maximizing rate of output is

A) $16.00.
B) $18.80.
C) $22.00.
D) $25.60.

Question 54

In Figure 24.2, total profit at the profit-maximizing rate of output is

A) $16.00.
B) $5.50.
C) $6.00.
D) $22.00.

Question 55

A firm can take advantage of economies of scale through

A) Investment decisions to increase capacity.
B) A production decision to increase capacity.
C) Investment decisions to reduce capacity.
D) A production decision to increase output.

Question 56

Which of the following is a barrier to entry in a monopoly market?

A) Economic profits greater than zero for the monopolist.
B) A rising long-run average total cost curve.
C) A patent on a new product.
D) A vertical supply curve.

Question 57

In Figure 24.2, total profit at the profit-maximizing rate of output is

A) CDLK.
B) CDHG.
C) ABDLK.
D) GHLK.

Question 58

A barrier to entry is

A) A law established by the government to protect new industries.
B) A commitment on the part of big business to allow smaller companies to compete.
C) An obstacle that prevents additional workers from entering an industry, such as a union.
D) An obstacle that makes it difficult for new firms to enter a market.

Question 59

The price charged by a profit-maximizing monopolist occurs

A) At the minimum of the long-run average total cost curve.
B) Where P = MR = MC.
C) At a price on the demand curve above the intersection where MR = MC.
D) At a price on the long-run average total cost curve below the point where MR = MC.

Question 60

Refer to Figure 24.3. Suppose this good could somehow be produced at no cost (that is, the total cost at any level of output was zero). This single-price monopoly firm would maximize profit by

A) Raising the price as high as possible until the quantity demanded began to decrease.
B) Producing an infinite amount and selling at the highest price possible.
C) Producing Q₂ and charging P₂.
D) Producing Q₃ and charging P₃.

Question 61

A monopoly

A) Maximizes profits at the output level where P = MC.
B) Is one of many sellers in a given market.
C) Charges higher prices than competitive firms, ceteris paribus.
D) Maximizes profits at the output level where P = MR.

Question 62

If tourists are charged a much higher price than the natives of a country for exactly the same item, what kind of pricing is involved?

A) Monopoly pricing.
B) Price discrimination.
C) Competitive pricing.
D) MC = MR pricing.

Question 63

At equilibrium in a monopoly, economic profits will most likely be

A) Greater than zero.
B) Zero.
C) Normal.
D) Negative.

Question 64

A monopoly can have a high degree of market power because of all but

A) Control over key inputs.
B) Government-bestowed franchise rights.
C) A downward-sloping demand curve for its product.
D) The presence of many close substitutes for its product.

Question 65

The ultimate market constraint on the exercise of market power

A) Is the demand curve facing the monopolist.
B) Is marginal cost pricing.
C) Is the ATC curve facing the monopolist.
D) Is barriers to entry.

Question 66

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces

A) The same output and charges the same price as the competitive industry.
B) More output and charges a higher price than the competitive industry.
C) Less output and charges a lower price than the competitive industry.
D) Less output and charges a higher price than the competitive industry.

Question 67

Which of the following is not an example of price discrimination by the only movie theater in town?

A) Charging a lower price for children under the age of 12.
B) Charging a lower price for matinees.
C) Charging a lower price for people over the age of 65.
D) Charging one price at all times for all customers.

Question 68

Price-discriminating firms that sell in two markets will charge higher prices in the market, ceteris paribus,

A) With a higher positive cross-price elasticity of demand with respect to substitutes.
B) With the more price-inelastic demand.
C) With the more income-elastic demand.
D) With lower incomes.

Question 69

A monopoly realizes larger profits than a comparable competitive market by

A) Setting a higher price at the competitive level of output, thereby increasing total revenue.
B) Producing a greater quantity at the competitive price, thereby increasing profits.
C) Producing at output levels with more favorable cost structures and charging the competitive market price, thereby increasing profits per unit.
D) Reducing production and pushing prices up.

Question 70

Which of the following markets best illustrates the practice of price discrimination?

A) The airline market.
B) The fast-food market.
C) Wheat farming.
D) The personal computer market.

Question 71

A monopoly

A) Maximizes profits at the output level where MR > MC.
B) Produces less output than a competitive industry, ceteris paribus.
C) Charges the same price as a competitive industry, ceteris paribus.
D) Maximizes profits at the output where P = MR.

Question 72

Price discrimination is best defined as

A) Charging an excessive price for a product.
B) The charging of different prices by different companies for the same product.
C) The selling of an identical good at different prices to different consumers by a single seller.
D) The selling of differentiated goods to consumers at different prices.

Question 73

Price discrimination does not allow a producer to

A) Obtain greater total revenue.
B) Charge both higher and lower prices.
C) Obtain higher profits.
D) Designate a point above the market demand curve as the new equilibrium.

Question 74

Price discrimination allows a producer to

A) Reap the highest possible average price for the quantity supplied.
B) Increase the elasticity of consumer demand.
C) Minimize marginal costs.
D) Decrease total costs.

Question 75

Which of the following is an argument in favor of a competitive market structure rather than monopoly?

A) Monopolies have greater ability to pursue research and design.
B) The lure of monopoly power provides a greater incentive for invention and innovation.
C) Monopolies produce less at a higher price than competitive markets, ceteris paribus.
D) Economies of scale allow a single firm to produce at lower cost than in a competitive market, ceteris paribus.

Question 76

Compared with a competitive market with the same cost and market demand circumstances, a monopolist has

A) Less pressure to reduce costs and less reason to improve quality.
B) Less pressure to reduce costs and more reason to improve quality.
C) More pressure to reduce costs and less reason to improve quality.
D) More pressure to reduce costs and more reason to improve quality.

Question 77

There is an inherent tendency of a monopoly industry to

A) Lower prices and increase output.
B) Inhibit productivity advances.
C) Increase innovation.
D) Use minimum average cost pricing.

Question 78

Price-discriminating firms charge higher prices to those who

A) Have greater incomes.
B) Have lower price elasticities of demand.
C) Have many substitutes available to them.
D) Want the product less.

Question 79

A monopolist that does not practice price discrimination should never produce in the

A) Elastic portion of its demand curve because it can increase total revenue and reduce total costs by lowering the price.
B) Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.
C) Inelastic portion of its demand curve because it can increase total revenue by more than it increases total cost by reducing the price.
D) Segment of its demand curve where the price elasticity of demand is greater than 1.

Question 80

All of the following are limitations on the market power of a monopoly except

A) The elasticity of demand.
B) The ability of a firm to control demand.
C) The ability of a company to control the quantity supplied.
D) The demand curve.