Deck 14: Monopoly and Monopolistic Competition

Question 1

Significant barriers to entry exist in a monopolistically competitive industry.

Answer 1

False

Question 2

Monopoly is a market structure in which:

A) one firm makes up the entire market.
B) a few firms dominate the market.
C) many firms produce differentiated products.
D) many firms produce identical products.

Answer 2

A

Question 3

A monopolistically competitive firm faces a downward-sloping demand curve.

Answer 3

True

Question 4

A market structure in which one firm makes up the entire market is:

A) a monopoly.
B) perfect competition.
C) an oligopoly.
D) monopolistic competition.

Question 5

If a monopolist increases output from 14 to 15 by lowering its price from $32 to $31, marginal revenue is:

A) $1.
B) $17.
C) $448.
D) $465.

Question 6

The profit-maximizing output level for a monopolist occurs where marginal revenue equals marginal cost.

Question 7

When a monopolistically competitive firm is in long-run equilibrium, average total cost is at its minimum.

Question 8

For a monopolist, the point where the marginal revenue curve intersects the horizontal axis is:

A) one-fourth of the distance between the origin and the point where the demand curve intersects the horizontal axis.
B) located at the same point where the demand curve intersects the horizontal axis, since for a monopolist, the demand curve and the marginal revenue curve overlap.
C) one-half the distance between the origin and the point where the demand curve intersects the horizontal axis.
D) unable to be determined without knowing the location of the marginal cost curve.

Question 9

A profit-maximizing monopolist will always set price equal to marginal cost.

Question 10

A price-discriminating monopolist will make less in profit than will one that does not price-discriminate.

Question 11

Since marginal revenue is less than price for a monopolist, a monopolist maximizes profits by equating marginal revenue and marginal cost, not price and marginal cost.

Question 12

Monopolies that exist because economies of scale create a barrier to entry are called natural monopolies.

Question 13

If a monopolist can price discriminate among buyers, it will charge buyers with more elastic demands a higher price.

Question 14

A monopoly firm is different from a competitive firm in that:

A) there are many substitutes for a monopolist's product whereas there are no substitutes for a competitive firm's product.
B) a monopolist's demand curve is perfectly inelastic whereas a competitive firm's demand curve is perfectly elastic.
C) a monopolist can influence market price whereas a competitive firm cannot.
D) a competitive firm has a U-shaped average cost curve whereas a monopolist does not.

Question 15

Under normal monopoly, P > MC, and so the marginal benefit to society of increasing output exceeds the marginal cost. This means that an increase in output will increase welfare.

Question 16

A monopolistically competitive industry has many firms that sell differentiated products.

Question 17

A monopolist will always make a profit in the short run.

Question 18

The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for:

A) a competitive firm lies above its marginal revenue curve.
B) a competitive firm is inelastic.
C) a monopolist is the market demand curve.
D) a monopolist lies below its marginal revenue curve.

Question 19

A significant difference between monopoly and perfect competition is that:

A) free entry and exit is possible in a monopolized industry but impossible in a competitive industry.
B) competitive firms control market supply, but monopolies do not.
C) the monopolist's demand curve is the industry demand curve, whereas the competitive firm's demand curve is perfectly elastic.
D) profits are driven to zero in a monopolized industry but may be positive in a competitive industry.

Question 20

The demand curve for a monopolist is:

A) perfectly elastic.
B) not relevant since the monopolist sets price.
C) the market demand curve.
D) perfectly inelastic.

Question 21

If a monopolist produces beyond the quantity where MC = MR:

A) the increase in revenue is less than the increase in cost.
B) total revenue is less than total cost.
C) the increase in revenue exceeds the increase in cost.
D) total revenue exceeds total cost.

Question 22

If MR < MC, a monopolist should:

A) decrease production.
B) increase production.
C) maintain the same level of production.
D) stop producing.

Question 23

Marginal revenue is not equal to price for a monopolist because:

A) the monopolist's demand curve is below its marginal revenue curve.
B) total revenue increases as output increases.
C) the monopolist sets price equal to marginal cost.
D) the monopolist must lower the price of all units in order to sell more.

Question 24

If a monopolist increases sales from 10 to 11 by lowering its price from $40 to $38, its marginal revenue is:

A) $2.
B) $18.
C) $400.
D) $418.

Question 25

Refer to the graph shown. The maximum possible total profit this monopolist that charges only one price can earn is:

A) $0.
B) $60.
C) $120.
D) $240.

Question 26

Refer to the table shown, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is positive: $$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Price d product(\$)}& \text { Quantity demanded per year }\\ \hline \$ 14 & 3 \\\hline \$ 12 & 4 \\\hline \$ 10 & 5 \\\hline \$ 8 & 6 \\\hline \$ 6 & 7 \\\hline\end{array}\end{array}$$

A) when price is $10.
B) when price is above $10.
C) when price is below $10.
D) for every price.

Question 27

Refer to the graph shown. The firm's profit-maximizing price is:

A) e.
B) f.
C) g.
D) h.

Question 28

Refer to the graph shown. If the firm seeks to maximize profit, it should set a price equal to:

A) $10.
B) $ 8.
C) $ 6.
D) $ 4.

Question 29

If a firm has a monopoly over the sale of camera drones and seeks to maximize profits, it:

A) adjusts the price of the product until demand becomes perfectly inelastic.
B) will set the price of the product equal to the marginal cost of production.
C) will set the price of the product equal to the average total cost of production.
D) will set the price of the product so that its marginal revenue equals its marginal cost.

Question 30

Refer to the following graph. If the demand curve is curve D for a monopoly, the marginal revenue curve is:

A) A, which intersects the x-axis at 1/4 the quantity where the demand curve intersects the x-axis.
B) B, which intersects the x-axis at 1/2 the quantity where the demand curve intersects the x-axis.
C) C, which intersects the x-axis at 3/4 the quantity where the demand curve intersects the x-axis.
D) D, which intersects the x-axis at the same quantity where the demand curve intersects the x-axis.

Question 31

Refer to the table shown, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is closest to zero: $$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Price d product(\$)}&\text { Quantity demanded per year }\\ \hline \$ 14 & 3 \\\hline \$ 12 & 4 \\\hline \$ 10 & 5 \\\hline \$ 8 & 6 \\\hline \$ 6 & 7 \\\hline\end{array}\end{array}$$

A) when price is $10.
B) when price is above $10.
C) when price is below $10.
D) for every price.

Question 32

For a monopolist, the price of the product:

A) equals the marginal revenue.
B) is less than the marginal revenue.
C) exceeds the marginal revenue.
D) equals the marginal cost.

Question 33

The price a monopolist sets is equal to:

A) marginal revenue.
B) average revenue.
C) average total costs.
D) marginal cost.

Question 34

If MR = MC, a monopolist should:

A) decrease production.
B) increase production.
C) maintain the same level of production.
D) stop producing.

Question 35

If MR > MC, a monopolist should:

A) decrease production.
B) increase production.
C) maintain the same level of production.
D) stop producing.

Question 36

Refer to the graph shown. If the firm maximizes profit, its daily output will be:

A) 10 units.
B) 20 units.
C) 30 units.
D) 45 units.

Question 37

Refer to the graph shown. If this monopolist produces 45 units of output per day, it will:

A) be maximizing profit.
B) charge a price that exceeds its marginal cost.
C) be able to increase profit by producing less per day.
D) be able to increase profit by producing more per day.

Question 38

Refer to the table shown, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is negative: $$\begin{array}{l}\begin{array} { | c | c | } \hline\text { Price d product(\$)}&\text { Quantity demanded per year }\\ \hline \$ 14 & 3 \\\hline \$ 12 & 4 \\\hline \$ 10 & 5 \\\hline \$ 8 & 6 \\\hline \$ 6 & 7 \\\hline\end{array}\end{array}$$

A) when price is $10.
B) when price is above $10.
C) when price is below $10.
D) for every price.

Question 39

A monopoly firm selling textbooks to students in a small town is currently maximizing profits by charging a price of $50 per book. It follows that the marginal cost of textbooks is:

A) equal to $50.
B) less than $50.
C) greater than $50.
D) greater than the average total cost.

Question 40

Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product will be:

A) $10.
B) $8.
C) $6.
D) $4.

Question 41

The DeBeers Company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will:

A) be equal to the marginal cost of diamonds.
B) be equal to the average total cost of diamonds.
C) exceed the marginal cost of diamonds but be equal to the average total cost of diamonds.
D) exceed both the marginal cost and the average total cost of diamonds.

Question 42

Refer to the graph shown. At the price of $1.60, given market demand for the product:

A) the firm will incur losses.
B) the firm will make zero economic profits.
C) there will be a shortage of the product.
D) the firm will go out of business.

Question 43

Refer to the graph shown. Assuming that this monopolist maximizes profit, the marginal cost of its last unit of output will be:

A) $16.
B) $12.
C) $ 8.
D) $10.

Question 44

Refer to the graph shown. If this monopolist sets the price to maximize profit, it will earn economic profit of:

A) $1,600 per day.
B) $2,400 per day.
C) $4,800 per day.
D) $7,200 per day.

Question 45

Refer to the graph shown. At an output of a, the monopolist should:

A) not change output since profits are maximized.
B) reduce output to increase profits.
C) increase output to increase profits.
D) increase price to increase profits.

Question 46

Refer to the table shown, which shows the demand schedule for a firm that has a monopoly on the sale of computers in the country of Oz. If the monopolist is currently producing 400 computers per year and it seeks to maximize profit, it should: $$\begin{array} { | r | r | } \hline { \begin{array} { c } \text { Price df } \\\text { computer s(t) }\end{array} } & \text { Quantity demanded per year } \\\hline 5,000 & 100 \\\hline 4,000 & 200 \\\hline 3,000 & 300 \\\hline 2,000 & 400 \\\hline 1,000 & 500 \\\hline\end{array}$$

A) increase output.
B) decrease output.
C) continue producing 400 units per year.
D) lower the price of computers.

Question 47

Refer to the graph shown. Assuming that this monopolist maximizes profit, it will produce:

A) 300 units of output per day.
B) 600 units of output per day.
C) 700 units of output per day.
D) 800 units of output per day.

Question 48

Refer to the graph shown. If this monopolist charges a price of $8 for its product, it:

A) maximizes profit.
B) incurs losses.
C) earns zero economic profits.
D) can increase profits by increasing output.

Question 49

Refer to the graph shown. If this monopolist sets the price to maximize profit, it will charge:

A) $16 for its product.
B) $12 for its product.
C) $8 for its product.
D) $10 for its product.

Question 50

Refer to the graph shown. If this firm is maximizing profit, it will:

A) earn just normal profits, that is, zero economic profits.
B) earn economic profits.
C) incur a loss.
D) make enough to cover its variable costs but not its fixed costs.

Question 51

Refer to the graph shown. The profit-maximizing monopolist would be:

A) earning accounting but not economic profits.
B) sustaining a loss.
C) making zero economic profits.
D) making economic profits.

Question 52

Refer to the graph shown. If the monopolist produces at the output level at which price equals marginal cost, it will:

A) maximize profits.
B) earn zero profits.
C) earn positive profits but not maximum profits.
D) incur a loss.

Question 53

Refer to the graph shown. In a perfectly competitive industry, price would:

A) equal $16.
B) be greater than $16.
C) equal $12.
D) be less than $12.

Question 54

A monopolist:

A) earns a profit in the short run and the long run.
B) earns a profit in the short run but not in the long run.
C) can earn profits or incur losses in the short run.
D) can never incur losses.

Question 55

Refer to the graph shown. The profit-maximizing monopolist would sell its output at price:

A) P₁.
B) P₂.
C) P₃.
D) P₄.

Question 56

Refer to the table shown, which shows the demand schedule for a firm that has a monopoly on the sale of computers in the country of Oz. If the firm were to set the price of computers at $2,000: $\begin{array}{c}\begin{array}{|c|}\hline \text { Price of computers }(\$)\\\hline 5,000 \\\hline 4,000 \\\hline 3,000 \\\hline 2,000 \\\hline 1,000 \\\hline\end{array}\begin{array}{c|}\hline \text { Quantity demanded per year }\\\hline 100 \\\hline 200 \\\hline 300 \\\hline 400 \\\hline 500 \\\hline \end{array}\end{array}$

A) it would maximize profits.
B) marginal revenue would be negative.
C) the demand for computers would be elastic.
D) marginal revenue would be positive.

Question 57

Refer to the graph shown. The profit-maximizing monopolist produces output:

A) Q₁.
B) Q₂.
C) Q₃.
D) Q₄.

Question 58

Refer to the graph shown. If this monopolist produces 700 units of output per day, it:

A) can increase profit by producing more.
B) can increase profit by producing less.
C) will be maximizing profit.
D) will incur economic losses.

Question 59

Refer to the graph shown. If the price of the product is $1 and the firm is a natural monopoly:

A) there will be a surplus of the product.
B) the firm will earn economic profit by satisfying the market quantity demanded at that price.
C) the firm can earn profit by producing more than Q_c.
D) the firm will incur losses by producing the quantity demanded at that price.

Question 60

Refer to the table shown, which shows the demand schedule for a firm that has a monopoly on the sale of computers in the country of Oz. If the marginal cost of producing computers is $1,000 no matter how many are produced and the monopolist seeks to maximize profit, it should set the price of computers at: $$\begin{array} { | r | r | } \hline{ \begin{array} { c } \text { Price of } \\\text { computers (\$) }\end{array} } & \text { Quantity demanded per year } \\\hline 5,000 & 100 \\\hline 4,000 & 200 \\\hline 3,000 & 300 \\\hline 2,000 & 400 \\\hline 1,000 & 500 \\\hline\end{array}$$

A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.

Question 61

Refer to the graph shown. Area C represents:

A) the total loss of surplus by consumers resulting from a monopoly.
B) the cost to society of increasing output from Q_m to Q_c.
C) consumer surplus redistributed to the monopolist.
D) the loss of surplus by producers resulting from a monopoly.

Question 62

Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output:

A) both producer surplus and consumer surplus increase.
B) producer surplus falls but consumer surplus rises.
C) both producer surplus and consumer surplus decrease.
D) producer surplus rises but consumer surplus falls.

Question 63

Refer to the graph shown. Assuming that the monopoly maximizes profit, the social cost of monopoly will be:

A) $10,000 per day.
B) $20,000 per day.
C) $40,000 per day.
D) zero.

Question 64

Under normal monopoly, price exceeds marginal cost, which implies that the:

A) total cost to society of producing output is less than the total benefit.
B) total benefit to society of producing output is less than the total cost.
C) marginal cost to society of increasing output is lower than the marginal benefit.
D) marginal cost to society of increasing output is greater than the marginal benefit.

Question 65

Refer to the graph shown. If the monopoly firm maximizes profit, it will produce:

A) 15 units of output and charge a price of $3.50 per unit.
B) 15 units of output and charge a price of $2.00 per unit.
C) 25 units of output and charge a price of $2.50 per unit.
D) 30 units of output and charge a price of $2.00 per unit.

Question 66

Refer to the graph shown. If hamburgers are produced by a pure monopoly that maximizes profit, the price of hamburger dinners will be:

A) $ 2.
B) $ 4.
C) $ 5.
D) $ 6.

Question 67

At the socially optimum quantity of production, price equals:

A) marginal cost.
B) marginal revenue.
C) average total cost.
D) average variable cost.

Question 68

Suppose a monopolist is at the profit-maximizing output level. If the monopolist sells another unit of output:

A) both producer surplus and consumer surplus increase.
B) producer surplus falls but consumer surplus rises.
C) both producer surplus and consumer surplus decrease.
D) producer surplus rises but consumer surplus falls.

Question 69

Refer to the graph shown. If hamburgers are produced by a pure monopoly that maximizes profit, the monopoly firm will:

A) earn $200 economic profit per day.
B) just cover its opportunity cost.
C) earn $100 per day.
D) go out of business.

Question 70

If a monopolist had no production costs, it would produce the output where marginal revenue intersects the quantity axis. At this point, the price elasticity of demand would be:

A) 1.
B) perfectly inelastic.
C) zero.
D) perfectly elastic.

Question 71

Refer to the graph shown. The areas that represent the net gain to society of eliminating the monopoly are:

A) A and B.
B) A and C.
C) D and B.
D) D and C.

Question 72

Refer to the graph shown. Assuming that the monopoly maximizes profit, it will earn profits of:

A) $8,000 per day.
B) $20,000 per day.
C) $40,000 per day.
D) $160,000 per day.

Question 73

Refer to the graph shown. If hamburgers are produced by a perfectly competitive industry with a market demand D, in long-run equilibrium the price will be:

A) $6, and 100 will be sold.
B) $4, and 200 will be sold.
C) $5, and 150 will be sold.
D) $4, and 100 will be sold.

Question 74

Refer to the graph shown. Suppose the industry is currently perfectly competitive but then is taken over by a monopolist. Assuming that the monopolist maximizes profit:

A) the price of computers will increase from $400 to $600 but there will be no change in quantity demanded.
B) the price of computers will increase from $400 to $600 and the quantity demanded will fall from 400 to 200.
C) the price of computers will decrease from $600 to $400 and the quantity demanded will rise from 200 to 400.
D) there will be no effect on the price of computers.

Question 75

Refer to the graph shown. Area B represents:

A) the loss of surplus by consumers resulting from a monopoly.
B) the cost to society of increasing output from Q_m to Q_c.
C) consumer surplus redistributed to the monopolist.
D) the loss of surplus by producers resulting from a monopoly.

Question 76

Refer to the graph shown. If hamburgers are produced by a perfectly competitive industry with a market demand D:

A) output will be the same as it would be under monopoly.
B) price will equal marginal cost.
C) price will equal $6.
D) price will be greater than marginal revenue.

Question 77

Refer to the graph shown. Areas C and D represent:

A) the loss of surplus by consumers resulting from a monopoly.
B) the cost to society of increasing output from Q_m to Q_c.
C) consumer surplus redistributed to the monopolist.
D) the loss of surplus by producers resulting from a monopoly.

Question 78

The deadweight loss from monopoly exists because:

A) there are no net gains to society at the output level produced by a monopolist.
B) resource owners hired by the monopolist gain at the expense of consumers.
C) the monopolist produces at an output level at which no one can be made better off without making someone worse off.
D) the marginal benefit of the monopolist's product to society exceeds the monopolist's marginal cost.

Question 79

Refer to the graph shown. If a competitive industry producing hamburgers is taken over by a pure monopoly firm that maximizes profit:

A) output will remain at 100 but price will rise to $6.
B) price will remain at $6 but output will fall by 100.
C) price will remain at $4 but output will fall by 100.
D) price will rise to $6 and output will fall by 100.

Question 80

Refer to the graph shown. If hamburgers are produced by a pure monopoly firm that maximizes profit, the social cost of monopoly will be represented by the area:

A) BFC.
B) GFHJ.
C) ABFG.
D) ABCG.