Deck 15: Monopoly

Question 1

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

Answer 1

False

Question 2

Patent and copyright laws are major sources of government created monopolies.

Answer 2

True

Question 3

Adult and concession prices for movie tickets are examples of perfect price discrimination.

Answer 3

False

Question 4

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

Question 5

When a natural monopoly exists, it is always more cost-effective for two or more private firms to produce the product.

Question 6

Suppose demand for a monopoly's product is perfectly elastic. In this case the monopoly should set P = MR = MC and the monopoly market outcome will be identical to the competitive market outcome.

Question 7

Competitive firms maximise profit by setting MR = MC. This is not always true for monopoly firms.

Question 8

Apple is likely to charge a price above marginal cost for the iPhone.

Question 9

A natural monopoly can arise when a single firm has equal or greater average total costs than two or more firms.

Question 10

If the current price charged by a monopolist is $5 and marginal cost is $3, then increasing output will always lead to an increase in profit as P>MC.

Question 11

If a resource can be traded internationally, then it is less likely that a single domestic supplier will be able to price at the monopoly price.

Question 12

The key difference between a competitive firm and a monopoly firm is the ability to select the level of production.

Question 13

The monopolist's demand curve slopes downwards whenever marginal costs are increasing.

Question 14

In a monopoly, the firm demand-curve and market demand-curve are identical.

Question 15

A price-maker can charge a price above marginal cost.

Question 16

When a firm operates under conditions of a monopoly, its price is unconstrained.

Question 17

The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree.

Question 18

Suppose the market for coffee cups is a monopoly. If a consumer's willingness to pay is below the market price, then it is not possible for a mutually beneficial trade to occur.

Question 19

Airlines often separate their customers into business travellers and personal travellers by giving a discount to those travellers who stay over a Saturday night.

Question 20

If a firm's average total cost is everywhere decreasing, then this is likely to lead to a natural monopoly.

Question 21

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the marginal-revenue curve.

Question 22

A regulated natural monopoly maximises total welfare by charging a price equal to marginal cost.

Question 23

Monopolies are inefficient because at the profit maximising quantity there will still be consumers whose willingness-to-pay is higher than the product's marginal cost.

Question 24

Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for:

A) natural monopolies
B) government-created monopolies
C) resource monopolies
D) innovation

Question 25

Patent and copyright laws are major sources of:

A) government-created monopolies
B) natural monopolies
C) research and development
D) innovation

Question 26

A natural monopoly occurs when:

A) the monopolist product is an organic, pesticide-free product
B) firms are characterised by rising marginal-cost curves
C) average total cost of production increases as more output is produced
D) average total cost of production decreases as more output is produced

Question 27

Discount coupons have the ability to help a supermarket price discriminate.

Question 28

Khan is a wholesale imported fish distributor. He sells his imported fish to all the restaurants in town and he is the only distributor of a specialty imported fish. Assuming that Khan is maximising his profit, which of the following statements is true?

A) imported fish prices will equal marginal cost
B) imported fish prices will exceed marginal cost
C) imported fish prices will be less than marginal cost
D) imported fish prices will equal average cost

Question 29

Which of the following is likely to be a natural monopoly?

A) the distribution of water through pipes to homes and businesses
B) the generation of electricity, that is before it is distributed through the power grid
C) the manufacture of large cars and trucks
D) professional services, such as legal advice and accounting services

Question 30

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

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 31

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the market demand curve.

Question 32

When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect.

Question 33

An unregulated monopoly is likely to have its marginal cost set:

A) above its marginal revenue
B) equal to its average total cost
C) below its average fixed cost
D) below the market price of its goods

Question 34

Total economic loss due to monopoly pricing is equal to the loss to producer surplus minus the loss in consumer surplus.

Question 35

If a firm is in a competitive market, it is not able to price discriminate.

Question 36

A monopoly firm has an upward-sloping supply curve.

Question 37

Total welfare when a monopoly can perfectly price discriminate is at least as high as when a monopoly must set one price.

Question 38

Natural monopolies differ from other forms of monopoly because they:

A) are not worried about competition
B) are not subject to barriers to entry
C) are not regulated by government
D) generally don't make a profit

Question 39

The most important feature of a natural monopoly is:

A) constant returns to scale over the relevant range of output
B) it exploits a natural resource
C) diseconomies of scale over the relevant range of output
D) economies of scale over the relevant range of output

Question 40

When a firm operates under conditions of a monopoly, its price is:

A) constrained by marginal cost
B) constrained by demand
C) constrained only by its social agenda
D) not constrained by demand

Question 41

A profit-maximising monopolist will choose a level of output at where:

A) marginal revenue equals the price
B) average revenue is equal to average total cost
C) marginal revenue is equal to marginal cost
D) average total cost is at a minimum

Question 42

If a monopolist faces a downward-sloping market demand curve, its:

A) average revenue is always less than marginal revenue
B) marginal revenue is greater than the price of the units it sells
C) marginal revenue is always less than the price of the units it sells
D) average revenue is less than the price of its product

Question 43

A monopolist is a price:

A) setter, and therefore has no indifference curve
B) setter, and therefore has no variable-cost curve
C) setter, and therefore has no supply curve
D) setter, and therefore has no demand curve

Question 44

Which of the following statements concerning profit maximisation for a monopoly firm is correct?

A) P > MR = MC
B) P < MR = MC
C) P = MR > MC
D) P = MR = MC

Question 45

Suppose that at the current output level the price received by a monopolist for its good is $10, marginal revenue is equal to $6, and marginal cost is $8. To maximise profit the monopolist should:

A) decrease output
B) increase output
C) keep output constant
D) we cannot say without more information

Question 46

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealised mutually beneficial trades are:

A) a deadweight loss to society
B) a sunk cost to society
C) of little concern to society because no money was lost
D) not considered a cost because they never happened

Question 47

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

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

Question 48

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $14. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $7.

A) $98
B) $105
C) $210
D) there is not enough information to answer this question

Question 49

The socially efficient level of production occurs where the marginal-cost curve of a monopoly intersects which of the following curves?

A) demand
B) marginal revenue
C) supply
D) average cost

Question 50

A monopoly will be maximising total welfare if:

A) price equals marginal revenue
B) price equals marginal profit
C) price equals marginal cost
D) the marginal cost curve intersects the marginal revenue curve

Question 51

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $40. The intersection of the marginal-revenue and marginal cost-curves occurs where output is 20 units and marginal cost is $25. Average cost for 20 units of output is $15.

A) $300
B) $500
C) $200
D) $40

Question 52

A significant difference between a competitive firm and a monopoly firm is the ability to select:

A) the price of its output
B) the level of competition in the market
C) the level of production
D) the wages of its workers

Question 53

The market demand curve for a monopolist is typically:

A) downward-sloping
B) horizontal
C) unit elastic
D) perfectly elastic at market price

Question 54

The Marginal Revenue curve of a monopoly firm lies below the demand curve because:

A) in order to increase output the firm must lower its price
B) as output increases the firm will need to sell to those who have a lower willingness-to-pay
C) monopolies are often regulated by governments that put limits on market prices
D) the monopoly must lower its price to discourage firms from entering the market

Question 55

For a monopolist, marginal revenue will turn negative when:

A) the price effect on revenue is greater than the output effect
B) the output effect on revenue is greater than the price effect
C) demand for the good has turned negative
D) An increase in the price results in a fall in demand

Question 56

A monopoly's profit can be calculated as:

A) (Price - Marginal Cost) * Quantity
B) (Price - Average Total Cost) * Quantity
C) (Quantity * Price) - Total Variable Costs
D) (Marginal Revenue - Average Total Cost) * Quantity

Question 57

When a monopolist increases the number of units it sells, there are two effects on revenue, the:

A) competitive effect and the monopoly effect
B) output effect and the price effect
C) demand effect and the supply effect
D) competition effect and the cost effect

Question 58

The profit-maximising level of output of a monopoly is determined where the marginal-cost curve crosses the:

A) average-revenue curve
B) demand curve
C) marginal-revenue curve
D) average-variable-cost curve

Question 59

The profits that a monopoly makes are:

A) a dead-weight loss to society
B) a direct transfer of economic surplus from producers to consumers
C) a direct transfer of economic surplus from consumers to producers
D) the amount by which total surplus is lower as a result of monopoly

Question 60

For a monopolist, when does marginal revenue equal demand?

A) when output is less than profit-maximising output
B) when output is greater than profit-maximising output
C) when there is a zero output
D) marginal revenue is never equal to demand

Question 61

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on:

A) the customers' geographical location
B) the customers' age
C) the customers' income
D) all of the above

Question 62

A government created monopoly arises when:

A) government spending in a certain industry gives rise to monopoly power
B) the government gives a firm the exclusive right to sell some good or service
C) the government exercises its market control by encouraging competition among sellers
D) all of the above could qualify as government created monopolies

Question 63

In the market for Jiggly Wigs, the profit-maximising monopolist is charging a price $2 higher than marginal cost. Suppose instead of a monopoly this market was competitive, but the government placed a $2 tax on the competitive price of the good. What can we say about the relative dead-weight losses in the long-run?

A) the dead-weight loss from monopoly pricing will always be higher
B) the dead-weight loss from the tax will always be higher
C) the dead-weight loss will be equal in both cases
D) we cannot say without more information about the marginal cost curve

Question 64

Price discrimination requires the firm to:

A) differentiate between different units of its product
B) engage in arbitrage
C) separate customers according to their willingness to pay
D) separate customers according to their age

Question 65

A perfectly price-discriminating monopolist is able to:

A) maximise profit, but not produce a level of output consistent with optimal social wellbeing
B) produce a level of output consistent with optimal social wellbeing, but not maximise profit
C) exercise illegal preferences over the gender of its employees
D) maximise profit and produce a level of output more consistent with optimal social wellbeing

Question 66

It is very rare for monopolies to arise from exclusive ownership of a resource because:

A) actual economies are quite small
B) the natural scope of many such markets is often local
C) few firms own a resource for which there are no close substitutes
D) all of the above are true

Question 67

Given that monopoly firms do not have to compete with other firms, the outcome in a monopoly market is best described as:

A) not in the best interest of society
B) in the best interest of society
C) efficient, but not equitable
D) equitable, but not efficient

Question 68

A rational pricing strategy for a profit-maximising monopolist is:

A) synergy pricing
B) price discrimination
C) price segregation
D) average cost pricing

Question 69

The simplest way for a monopoly to arise is for a single firm to:

A) own a key resource
B) inflate its prices
C) cut production to increase demand for a product
D) collude with the other producers in town

Question 70

If a monopolist sells 200 units at $10 per unit and realises an average total cost of $6 per unit, what is the monopolist's profit?

A) $800
B) $1400
C) $2000
D) none of the above

Question 71

In which of the following situations will a firm be unable to price discriminate?

A) when different groups of consumers can be separated based on an observable characteristic
B) when consumers can communicate price information, but are unable to trade
C) when there are large differences in the willingness to pay of different consumers
D) when trading of the good is possible between consumers

Question 72

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as:

A) price discrimination
B) monopoly pricing
C) arbitrage
D) price segregation

Question 73

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $22. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $6.

A) there is not enough information is given to answer this question
B) $180
C) $240
D) $270

Question 74

If a monopolist is able to perfectly price discriminate:

A) consumer surplus is increased and deadweight loss is transformed into monopoly profit
B) consumer surplus is decreased and deadweight loss is increased
C) consumer surplus is increased and deadweight loss is increased
D) consumer surplus and deadweight losses are transformed into monopoly profits

Question 75

In theory, perfect price discrimination:

A) increases the monopolist's profits
B) decreases consumer surplus
C) decreases deadweight loss
D) does all of the above

Question 76

Suppose there is one firm in a market. If this firm sells the same good at different prices to different customers, then this practice is called:

A) price determination
B) predatory pricing
C) variable pricing
D) price discrimination

Question 77

For price discrimination to be feasible it is necessary for the firm to:

A) have a flexible wage policy
B) have perfect information about consumer demand
C) have some market power
D) have exclusive control over a natural resource

Question 78

Consider a profit-maximising monopoly pricing under the following conditions. The profit-maximising price charged for goods produced is $18. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 14 units. The demand curve and marginal-cost curves are linear. What is the deadweight loss?

A) $6
B) $24
C) $48
D) not enough information is given to answer this question

Question 79

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

A) arbitrage
B) price discrimination
C) cost-plus pricing
D) regulation

Question 80

Price discrimination is a rational strategy for a profit-maximising monopolist when:

A) there is no opportunity for arbitrage across market segmentations
B) there is an opportunity for arbitrage across market segmentations
C) consumers are unable to be segmented into identifiable markets
D) they want to increase the deadweight loss that results from profit-maximising behaviour