Deck 13: Positive Externalities and Public Goods

Question 1

A)the area A + B
B)the area A - B
C)the area (A + B) - MC
D)area A

Answer 1

D

Question 2

Monopoly power is best described as:

A)the ability to charge the profit-maximizing price.
B)the ability to produce the profit-maximizing output level.
C)the ability to earn economic profits without causing new firms to enter the market.
D)the ability to produce where marginal revenue intersects halfway between the origin and the demand curve.

Answer 2

C

Question 3

A profit-maximizing monopolist's total profit can be found bycalculating:

A)MR - MC.
B)TR - TC.
C)AR - AC.
D)MC - MR.

Answer 3

B

Question 4

(Figure: Maximum Willingness to Pay) Refer to the figure.What is the maximum price that the consumer is willing topay for 100 units?

A)$100
B)$80
C)$75
D)$90

Question 5

Which of the following is always TRUE for monopolies?

A)MR > D
B)P > MR
C)P > AC
D)TR > TC

Question 6

When a pharmaceutical company discovers a new drug,patent law gives it market power by guaranteeing:

A)partial ownership of the right to sell the drug for an unlimited number of years.
B)partial ownership of the right to sell the drug for a limited number of years.
C)sole ownership of the right to sell the drug for a limited number of years.
D)sole ownership of the right to sell the drug for an unlimited number of years.

Question 7

When comparing a monopoly with a competitive industry:

A)monopoly quantity and monopoly price will be lower than that of a competitive firm.
B)monopoly quantity will be higher, and monopoly price will be lower, than that of a competitive firm.
C)monopoly quantity will be lower, and monopoly price will be higher, than that of a competitive firm.(True Answer
)Correct
D)monopoly quantity and monopoly price will be higher than that of a competitive firm.

Question 8

(Figure: Maximum Willingness to Pay) Refer to the figure.What is the profit that the monopolist is earning?

A)$10,000
B)$5,500
C)$4,500
D)There is not enough information to answer the question.

Question 9

(Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolistis producing 9 units:

A)its marginal cost is below the marginal revenue level.
B)its average revenue is greater than the price it receives for the product.
C)it could increase its profit by raising the price and selling fewer units.(True Answer )Correct
D)it is producing at the socially optimal level.

Question 10

For a monopolist, MR is always less than P because:

A)when a monopolist lowers the price to sell more units, it must lower the prices of all units sold.
B)MR is always less than P regardless of what type of firm we are discussing.
C)marginal revenue is always lower for the next unit sold.
D)when a monopolist needs to sell more units, it must lower marginal revenue in order to do so.

Question 11

Which of the following statements is TRUE?

A)Market power is the ability to raise price and sell more units of a good.
B)Market power may result from government regulations and patent protection.
C)A monopoly is a firm without market power.
D)All of the answers are correct.

Question 12

(Table: Profit-Maximizing Monopolist) Refer to the table. The profit-maximizingquantity for this monopolist is ________ units

A)7
B)8
C)9
D)10

Question 13

(Figure: Maximum Willingness to Pay) Refer to the figure.What is the profit-maximizing quantity?

A)125
B)110
C)100
D)75

Question 14

What is the profit maximization condition for a monopolist?

A)MR > MC
B)MR = MC
C)AR = MC
D)AR = D

Question 15

Which of the following is not a reason that monopolies arise?

A)patents
B)economies of scale
C)excess competition
D)control of natural resources

Question 16

(Figure: Monopoly Profits) Refer to the figure. What is themonopolist's price and output level?

A)P = $3.00; Q = 40
B)P = $16.50; Q = 40
C)P = $6.00; Q = 40
D)P = $6.00; Q = 80

Question 17

(Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolistsells 8 units, its average cost and marginal cost levels are:

A)$2.63 and $2 respectively.
B)$2.56 and $4 respectively.
C)$2.56 and $2 respectively.
D)$2.63 and $4 respectively.

Question 18

Which of the following is TRUE for monopolists?

A)They charge a price below average cost, which guarantees above normal profits.
B)Their marginal revenue increases with output.
C)They maximize profits by producing at the midpoint of their demand curve.
D)They produce all units of output for which marginal revenue is greater than or equal to marginal cost.(True
Answer )Correct

Question 19

GlaxoSmithKline owns a government grant of temporarymonopoly rights on Combivir, the AIDS drugs, due to:

A)patents.
B)laws preventing entry of competitors.
C)economies of scale.
D)innovation.

Question 20

(Table: Profit-Maximizing Monopolist) Refer to the table. For the quantity of 6units, this monopolist's average cost and average revenue levels are:

A)$2.71 and $10 respectively.
B)$2.83 and $11 respectively.
C)$2.71 and $2 respectively.
D)$2.83 and $2 respectively.

Question 21

Figure: Maximize Monopoly Profits (Figure: Maximize Monopoly Profits) Refer to the figure. Themonopolist will maximize its profit by charging a price equalto:

A)P₁.
B)P₂.
C)P₃.
D)P4.

Question 22

A)3
B)4
C)5
D)6

Question 23

In a graph showing a straight-line market demand curve, themarginal revenue curve is:

A)a straight line that begins at the same point as the demand curve on the y-axis but with twice the slope.(True Answer
)Correct
B)a straight line that begins at the origin but with twice the slope of the demand curve.
C)the same straight line as the demand curve.
D)There is not enough information to complete the statement.

Question 24

(Figure: Monopoly Profits) Refer to the figure. Themonopolist earns a profit of:

A)$630.
B)$420.
C)$540.
D)$480.

Question 25

(Figure: Maximize Monopoly Profits) Refer to the figure. Themonopolist will maximize its profit by producing at outputequal to:

A)Q₁.
B)Q₂.
C)Q₃.
D)Q4.

Question 26

GlaxoSmithKline (GSK) maximizes profit by producing aquantity of 800 pills where marginal cost is $2 and averagecost is $4. Consumers are willing to pay as much as $10 perpill when the quantity supplied is 800 pills. What is themaximum amount of profit that GSK can earn under theseconditions?

A)$3,200
B)$4,800
C)$6,400
D)$8,000

Question 27

A monopolist can sell 300 units of output for $29.00 per unit.Alternatively, it can sell 301 units of output for $28.25 perunit. The marginal revenue of the 301st unit of output is:

A)-$196.75.
B)-$0.75.
C)$196.75.
D)$28.25.

Question 28

Which of the following statements is TRUE?

A)If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling
More units at a lower price per unit.
B)If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling
Fewer units at a higher price per unit.
C)When a monopolist produces where MR = MC it always earns a positive economic profit
D)A monopolist is guaranteed monopoly profits.

Question 29

To maximize profit, the monopolist increases output:

A)until it is using full manufacturing capacity.
B)until marginal cost is equal to marginal revenue.(True Answer )Correct
C)to the same amount it would produce if the firm was competitive, but maximizes price.
D)as long as the marginal revenue curve is higher than the demand curve.

Question 30

If the quantity demanded for a hand-carved pineapple is 2 at aprice of $16, and the quantity demanded will increase to 3 ifthe seller lowers the price to $14, what is the seller's marginalrevenue from selling 3 units of pineapple?

A)8
B)24
C)10
D)14

Question 31

If a monopolist faces a straight-line downward slopingdemand curve, the price of the units it sells is always:

A)greater than the average revenue.
B)equal to marginal revenue.
C)greater than marginal revenue.
D)less than the average revenue.

Question 32

A firm would prefer that its product demand curve is:

A)perfectly elastic.
B)elastic.
C)inelastic.
D)horizontal.

Question 33

The marginal revenue curve is a straight line beginning at thesame point on the:

A)horizontal axis as the demand curve but with half of the slope.
B)vertical axis as the demand curve but with half of the slope.
C)horizontal axis as the demand curve but with twice the slope.
D)vertical axis as the demand curve but with twice the slope.

Question 34

A consumer is ________ likely to be sensitive to price if thepurchase ________ covered by insurance.

A)more; is
B)less; is
C)less; is not
D)None of the answers is correct.

Question 35

(Figure: Monopoly Markup) Refer to the figure. Themonopolist's markup is:Figure: Monopoly Markup

A)a - b.
B)b - d.
C)d.
D)a - d.

Question 36

A firm with monopoly power is able to set a markup price thatis:

A)lower than prices on similar goods sold by competitive firms.
B)the same as the prices on similar goods sold by competitive firms.
C)higher than prices on similar goods sold by competitive firms.
D)the maximum price a market participant will pay for similar goods.

Question 37

To maximize profit a monopolist will produce the level ofoutput where:

A)marginal revenue is equal to average cost.
B)average revenue is equal to marginal cost.
C)marginal revenue is equal to marginal cost.
D)average revenue is equal to average cost.

Question 38

When a monopolist decreases the price of its good, consumers:

A)buy the same amount of the good as before.
B)buy more.
C)buy less.
D)may buy more or less, depending on the price elasticity of demand.

Question 39

Assuming the same cost structure, a competitive marketproduces ________ output at ________ prices than a monopolymarket.

A)less; lower
B)more; lower
C)less; higher
D)more; higher

Question 40

Which of the following statements is correct?

A)A monopolist's marginal cost is greater than its price.
B)The more inelastic the demand curve, the greater the monopolist's markup.
C)The monopolist's profit is equal to P(Q - MR).
D)The position of the marginal revenue curve on the y-axis reflects consumer demand elasticity.

Question 41

A monopolist sells in two different markets and charges thesame price of $10 in both markets. In Market A, the demandcurve is described by Qd = 50 - 2P. In Market B, the demandcurve is described by Qd = 60 - P. If the monopolist lowersprices by $1 in the market with the more elastic demand andraises prices by $1 in the market with the more inelasticdemand curve, how much does its total revenue change by?

A)-$33
B)$459
C)$767
D)$308

Question 42

When a good has relatively few substitutes:

A)demand for the good is elastic.
B)monopolists will tend to increase their markup for the good.
C)monopolists will tend to decrease their markup for the good.
D)producers will be able to "steal" all of the consumer surplus from consumers.

Question 43

In a purely monopolized environment where each monopolistsucceeds at raising its price, the result would be:

A)demand is lower for all goods and profits fall.
B)higher prices spread throughout the economy resulting in increased poverty.
C)higher prices lead to increased competition.
D)wages increase as well, leading to higher incomes across the population.

Question 44

Which of the following statements is TRUE?

A)Consumer surplus under competition is greater than consumer surplus under monopoly.
B)Producer surplus under competition is greater than producer surplus under monopoly.
C)Total surplus under monopoly is greater than total surplus under competition.
D)Deadweight loss is greater in markets where monopoly power is less significant.

Question 45

Which of the following effects would generally make demandcurves more inelastic?

A)"You can't take it with you" effect
B)"Other people's money" effect
C)Both effects
D)Neither effect

Question 46

Suppose that the government decided to reducepharmaceutical patent protection by requiring companies tosell their drugs at marginal cost. What are the likelyconsequences of such a policy?

A)There would be an increase in consumer surplus.
B)The deadweight loss in the market would decline.
C)The future supply of new drugs would decrease.
D)All of these statements are correct.

Question 47

(Figure: Monopoly Markup) Refer to the figure. Consumersurplus under competition is represented by:

A)triangle abc.
B)triangle cef.
C)square bcde.
D)triangle adf.

Question 48

With health insurance, medical treatments are paid bysomeone other than the patient, which will make consumerswith serious diseases relatively:

A)insensitive to the price of pharmaceuticals.(True Answer )Correct
B)sensitive to the price of pharmaceuticals.
C)insensitive to the premium of health insurance.
D)sensitive to the premium of health insurance.

Question 49

Which of the following statements is TRUE?

A)Monopolized economies lead to more poverty and less economic growth.
B)Competitive market economies lead to higher prices for everyone.
C)Social prosperity is typically the result of government- created monopolies.
D)Business leaders in the United States are more self- interested than business leaders in lesser-developed
Nations.

Question 50

High prices charged by monopolists will cause themonopolists':

A)gains to exceed the consumer losses.
B)gains to be less than the consumer losses.(True Answer )Correct
C)losses to exceed the consumer gain.
D)losses to be less than the consumer gain.

Question 51

A monopolist increased output by 100 units, but cut prices by$20 to sell this additional output at $1,000 per unit. What isTRUE about marginal revenue?

A)MR totals $2,000
B)MR totals $100,000
C)MR totals -$2,000
D)MR cannot be calculated with the information given.(True Answer )Correct

Question 52

In a monopoly market:

A)the lack of competition causes the price of the product to equal average cost.
B)a firm maximizes profits by producing the level of output that minimizes average cost.
C)the additional revenue from selling one more unit of output usually is greater than the price.
D)the lure of above-normal profits may give a firm an incentive to develop new products and technologies.(True
Answer )Correct

Question 53

(Figure: Monopoly Markup) Refer to the figure. Thedeadweight loss attributable to monopoly is:

A)triangle abc.
B)triangle cef.
C)square bcde.
D)triangle adf.

Question 54

One of the great lessons of economics is that:

A)higher prices lead to less demand and increased innovation by firms.
B)monopolies may increase efficiency if properly constructed by the government.
C)good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest towards social destruction.
D)corruption may increase efficiency if it leads to increased innovation.

Question 55

Under monopoly, the portion of the outgoing consumersurplus that is not transferred to the monopoly firm or stillconsidered consumer surplus is:

A)known as deadweight loss.
B)the key to making the moral case against monopoly.
C)transferred to the government.
D)available to third parties who benefit from sales of the monopolist's output.

Question 56

A)abd.
B)acdf.
C)bcdf.
D)def.

Question 57

Which of the following statements is TRUE?
I) Competitive markets channel the self-interest of businessleaders toward social prosperity
II)Political structures often channel self-interest toward socialdestruction
III) Many monopolies are government-created.

A)I and III
B)I and II
C)II and III
D)I, II, and III

Question 58

The "You can't take it with you" effect potentially increasesmarket power for pharmaceuticals if consumers who aredying of disease are also:

A)more inclined to spend their money on medicine than to save it.
B)more inclined to bequeath their money than spend it on medicine.
C)relatively sensitive to the price of life-saving pharmaceuticals.
D)relatively sensitive to how they spend money.

Question 59

A monopolist can raise its price further above marginal cost,the more ______ its ______ is.

A)elastic; demand
B)inelastic; demand
C)elastic; supply
D)inelastic; supply

Question 60

(Figure: Monopoly Markup) Refer to the figure. Consumersurplus under monopoly is represented by:

A)triangle abc.
B)triangle cef.
C)square bcde.
D)triangle adf.

Question 61

Natural monopolies:

A)produce the optimal quantity of output, unlike other monopolies.
B)exist when one firm can produce the market output at a lower cost than two or more firms.
C)generally experience large diseconomies of scale, leading to production inefficiencies and work stoppages.
D)face market demand curves that are perfectly elastic.

Question 62

Which of the following statements is TRUE?
I) The deadweight loss from a monopoly refers to the loss inconsumer surplus that is captured by the monopolist as profit
II)According to theory, if the government sets a naturalmonopolist's price equal to marginal cost, the sociallyoptimum quantity of output will result
III) Deregulation of cable television caused higher prices andfewer programming choices for customers.

A)I only
B)II only
C)I and III only
D)I, II, and III

Question 63

If the economies of scale are large enough, average cost for anatural monopoly can be:

A)higher than the average cost under competition.
B)lower than the average cost under competition.(True Answer )Correct
C)higher than the price of the natural monopoly.
D)higher than the price under competition.

Question 64

Figure: Regulated vs Unregulated Monopolist (Figure: Regulated vs Unregulated Monopolist) Refer to thefigure. Calculate the change in consumer surplus from anunregulated monopoly to a regulated monopoly.

A)$6,400
B)$2,800
C)$400
D)$3,600

Question 65

Modern theories of economic growth emphasize thatmonopolies:

A)are always detrimental to economic growth due to the deadweight loss they inflict on markets.
B)may be beneficial to growth in less-developed countries, but only lead to higher prices in well-developed market
Economies.
C)may sometimes be necessary for economic growth.(True Answer )Correct
D)only exist because of corruption and government interference in markets.

Question 66

When a regulated monopolist maximizes social surplus, itproduces at an optimal Q where:

A)P = MC.
B)MR = MC.
C)D = AC.
D)AR = AC.

Question 67

Which of the following statements is TRUE?
I) To maximize profit, a monopolist produces where P = MC
II)Economies of scale are likely important for subways andcable TV
III) Since producer surplus includes large monopoly profits,total surplus is higher in monopoly markets.

A)I only
B)II only
C)II and III only
D)I, II, and III

Question 68

A monopolist's TC function and MC functions are as follows:TC = 20 + 4Q and MC = 4. This monopolist can be said to havewhich of the following characteristics?

A)It must be producing at the socially optimal level of output.
B)It is a natural monopoly.
C)The marginal cost curve rises at an increasing rate.
D)It is one of two firms in the industry.

Question 69

(Figure: Regulated vs Unregulated Monopolist) Refer to thefigure. Calculate the deadweight loss when this monopoly goesunregulated.

A)$6,400
B)$2,800
C)$850
D)$400

Question 70

Which of the following statements is correct?

A)Patents are one way of preventing monopoly.
B)If pharmaceutical patents are enforced, the number of new drugs will decrease.
C)Monopoly profit encourages firms to research and develop new drugs.
D)Competition creates incentives for the invention of new drugs.

Question 71

When a monopolist maximizes social surplus, it produces at anoptimal Q where:

A)AR = MC.
B)MR = MC.
C)D = AC.
D)AR = AC.

Question 72

If a pharmaceutical company discovering a new drug is notgranted a patent to retain its monopoly power on the drug:

A)innovation in the pharmaceutical industry will increase.
B)the number of new drugs is likely to increase.
C)more pharmaceutical companies will engage in discovering new drugs.
D)research and development in discovering new drugs will decrease.

Question 73

Many people argue that the U.S. government should controlpharmaceutical prices. What would most likely happen as aresult of this policy?

A)Lower prices would mean lower profits and hence less incentive for firms to engage in research and development of
New drugs.
B)Government price controls on pharmaceuticals would lead to an increased standard of living.
C)The number of new drugs would increase as firms would compete for new markets.
D)Demand for pharmaceuticals would increase as a result of the lower prices.

Question 74

Economist Michael Kremer offered a unique solution to theproblem of deadweight loss created by monopolies that havecontrol of an innovation. What solution did he propose thatwould leave the drive to innovate uncompromised?

A)The government should buy out the innovation created by the monopoly.
B)The government should sell a patent to the monopoly that creates the innovative technology.
C)The government should buy out the rights of the patent from the monopoly.
D)The government should place a price control on the monopoly's product.

Question 75

Which of the following statements is correct?
Once a patentexpires:
I) monopoly profits increase
II)deadweight loss is eliminated
III) generic equivalents appear quickly.

A)I and III only
B)III only
C)II and III only
D)I and II only

Question 76

One way that has been suggested to eliminate deadweight lossfrom monopoly power without reducing incentives toinnovation is to:

A)have government pay monopolists to reduce their output.
B)have government pay monopolists to acquire the patent rights.
C)have government eliminate the patent system.
D)require that the patent-owners allow competitors to use their innovations.

Question 77

Nobel Prize-winning economic historian Douglass Northargues that:

A)monopolies have been the leading cause of slow growth in developing nations.
B)economic growth was slow until patent laws were created to protect innovation.
C)economic growth would improve if the government created more natural monopolies.
D)corruption may actually lead to increases in innovation and development of new products.

Question 78

Which of the following correctly defines a monopoly that haseconomies of scale?

A)a single firm operating in a market
B)a single firm that can supply the market at a lower cost than two or more firms
C)a single firm that controls the production of a natural resource
D)a single firm that produces the efficient and socially optimal quantity in a market

Question 79

(Figure: Regulated vs Unregulated Monopolist) Refer to thefigure. Calculate consumer surplus when this monopoly isregulated.

A)$6,400
B)$2,800
C)$3,600
D)$400

Question 80

Monopolies can arise naturally when:

A)a monopoly firm requires the use of natural resources to produce its product.
B)a large firm can produce at lower cost than other small firms.
C)the monopolist product is sold in its natural state, such as water or crude oil.
D)the monopolist product is used to produce other goods.