Deck 15: Monopoly

Question 1

Firms with substantial monopoly power are quite common, because many goods are truly unique.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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 5

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

Question 6

Governments should always avoid creating monopolies, as it leads to prices above marginal costs.

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

The De Beers Diamond company is not worried about differentiating their product from all the other gemstones.

Question 12

For a competitive firm, average revenue always equals the price of the good.This is also true for monopolies.

Question 13

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

Question 14

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

Question 15

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 16

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

Question 17

A monopoly firm is able to charge a price that is higher than their marginal revenue.

Question 18

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

Question 19

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 20

Another form of price discrimination is when a monopoly offers lower prices to customers who buy small quantities.

Question 21

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 22

A monopoly firm has an upward-sloping supply curve.

Question 23

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

Question 24

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

Question 25

A monopoly is likely to occur if it is the incumbent firm and there are significant barriers to entry.

Question 26

A social planner maximises total welfare by charging a price equal to marginal cost.

Question 27

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

Question 28

When a natural monopoly exists, it is never more cost-effective for two or more private firms to produce the product.

Question 29

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 30

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often efficient, but not equitable.

Question 31

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 32

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 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

If the firm is the only owner of a key resource then this will be a significant barrier to entry.

Question 41

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 42

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 43

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 44

Suppose monopoly firm has exclusive ownership of a key resource, this results in:

A)high standards of service for customers
B)a price that reflects the best interests of society
C)a price that equals marginal cost of production
D)a price that exceeds marginal cost of production

Question 45

An industry is a natural monopoly when which of the following is(are) true?
(i) a single firm will supply a good or service at a socially optimal quantity
(ii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms
(iii) a single firm can produce additional units at a smaller marginal cost

A)(i) and (ii)
B)(ii) only
C)(ii) and (iii)
D)(iii) only

Question 46

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 47

Patent and copyright laws are major sources of:

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

Question 48

Which of the following are barriers to entry that can give rise to a monopoly?
(i) a patent giving exclusive right to manufacture a new electronic device
(ii) a single firm buys all the rights to mine iron ore in Australia
(iii) a single firm can produce at lower cost than several firms

A)(i) only
B)(i) and (ii) only
C)(ii) and (iii) only
D)(i), (ii), and (iii)

Question 49

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 like chicken

Question 50

Natural monopolies differ from other forms of monopoly because they:

A)are generally not worried about competition eroding their monopoly position in the market
B)are not subject to barriers to entry
C)are not regulated by government
D)generally don't make a profit

Question 51

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

Question 52

Characteristics of a monopoly include which of the following?
(i) it is the sole seller of its product
(ii) its product does not have close substitutes
(iii) it generates large economic profits
(iv) it is located in a small geographic market

A)(i), (iii), and (iv)
B)both (i) and (iii)
C)both (i) and (ii)
D)(i), (ii), (iii) and (iv)

Question 53

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 54

Which of the following qualify as barriers to entering a monopoly market?
(i) a key resource's ownership is not defined
(ii) the government has given the existing monopoly the exclusive right to produce the good
(iii) the costs of production make a single producer more efficient than a large number of producers

A)(i) and (ii)
B)(ii) and (iii)
C)(i) only
D)(i), (ii) and (iii)

Question 55

The market demand curve for a monopolist is typically:

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

Question 56

Which of the following statements is(are) true of monopolies?
(i) they cannot make unlimited profits
(ii) they have the ability to set prices at whatever level they desire
(iii) they do not have to worry about their revenue falling if they increase the prices

A)(i) and (ii)
B)(ii) only
C)(ii) and (iii)
D)(i), (ii) and (iii)

Question 57

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 58

When a firm's average-total-cost curve continually declines, the firm is:

A)a government-created monopoly
B)a resource monopoly
C)a natural monopoly
D)all of the above

Question 59

Suppose that Dave's Camera Shop operates in a competitive market for cameras, which of the following statements is (are) true?
(i) he can maximise profit by raising his prices
(ii) he can maximise profit by altering the quantity of cameras that he supplies
(iii) he will be able to earn a profit only if he differentiates his cameras from the rest of the market

A)(i) only
B)(ii) only
C)(i) and (ii)
D)(iii) only

Question 60

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 61

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 62

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 63

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 64

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 65

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 66

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, which means it receives less for the units already sold
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 in order to discourage new firms from entering the market

Question 67

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 68

Which of the following statements are true?
I) in a monopoly, average revenue always equals the price of the good
Ii) a monopoly's profit is maximised when price equals marginal revenue
Iii) the marginal revenue curve will always lie below the demand curve

A)(i) and (ii) only
B)(i) and (iii) only
C)(ii) and (iii) only
D)(i), (ii), and (iii)

Question 69

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 70

The main constraint facing the ability of a natural monopolist to price its product is:

A)its labour costs
B)the regulations imposed by the government
C)nothing - there are no constraints on the price as the monopolist has all the power
D)the market demand curve

Question 71

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 72

In a market characterised by monopoly, the market demand curve is:

A)downward-sloping
B)horizontal
C)upward-sloping
D)vertical

Question 73

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 74

The main differences between a competitive firm and a monopoly are:
(i) competitive firms do not have to worry about the price effect lowering their total revenue
(ii) marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge
(iii) monopolies must lower their price in order to sell more of their product, while competitive firms do not

A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)(i), (ii) and (iii)

Question 75

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 76

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 77

An important assumption about a monopoly is that it behaves as a:

A)price maximiser
B)profit maximiser
C)revenue maximiser
D)wage minimiser

Question 78

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 79

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 80

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good:

A)increases
B)decreases
C)is unaffected
D)not enough information is given to answer this question