Deck 12: Monopoly

Question 1

Owning a patent can provide a firm with monopolistic power.

Answer 1

True

Question 2

Only government restrictions serve as entry barriers.

Answer 2

False

Question 3

The U.S. Postal Service enjoys a monopoly position because of patent rights.

Answer 3

False

Question 4

There exist only two causes of monopoly: barriers to entry and government restrictions.

Question 5

The ability to control a scarce resource or input is a characteristic of perfect competition.

Question 6

A pure monopoly is defined as having only one seller.

Question 7

The ability to keep rivals out of the market is the recipe for creating and maintaining a monopoly.

Question 8

Pure monopoly is not studied because of its descriptive realism, but because it is a stepping stone toward more realistic models.

Question 9

Pure monopoly is able to exist because the firm's product is better than the substitutes that are available in the market.

Question 10

Monopolies are always large firms with great economies of scale.

Question 11

Technical superiority can be a source of entry barriers.

Question 12

Control of a scarce resource or input can serve as an entry barrier.

Question 13

The single source of monopolies is economies of scale.

Question 14

Until recently, the drug maker Pfizer enjoyed a monopoly of the cholesterol-control drug Lipitor because of patent rights.

Question 15

The two basic reasons why a monopoly exists are barriers to entry and cost advantages.

Question 16

When a patent expires, the firm holding the patent is able to maintain its monopoly control over the market.

Question 17

Owning a patent can always provide a firm with monopoly control of a market.

Question 18

Under monopoly, resources are allocated as efficiently as in perfect competition.

Question 19

Pure monopoly markets are very common in the real world.

Question 20

The key element in preserving a monopoly is keeping rivals out of the market.

Question 21

For natural monopoly markets, government regulators frequently encourage competition among a number of firms.

Question 22

The existence of a natural monopoly stems from the size of the firm relative to the total market demand for the product of that firm.

Question 23

The software industry has traits in common with monopoly markets.

Question 24

A monopolist is a price maker.

Question 25

A natural monopoly is one that deliberately erects entry barriers.

Question 26

Many public utilities are permitted to operate as monopolies because they enjoy economies of large-scale production.

Question 27

A monopolist supply curve can be defined in the same way that it can for a perfectly competitive firm.

Question 28

If the monopolist's supply curve is drawn, it is a positively sloped curve similar to that for the perfectly competitive market.

Question 29

A monopolist is a price taker, just like a perfect competitor.

Question 30

A monopolist faces a horizontal demand schedule.

Question 31

High sunk costs in the jet aircraft market has assured Boeing of a monopoly in the production of jets for the air travel market.

Question 32

The marginal revenue curve for a monopolist is the same as its demand curve.

Question 33

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms.

Question 34

Public utilities, due to their economies of scale, are permitted by government to charge whatever price that they wish.

Question 35

In cases of natural monopolies, society would be better off with many firms competing with each other.

Question 36

The presence of large sunk costs often serves as a naturally imposed barrier to entry.

Question 37

A monopolist is a price maker who will lose some business if the price is increased.

Question 38

Natural monopolies are of theoretical, but not practical interest.

Question 39

The marginal revenue curve for a monopolist is always below the demand curve.

Question 40

A monopolist will maximize profits by producing a quantity specified by setting marginal revenue equal to marginal cost.

Question 41

A monopolist maximizes profit by producing the quantity at which MC = MR, just like a perfect competitor.

Question 42

A monopolist is willing to lose some customers by charging higher prices, since this results in higher profits.

Question 43

Entry barriers can lead to long-run economic profits.

Question 44

A major difference between a monopoly and perfect competition is that monopolies can earn an economic profit in the long run and a perfectly competitive firm cannot.

Question 45

A monopoly may breed inefficiency by reducing competition and restricting production.

Question 46

A monopolist can earn a positive economic profit, even in the long run.

Question 47

A similarity between monopoly and perfect competition is that both types of firms are able to earn economic profits in the short run.

Question 48

The rule of MC = MR does not apply to a monopolist.

Question 49

A monopoly restricts output and charges a higher price than other types of firms.

Question 50

It is possible to distinguish a monopoly from perfect competition by noting that only competitive firms can earn economic profits in the short run.

Question 51

Perfect Competition is an industry in which there is only one supplier of a product that has no close substitutes.

Question 52

Although monopoly has lower output than competition, the level of output is efficient.

Question 53

Since a monopolist firm will lose some customers when the price is increased, it will make every effort to keep the price as low as possible.

Question 54

A monopolist's profit per unit is shown by the difference between price and marginal cost per unit.

Question 55

Compared to a perfectly competitive industry, a monopoly produces a smaller output and charges a higher price.

Question 56

A monopolist can maximize profits by determining the quantity where price is equal to marginal cost.

Question 57

Entry barriers are present in monopoly markets but are not in perfectly competitive markets.

Question 58

A monopolist's total profit is shown by the difference between price and average cost per unit times the number of units sold.

Question 59

A monopolist's profit per unit is shown by the difference between price and average cost per unit.

Question 60

Adam Smith believed that monopoly is the most efficient market structure.

Question 61

It is possible that if a monopoly is broken up, the cost of production for that product could increase.

Question 62

The monopoly's ability to restrict output results in lower profits than other types of firms.

Question 63

Price discrimination allows a monopolist to make higher profits.

Question 64

A monopolist firm may be more innovative than a competitive firm.

Question 65

A positive aspect of monopolies is that they may aid innovation in the marketplace.

Question 66

Monopoly firms may lead to higher costs than perfectly competitive firms.

Question 67

A monopoly firm always devotes some of its profits to research.

Question 68

Too much of society's scarce resources are used to produce goods in monopoly markets.

Question 69

Since a monopolist has a unique product, it makes no sense for the firm to advertise.

Question 70

Price discrimination only occurs under monopoly.

Question 71

When theaters charge lower prices for matinee showing, it is not price discrimination, since it is more expensive to operate a theater during the day, as compared to the evening hours.

Question 72

Inefficient resource allocation is a major problem with monopolies.

Question 73

Economists consider price discrimination to always be undesirable.

Question 74

In the long-run, a monopolist charges the same price as a perfectly competitive firm.

Question 75

For a monopoly, MC = MR

Question 76

A profit-maximizing monopolist will stop production while MR is still greater than MC.

Question 77

In cases of natural monopoly, it is best to have only one firm producing all of the output in a market.

Question 78

The U.S. Postal Service engages in price discrimination.

Question 79

The difference in prices for first-class and coach airline tickets exemplifies price discrimination.

Question 80

A monopolist will increase output to the point where MR equals MC and not beyond.