Deck 8: Pure Monopoly

Question 1

Which of the following is the best example of a private, unregulated monopoly or near-monopoly is:

A) the local electric company.
B) a professional sports team.
C) the only large employer in a small town.
D) the local post office.

Answer 1

a professional sports team.

Question 2

Refer to the above diagram. If price is reduced from P₁ to P₂, total revenue will:

A) increase by A minus C.
B) increase by C minus A.
C) decrease by A minus C.
D) decrease by C minus A.

Answer 2

increase by C minus A.

Question 3

The data below relate to a pure monopolist and the product it produces. If the firm currently sells 2 units of output at a price of $18, in order to maximize profit the firm should:

A) leave its price and output unchanged.
B) lower its price to $14.
C) lower its price to $16.
D) raise its price to $20.

Answer 3

lower its price to $14.

Question 4

Refer to the above graph. At the profit-maximizing price and output this firm:

A) earns positive economic profits.
B) incurs economic losses.
C) breaks even.
D) should shut down.

Question 5

In the figure above:

A) triangle ABC represents the welfare loss to the society because of the monopoly in the market.
B) if the firm is producing an amount Q_C (point C), it is maximizing profit because MC = AC at that point.
C) point B, where MR = MC, represents the point where the difference between total revenue and total cost is the largest.
D) point A, where MR = AC, represents the point where the difference between total revenue and total cost is the largest.

Question 6

Which is a major criticism of a monopoly as a source of allocative inefficiency?

A) A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to the monopolist's opportunity cost.
B) A monopolist has no incentive to produce efficiently because even the inefficient monopolist can be assured of economic profits.
C) A monopolist will always make profits and that means that prices are too high.
D) A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms in other industries.

Question 7

Which of the following Internet firms has a near monopoly in the search market?

A) Google
B) Facebook
C) Amazon
D) Bing

Question 8

Compared to the purely competitive firm, a pure monopoly:

A) is able to use barriers to entry and maintain positive economic profits in the long run.
B) produces an equal amount of output but charges higher prices to cover all costs in the market.
C) is efficient from society's perspective because it has big plants and it uses the newest possible production technology.
D) will always become competitive in the long run because positive economic profits will induce competitors into the market.

Question 9

Using the graph above, what is the difference between purely competitive and pure monopolist output at the industry level?

A) 0 units of output
B) 35 units of output
C) 70 units of output
D) 105 units of output

Question 10

Which statement is correct?

A) Monopolist firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization.
B) Monopolist firms are sheltered from competitive forces and such an environment makes them subject to X-inefficiency.
C) Monopolist firms are in industries with low barriers to entry that tend to lower the cost of producing products.
D) Competitive firms tend to be more efficient than monopolist firms because they maximize per-unit profits, not total profits.

Question 11

If the AC curve in the above graph represents the minimum of the average total cost curve, then examples of X-inefficiency would best be represented by point:

A) A at output level Q₁ and point D at output level Q₁.
B) A at output level Q₁ and point B at output level Q₂.
C) E at output level Q₂ and point F at output level Q₃.
D) D at output level Q₁ and point C at output level Q₃.

Question 12

Which is true of price discrimination?

A) Successful price discrimination will provide the firm with lower total profits than if it did not discriminate.
B) Successful price discrimination will provide the firm with more profit than if it did not discriminate.
C) Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.
D) It exists when price differences depend critically on differences in the costs of production of serving different groups of buyers.

Question 13

Which is not true of price discrimination?

A) It exists when price differences depend critically on different buyers' evaluations of a product.
B) Successful price discrimination will provide the firm with more profit than if it does not discriminate.
C) Successful price discrimination implies that the producer can separate customers into easily identifiable groups.
D) Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.

Question 14

-Refer to the figures above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly). P denotes the price of a round of golf and Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should:

A) charge $9 for each round, regardless of the day of the week.
B) charge $7 for each round, regardless of the day of the week.
C) charge $7 for each round on weekdays, and $10 during the weekend.
D) charge $9 for each round on weekdays, and $10 during the weekend.

Question 15

- Refer to the figures above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly). P denotes the price of a round of golf and Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, then over the course of a full seven-day week this price-discriminating, profit-maximizing golf course should sell a total of:

A) 300 rounds.
B) 740 rounds.
C) 900 rounds.
D) 1200 rounds.

Question 16

-Refer to the figures above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly). P denotes the price of a round of golf and Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, how much economic profit will this profit-maximizing golf course earn over the course of a full seven-day week?

A) $4200
B) $3700
C) $3400
D) $2700

Question 17

Google is an example of a pure monopoly in the Internet search market.