Deck 24: Aprice-Searcher Markets With High Entry Barriers

Question 1

If a firm has substantial market power,it must be operating in an industry that would be classified as

A)a monopoly or oligopoly.
B)competitive price-taker.
C)competitive price-searcher.
D)competitive price-searcher or price-taker.
E)competitive price-taker or a monopoly.

Answer 1

A

Question 2

Assuming that firms maximize profits,how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

A)The output of the monopolist will be too large and its price too high.
B)The output of the monopolist will be too large and its price too low.
C)The output of the monopolist will be too small and its price too high.
D)The output of the monopolist will be too small and its price too low.

Answer 2

C

Question 3

A monopolist has less to gain from cost-saving measures in the production process when

A)the monopoly is unregulated.
B)regulators use average cost pricing to set the monopolist's price.
C)the demand for the product of the monopolist is inelastic.
D)changes in the regulated price occur only after considerable delay.

Answer 3

B

Question 4

Which of the following is most likely to contribute to the presence of monopoly in an industry?

A)economies of scale
B)an elastic market demand for the product produced by the industry
C)inefficiency due to bureaucratic decision-making procedures in the industry
D)controlling over 50 percent of the market

Question 5

Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market?

A)legally enforced patent rights
B)an inelastic demand for a product
C)licensing
D)control over an essential resource

Question 6

The U.S.Postal Service has a monopoly on the delivery of first-class mail due to

A)economies of scale.
B)a lack of initiative on the part of competing firms.
C)legal barriers limiting entry.
D)control over an essential resource.

Question 7

In essence,patents grant their owners

A)a property right to new products and production processes that they have developed.
B)the exclusive right to use a newly developed process or product forever.
C)the right to use resources owned by their competitors.
D)an exemption from laws that prohibit price discrimination.

Question 8

New York City limits the number of taxi cabs that can legally operate in the city.The most likely result of this practice is that

A)cab fares will be lower.
B)cab fares will be higher.
C)the cost of operating a taxicab will be lower.
D)subway fares will decrease.

Question 9

A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public,is an example of a

A)positive externality.
B)natural monopoly.
C)barrier to entry.
D)public good.

Question 10

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

A)a smaller firm will always have lower per-unit costs.
B)many firms will tend to emerge from the competitive process.
C)a single large firm will develop,and it will have cost advantages that protect it from potential rivals.
D)a single large firm will develop,and it will buy out any smaller rival firms to avoid the small firms' production at a lower per-unit cost.

Question 11

When firms use resources in an attempt to secure and maintain grants of market protection from the government,it is called

A)rent-seeking.
B)collusion.
C)franchising.
D)resource investment.

Question 12

A monopolist will maximize profits by

A)setting the price at the level that will maximize per-unit profit.
B)producing the output where marginal revenue equals total cost and charging a price along the demand curve.
C)selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost.
D)producing at the output rate where price equals marginal cost.

Question 13

An oligopolistic market

A)has a small number of rival firms,and each is large relative to the size of the market.
B)is characterized by firms that merely take the price that is determined by the forces of supply and demand in the market.
C)has low entry barriers facing firms that may be interested in entering the market.
D)has a large number of firms that are small relative to the size of the market.

Question 14

The price charged by oligopolists will

A)equal the equilibrium price in a price-takers market if the oligopolists collude.
B)equal the monopoly price if the oligopolists do not collude.
C)generally fall between the monopoly and competitive market equilibrium prices.
D)be the same whether the oligopolists cooperate with one another or not;only profit is affected.

Question 15

When economists talk about a barrier to entry,they are referring to

A)a factor that makes it difficult for potential competitors to enter a market.
B)the opportunity cost of equity capital that is incurred by a firm producing at minimum total cost.
C)the downward-sloping portion of the long-run average total cost curve.
D)the declining output experienced as additional units of a variable input are used with a given amount of a fixed input.

Question 16

When natural monopoly is present in an industry,the per-unit costs of production will be

A)lowest when there are a large number of producers in the industry.
B)lowest when a single firm generates the entire output of the industry.
C)lower for small firms than for large firms.
D)minimized at the output that maximizes the industry's profitability.

Question 17

A monopoly is most likely to emerge in a market when

A)the producers in the market have U-shaped average total cost curves.
B)the price elasticity of demand for the product is high.
C)the cost of entry and exit into the market is low.
D)economies of scale are large relative to market demand.

Question 18

Which one of the following is the best description of a monopolist?

A)a firm that produces a single product
B)a firm that is the sole producer of a narrowly defined product class,such as yellow,grade-A butter produced in Jackson County,Wisconsin
C)a firm that is the sole producer of a product for which there are no good substitutes in a market with high barriers to entry
D)a firm that is large relative to its competitors

Question 19

Oligopolistic agreements on price tend to be unstable because

A)although the monopoly price is the best price for all firms,oligopolists are unaware of this and thus charge prices that are lower than the price that could be charged by a monopolists,therefore,decreasing social welfare.
B)although the monopoly price maximizes the joint profits of the firms,a secret price cut by any individual firm will increase the profits of that firm;hence,collusive agreements tend to break down.
C)the demand for the products of oligopolistic industries is inherently unstable relative to the demand for the products of non-oligopolistic industries because demand for products in oligopolistic industries are dependent on changes in consumer tastes and preferences.
D)firms in oligopolistic industries have more concern for consumers than do firms in competitive industries.

Question 20

Which of the following provides the most secure protection for a firm with monopoly power?

A)quality advertising
B)legal barriers restricting entry into the market of the monopolist
C)predatory pricing
D)limited economies of scale

Question 21

When a single firm has control over the market supply of a resource that is essential to the production of a good,

A)economies of scale are usually important.
B)monopoly is frequently the result.
C)diseconomies of scale are the usual cause.
D)competition for the resource makes monopoly almost impossible

Question 22

Which of the following best fits the definition of a monopoly?

A)the local cable company
B)IBM,the world's largest manufacturer of certain types of computers
C)Panasonic,the only company that sells Technics brand of stereos
D)General Motors

Question 23

Which of the following indicates the major difference between monopolists and competitive price searchers?

A)Monopolists will always be able to make economic profit;competitive price searchers will not.
B)Barriers to entry are high under monopoly but low in competitive price-searcher markets.
C)Monopolists will face a downward-sloping demand curve;competitive price searchers will not.
D)Unregulated monopolists will charge prices that exceed marginal cost;competitive price searchers will not.

Question 24

At his current level of output,a monopolist has an MR of $10,an MC of $6,and an economic profit of zero.If the market demand curve is downward sloping and his marginal cost curve upward sloping,the monopolist

A)is producing his profit-maximizing level of output.
B)could increase his profit by increasing his output.
C)could increase his profit by increasing his price.
D)should exit the market if he has positive fixed cost.

Question 25

One of the effects of patents is to

A)reduce incentives for innovation.
B)give firms incentives to worry less about minimizing production costs.
C)temporarily provide the patent owner with monopoly power.
D)reduce the degree of monopoly power in the short run.

Question 26

Which of the following best explains why the monopolist's marginal revenue is less than the sales price?

A)To sell more units,the monopolist must reduce price on all units sold.
B)As the monopolist expands output,the average total cost will decline.
C)The monopolist charges each consumer the highest possible price.
D)When a firm has a monopoly,consumers have no choice other than to pay the price set by the monopolist.

Question 27

If a local ready-mix cement company is the only producer of cement in the local market,the monopoly power of the firm will

A)be small if entry barriers into the local market are high.
B)depend on how many other sellers of similar products there are in the national market.
C)be total since there are not any other sellers of the same product in the local market.
D)be minimal if the entry barriers restricting competition from other firms are low.

Question 28

Graphically,the marginal revenue curve of a monopolist

A)will sometimes lie below the demand curve of the monopolist.
B)will always lie below the demand curve of the monopolist.
C)is the same as the demand curve of the monopolist.
D)will equal -1 when the elasticity of demand is unitary.

Question 29

Which of the following explains why monopoly is uncommon in the real world?

A)firms usually face downward-sloping demand curves.
B)supply curves slope upward.
C)price is usually set equal to marginal cost by firms.
D)there are reasonable substitutes for most goods.

Question 30

Being a monopolist in the market

A)guarantees a positive short-run profit.
B)guarantees a positive long-run profit.
C)does not invalidate the profit-maximization rule to produce where MR = MC.
D)All of the above are correct.

Question 31

A firm that is a "pure monopoly" is

A)a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
B)the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
C)the only buyer of a unique raw material.
D)the producer of a product subsidized by the government.

Question 32

The demand curve of a monopolist is

A)identical to the marginal cost curve.
B)downward sloping and above the marginal revenue curve.
C)downward sloping and below the marginal revenue.
D)elastic because of a recognized interdependence with other firms.

Question 33

A profit-maximizing monopolist will continue expanding output as long as

A)marginal revenue exceeds marginal cost.
B)marginal revenue is positive.
C)the cost of producing an additional unit exceeds the marginal revenue derived from the unit.
D)economic profit is more than zero.

Question 34

Which of the following constitutes a barrier limiting the entry of potential competitors into a market?

A)diseconomies of scale
B)an elastic market demand for the product produced by the industry
C)control over an essential resource
D)a perfectly elastic demand curve

Question 35

At a given output level,a monopolist earns a profit only if the

A)slope of its TR curve exceeds the slope of his TC curve.
B)height of its MR curve exceeds the height of his MC curve.
C)height of its demand curve exceeds the height of his MR curve.
D)height of its demand curve exceeds the height of his ATC curve.

Question 36

The key element in preserving a monopoly is

A)government subsidy of critical enterprises.
B)keeping potential rivals out of the market.
C)guaranteeing availability of substitute products.
D)increased advertising expenditure.

Question 37

Since patent laws create monopoly power in the short run and thus provide a strong incentive for firms to undertake the risk and effort involved in the development of a technological improvement,we can expect that patent laws

A)are inefficient.
B)are damaging to consumer welfare in the long run.
C)reflect the power of special interests and the impact that they exert on the regulatory policy.
D)may lead to improved products at a lower cost in the long run.

Question 38

Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry

A)redistribute income from consumers to business decision makers without affecting the allocation of resources.
B)may be a source of business monopoly power,but they may also encourage innovation in the long run.
C)encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly.
D)help inventors at the expense of consumers in the long run.

Question 39

Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets?

A)A monopolist will maximize profit,while firms in competitive price-searcher markets will maximize sales.
B)A monopolist may be able to earn long-run economic profit,but firms in competitive price-searcher markets will not be able to do so.
C)A monopolist will charge a price that is greater than its marginal cost,but competitive price searchers will charge prices that are just equal to their marginal cost.
D)A monopolist will charge a price that is just equal to its marginal cost,but competitive price searchers will charge prices that are greater than their marginal cost.

Question 40

Which of the following is true of a monopolist's demand curve?

A)It is perfectly elastic.
B)It is perfectly inelastic.
C)It indicates that the monopolist will be able to sell more units at a higher price.
D)It is identical with the industry demand curve for the product.

Question 41

If marginal revenue exceeds marginal cost,a profit-maximizing monopolist will

A)raise price and decrease output.
B)lower price and increase output.
C)reduce both output and price.
D)hold output constant and raise price.

Question 42

A monopolist will earn economic profits as long as his price exceeds

A)marginal revenue.
B)average fixed cost.
C)average variable cost.
D)average total cost.

Question 43

Table 11-1

Refer to Table 11-1.The marginal cost of the fourth unit is

A)$7.
B)$12.
C)$25.
D)$60.

Question 44

If the average total cost curve is always above the demand curve of a monopolist,

A)the profits of the monopolist will be large.
B)the monopolist must be producing inefficiently.
C)even a monopolist will suffer economic losses.
D)entry will occur,forcing the monopolist to reduce price and expand output.

Question 45

A monopolist will maximize profits by

A)setting his price as high as possible.
B)setting his price at the level that will maximize per-unit profit.
C)producing the output where marginal revenue equals marginal cost.
D)producing the output where price equals marginal cost.

Question 46

In the short run,how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

A)lower price to expand revenue possibilities.
B)reduce output and raise price.
C)maintain the current price if profit is still positive.
D)increase plant size to lower marginal cost.
E)decrease plant size to lower marginal cost.

Question 47

For a monopolist that does not price discriminate,economic profit is maximized in the short run at a price of $140.Marginal revenue at that output level is

A)equal to $140.
B)greater than $140.
C)less than $140.
D)less than marginal cost.
E)greater than average revenue.

Question 48

When a monopolist is producing at the profit-maximizing output level,the value to consumers of one additional unit of output will

A)exceed the monopolist's marginal cost.
B)equal the monopolist's marginal cost.
C)be less than the monopolist's marginal cost.
D)exceed the price of the additional unit.

Question 49

A profit-maximizing monopolist that produces in the short run will

A)produce the level of output where marginal revenue exceeds marginal cost by the largest amount.
B)increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
C)produce the level of output where average total cost is at a minimum.
D)increase price as long as the average revenue exceeds the average total cost.
E)produce the level of output where average revenue exceeds average total cost by the largest amount.

Question 50

Table 11-1

Refer to Table 11-1.To maximize profit,the monopolist sets price at

A)$10
B)$15
C)$20
D)$25

Question 51

Assume a monopolist's marginal cost and marginal revenue curves intersect and the demand curve passes above its average total cost curve.The firm will

A)make an economic profit.
B)stay in operation in the short run,but shut down in the long run.
C)shut down in the short run.
D)lower the price.

Question 52

Table 11-1

Refer to Table 11-1.The maximum profit this monopolist can earn is

A)$5.
B)$15.
C)$16
D)$28

Question 53

At the long-run equilibrium level of output,the monopolist's marginal cost will

A)exceed price.
B)equal price.
C)be less than price.
D)be less than marginal revenue.

Question 54

There is only one gas station within hundreds of miles.The owner finds that when she charges $3 a gallon,she sells 199 gallons a day,and when she charges $2.99 a gallon,she sells 200 gallons a day.The marginal revenue of the 200th gallon of gas is

A)$.01.
B)$1.
C)$2.99.
D)$3.
E)$600.

Question 55

A monopolist earning short-run economic profit determines that at its present level of output,marginal revenue is $23 and marginal cost is $30.Which of the following should the firm do to increase profit?

A)Raise price and lower output.
B)Lower price and lower output.
C)Raise price and raise output.
D)Lower price and raise output.
E)Lower output but leave price unchanged.

Question 56

Table 11-1

Refer to Table 11-1.The marginal revenue of the second unit is

A)$10
B)$15
C)$20
D)$25

Question 57

The demand curve facing a monopolist

A)is perfectly elastic.
B)lies above its marginal revenue curve.
C)lies below its marginal revenue curve.
D)is the same as its marginal revenue curve.

Question 58

Which of the following is true of marginal revenue for a monopolist that charges a single price?

A)P = MR because there are no close substitutes for the monopolist's product.
B)P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
C)P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
D)P = MR only at the profit-maximizing quantity.

Question 59

When a monopolist is maximizing profit,which of the following conditions will always be satisfied?

A)P = MC
B)MR = AVC
C)P = ATC
D)MR = MC

Question 60

If marginal cost exceeds marginal revenue,a profit-maximizing monopolist will

A)restrict output to increase the price even higher.
B)raise price and expand output to increase profit.
C)lower price and expand output to increase profit.
D)attempt to maintain this position because it is consistent with profit maximization.

Question 61

Suppose a monopolist and a competitive price-taker firm have the same cost curves.The monopoly firm would

A)charge a lower price than the competitive price-taker firm.
B)charge a higher price than the competitive price-taker firm.
C)charge the same price as the competitive price-taker firm.
D)refuse to operate in the short run unless an economic profit could be made.
E)refuse to operate in the short run if an economic loss was present.

Question 62

Assuming that firms maximize profits,how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

A)The output of the monopolist will be too large and the price too high.
B)The output of the monopolist will be too small and the price too low.
C)The output of the monopolist will be too small and the price too high.
D)The price will be too high,but the impact of monopoly on the output is indeterminate.

Question 63

Which of the following is a unique characteristic of the oligopolistic market structure?

A)low barriers to entry
B)a large number of firms producing highly differentiated products that are complements to each other
C)product differentiation among the products produced by individual firms
D)mutual interdependence among firms in demand,and thus,in price decisions

Question 64

Table 11-2

The demand and total cost schedules of a monopolist are presented in Table 11-2.What price should a profit-maximizing monopolist charge?

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

Question 65

What should a profit maximizing monopolist do if she is currently producing where MC < MR?

A)Increase output until MC = MR.
B)Decrease output until MC = MR.
C)Shut down in the long run.
D)Keep producing at this level.
E)Operate only in the short run.

Question 66

Table 11-5

The demand and cost schedules of a monopolist are presented in Table 11-5.What price should a profit-maximizing monopolist charge?

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

Question 67

Table 11-4

The demand and total cost schedules of a monopolist are presented in Table 11-4.What price should a profit-maximizing monopolist charge?

A)$24
B)$23
C)$22
D)$21

Question 68

A market situation where a small number of sellers compose the entire industry is called

A)monopolistic competition.
B)monopsony.
C)monopoly.
D)oligopoly.

Question 69

Table 11-6

The demand and cost schedules of a monopolist are presented in Table 11-6.What price should a profit-maximizing monopolist charge?

A)$14
B)$13
C)$12
D)$11

Question 70

It is difficult to predict the behavior of oligopolistic firms because

A)there are few real-world examples of oligopolies for economists to study.
B)oligopolists make decisions independently of each other.
C)firms in oligopolistic industries react to each other's behavior in many ways.
D)economists have paid little attention to the topic in recent years and so have not yet applied to it the techniques of modern economic theory.

Question 71

When entry barriers into a market are high,

A)a monopolist will always be able to make an economic profit.
B)rival firms will enter and drive price down to the level of per-unit costs if the firms in the market are making economic profit.
C)entry into the market will not take place,at least not quickly,even if the firms currently in the market are making economic profits.
D)the producers in the market will have little or no incentive to produce efficiently (at a low cost).

Question 72

Table 11-3

The demand and total cost schedules of a monopolist are presented in Table 11-3.What price should a profit-maximizing monopolist charge?

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

Question 73

The difficulty in analyzing oligopolistic behavior arises from the

A)degree of government regulation of the market structure.
B)interdependent nature of oligopolistic decisions.
C)large number of firms in the industry.
D)market power of consumers.

Question 74

A monopolist finds out that if he lowers his price from $10 to $8,sales rise from 100 units to 115 units.Therefore,in this price range,

A)marginal revenue is positive.
B)marginal revenue is negative.
C)the price elasticity of demand is greater than one.
D)both a and c are correct.

Question 75

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

A)price-taker firms
B)pure monopoly
C)price searchers with low entry barriers
D)oligopoly

Question 76

One key characteristic that is distinctive of an oligopoly market is that

A)the demand curve facing each firm is downward sloping,with a marginal revenue curve that lies below the firm's demand curve.
B)the decisions of one seller often influence the price of products,the output,and the profits of rival firms.
C)there is only one firm that produces a product for which there are no good substitutes.
D)there are many sellers in the market and each is small relative to the total market.

Question 77

If pizza used to be produced in a competitive price-taker market,and now the pizza market has become a monopoly,we can expect

A)less pizza to be sold at a higher price.
B)more pizza to be sold at a higher price.
C)less pizza to be sold at a lower price.
D)more pizza to be sold at a lower price.
E)the same amount of pizza to be sold at the same price.

Question 78

Which of the following best explains why economists are generally critical of unregulated monopolists?

A)Monopolists do not try to minimize their costs of production.
B)Monopolists produce where marginal revenue is greater than marginal costs.
C)Monopolists attempt to produce too many products,and as a result,their prices are high,and consumers waste time trying to choose between too many options.
D)Monopolists restrict output,and as a result,they fail to produce units that are valued more than the marginal cost of producing them.

Question 79

Monopolists are criticized because they are inefficient.What is meant by this statement?

A)Monopolists charge too high a price.
B)Monopolists don't innovate enough to control pollution.
C)Monopolists produce a large quantity of waste.
D)Monopolists usually don't produce at the minimum of the ATC.
E)Monopolists could use their resources better elsewhere.

Question 80

If mutual interdependence among firms is present,each profit-maximizing firm in the market

A)produces a product that must be identical to the products of its rivals.
B)must consider the reactions of its rivals when it determines its price policy.
C)faces a perfectly elastic demand curve for its product.
D)faces a perfectly inelastic demand curve for its product.