Deck 15: Monopoly and Antitrust Policy

Question 1

For decades, the NCAA restricted the number of college football and basketball games that could be televised, and in 1982 the University of Georgia and the University of Oklahoma sued the NCAA under the federal antitrust laws.In 1984, the Supreme Court decided the case

A)for the NCAA, citing the fact that belonging to the NCAA was voluntary.
B)against the NCAA, citing that the NCAA did not control what television networks put on the air.
C)against the NCAA, citing anticompetitive practice.
D)against the NCAA, citing explicit collusion among the larger colleges.

Answer 1

against the NCAA, citing anticompetitive practice.

Question 2

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

A)government antitrust laws.
B)the pricing decisions of its suppliers.
C)the pricing decisions of firms that produce complementary products.
D)the actions of all other firms.

Answer 2

the actions of all other firms.

Question 3

A monopoly firm is the only seller of a good or service that

A)has a perfectly elastic demand.
B)has no close complements.
C)does not need to be advertised.
D)does not have a close substitute.

Answer 3

does not have a close substitute.

Question 4

Using a broad definition, a firm would have a monopoly if

A)it produced a product that has no close substitutes.
B)it does not have to collude with any other producer to earn an economic profit.
C)there is no other firm selling a substitute for its product close enough that its economic profits are competed away in the long run.
D)it can make decisions regarding price and output without violating antitrust laws.

Question 5

In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods, and Lunardi's.While Safeway remains open twenty-four hours a day, Whole Foods and Lunardi's close at 9 pm.Which of the following statements is true?

A)Safeway is a monopoly all day because it produces a service that has no close substitutes.
B)Safeway has a monopoly at midnight but not during the day.
C)Safeway can ignore the pricing decisions of the other two supermarkets.
D)Safeway probably has a higher markup to compensate for its higher cost of production.

Question 6

A monopoly differs from monopolistic competition in that

A)a monopoly has market power while a firm in monopolistic competition does not have any market power.
B)a monopoly can never make a loss, but a firm in monopolistic competition can.
C)in a monopoly there are significant entry barriers, but there are low barriers to entry in a monopolistically competitive market structure.
D)a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.

Question 7

A firm that has the ability to control to some degree the price of the product it sells

A)is also able to dictate the quantity purchased.
B)faces a demand curve that is inelastic throughout the entire range of market demand.
C)is a price maker.
D)faces a perfectly inelastic demand curve.

Question 8

Which of following is the best example of a monopoly if we use a broader definition of monopoly?

A)Spuds McKenzie, a wealthy potato farmer in Idaho
B)Cheap Gas, one of two gasoline stations in a large rural community
C)Santos Tacos, the only taqueria in the small town of Santosville
D)Zippie Rentals, a car rental service in Boston

Question 9

Consider the following characteristics:
A.a market structure with barriers to entry
B.demand curves that are easily identified
C.firm cannot make zero profits in the long run
D.firm can reap long-run profits.
Which of the characteristics in the list above is shared by an oligopolist and a monopolist?

A)a, b, c, and d
B)a, b, and d
C)a, c, and d
D)a and d

Question 10

If we use a narrow definition of monopoly, then a monopoly is defined as a firm

A)that has been granted special production rights by the government.
B)that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products.
C)that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
D)that has the largest market share in an industry.

Question 11

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee.Is Peet's a monopoly?

A)Yes, there are no substitutes to Peet's coffee.
B)No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.
C)Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry.
D)No, Peet's is not a monopoly because there are many branches of Peet's.

Question 12

A monopoly is a firm that is the only seller of a good or service that does not have

A)a patent.
B)a close complement.
C)a barrier to entry.
D)a close substitute.

Question 13

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

A)Each must lower its price to sell more output.
B)Each sets a price for its product that will maximize its revenue.
C)Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
D)Each maximizes profits by producing a quantity for which price equals marginal cost.

Question 14

A monopolist faces

A)a perfectly elastic demand curve.
B)a perfectly inelastic demand curve.
C)a horizontal demand curve.
D)a downward-sloping demand curve.

Question 15

A monopoly is characterized by all of the following except

A)there are only a few sellers, each selling a unique product.
B)entry barriers are high.
C)there are no close substitutes to the firm's product.
D)the firm has market power.

Question 16

Recently, the NCAA agreed to loosen one of its key rules

A)by no longer restricting the number of games the member schools' teams can play.
B)by no longer limiting the number of scholarships student athletes.
C)by allowing colleges the freedom to reimburse athletes for the full cost of attending college.
D)by allowing colleges to pay salaries to college athletes.

Question 17

Compared to a monopolistic competitor, a monopolist faces

A)a more elastic demand curve.
B)a more inelastic demand curve.
C)a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.
D)a demand curve that has a price elasticity coefficient of zero.

Question 18

A monopoly is the only seller of a product

A)with many substitutes.
B)without a close substitute.
C)with a perfectly inelastic demand.
D)without a well-defined demand curve.

Question 19

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

A)a government-imposed barrier.
B)occupational licensing.
C)no competitors apparently found the profit level attractive enough to enter the market.
D)the restaurant owned all the fresh seafood in the state.

Question 20

Few firms in the United States are monopolies because

A)few firms experience economies of scale.
B)monopolies are technically illegal in the United States.
C)when a firm earns profits, other firms will enter its market.
D)most firms produce products for which there are no close substitutes.

Question 21

An example of a monopoly based on control of a key resource is

A)Major League Baseball.
B)NASA.
C)Microsoft's Windows operating system.
D)the U.S. Food and Drug Administration.

Question 22

One reason patent protection is vitally important to pharmaceutical firms is

A)successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished.
B)the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.
C)that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes.
D)the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.

Question 23

Which one of the following about a monopoly is false?

A)A monopoly could make profits in the long run.
B)A monopoly could break even in the long run.
C)A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.
D)A monopoly status could be temporary.

Question 24

For which of the following firms is patent protection of vital importance?

A)furniture producers
B)software firms
C)pharmaceutical firms
D)auto makers

Question 25

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

Question 26

A patent or copyright is a barrier to entry based on

A)ownership of a key necessary raw material.
B)large economies of scale as output increases.
C)government action to protect a producer.
D)widespread network externalities.

Question 27

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

A)control of a key raw material.
B)network externalities.
C)economies of scale.
D)a perfectly inelastic demand curve.

Question 28

To maintain a monopoly, a firm must have

A)a perfectly inelastic demand.
B)an insurmountable barrier to entry.
C)marginal revenue equal to demand.
D)few competitors.

Question 29

What is a monopoly? Can a firm be a monopoly if close substitutes for its product exists?

Question 30

If you own the only bookstore in a small town, do you have a monopoly?

Question 31

Governments grant patents to

A)compensate firms for research and development costs.
B)encourage competition.
C)encourage low prices.
D)encourage firms to reveal secret production techniques.

Question 32

The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.

Question 33

Unlike a perfect competitor, a monopolist faces the market demand curve.

Question 34

A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.

Question 35

Governments grant patents to encourage

A)research and development on new products.
B)competition.
C)low prices.
D)firms to form public enterprises.

Question 36

A United States government patent lasts

A)forever.
B)50 years.
C)20 years.
D)7 years.

Question 37

A monopoly is defined as a firm that has the largest market share in an industry.

Question 38

A firm that is the only seller of a good or service that does not have a close substitute is called

A)a monopoly.
B)an oligopolist.
C)a market maker.
D)a price maker.

Question 39

Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell, and a Kentucky Fried Chicken.Using a broad definition of a monopoly, Joe has a monopoly if the menu items sold at the other restaurants are not considered close substitutes for the food sold at the pizza parlor.

Question 40

A public franchise

A)is a corporation that is owned by stockholders.
B)results from ownership of a key raw material.
C)is a government designation that a private firm is the only legal producer of a good or service.
D)is an unregulated monopoly necessary for the public good.

Question 41

The United States Post Office

A)faces no competition for its mail services.
B)has a monopoly in the provision of first-class mail service.
C)can safely ignore the prices for mail services charged by its rivals such as FedEx and UPS.
D)is an example of a monopoly that results from the ownership of a key resource: first class mail service.

Question 42

The 10-year protection period from generic competition for drug manufacturers is a form of

A)copyright.
B)trademark.
C)hallmark.
D)patent.

Question 43

In 1935, the U.S.Patent and Trademark Office issued Parker Brothers a trademark on the use of the name Monopoly for a board game.Hasbro bought Parker Brothers in 1991.Which of the following statements is true regarding the trademark on the name Monopoly for a board game?

A)The original trademark expired well before Hasbro bought Parker Brothers, so they never had a trademark on Monopoly.
B)Trademarks never expire, so Hasbro continues to have a trademark on the name Monopoly.
C)The trademark expired in 2011, 20 years after Hasbro's purchase of Parker Brothers.
D)The trademark expired in 1955, 20 years after the trademark was issued to Parker Brothers.

Question 44

When the government wants to give an exclusive right to one firm to produce a product, it

A)imposes a tariff on imports of the product.
B)imposes a quota on imports of the product.
C)grants a patent or copyright to an individual or firm.
D)uses antitrust laws to keep other firms from entering the market.

Question 45

A virtuous cycle occurs

A)when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise.
B)when monopoly profits are used to create new products for additional monopoly profits.
C)when a firm can attract enough buyers initially to increase a product's usefulness and attract even more buyers.
D)when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales.

Question 46

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition.One source of competition comes from people who might resell their previously owned diamonds.Why is De Beers worried that people might resell their previously owned diamonds?

A)because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed
B)because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly
C)because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power
D)because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price

Question 47

A patent

A)grants the creator of a book, film, or piece of music the exclusive right to use the creation for 20 years.
B)grants the creator of a book, film, or piece of music the exclusive right to use the creation during the creator's lifetime.
C)gives a firm the exclusive right to a new product for 20 years from the date the patent application is filed with the government.
D)gives a firm the exclusive right to a new product during the product inventor's lifetime.

Question 48

Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market.This reflects which of the following barriers to entry?

A)control of a key resource
B)network externalities
C)entry blocked by government action
D)economies of scale creating a natural monopoly

Question 49

Which one of the following is not a possible barrier to entry high enough to keep competing firms out of a monopoly industry?

A)The monopoly firm has control of a key resource necessary to produce a good.
B)There are important network externalities in supplying a good or service.
C)large economies of scale that result in a natural monopoly
D)a high concentration ratio

Question 50

For a natural monopoly to exist,

A)a firm must continually buy up its rivals.
B)a firm's long-run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level.
C)a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.
D)a firm must have a government-imposed barrier.

Question 51

What is a network externality?

A)It refers to having a network of suppliers and buyers for a good or service.
B)It refers to lobbying to form a public enterprise.
C)It refers to a situation in which a product's usefulness increases with the number of people using it.
D)It refers to a product that requires connection to a network for it to be useful.

Question 52

When the government makes a firm the exclusive legal provider of a good or service, it grants the firm

A)a copyright.
B)a network externality.
C)a quota.
D)a public franchise.

Question 53

Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale.The main reason for the elimination of profits is

A)after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat.
B)firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses.
C)the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls.
D)after 20 years patent protection is ended and other firms can produce less-expensive generic versions of the drug.

Question 54

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

A)most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs.
B)prices remain high without patent protection because of a lack of competition. Firms that are not granted patents cannot compete with firms that are granted patents.
C)other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the firms that received patents.
D)firms will find ways to obtain additional patent protection-often by making cosmetic changes in drugs that were patented-so that they can continue charging high prices.

Question 55

Ordinarily, governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

A)Patents encourage firms to spend money on research necessary to create new products.
B)Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.
C)Patents are an important source of government revenue.
D)Patents are justified because they are an important means for creating network externalities.

Question 56

In a natural monopoly, throughout the range of market demand,

A)the marginal cost is above average total cost and pulls average total cost upward.
B)average total cost is above the marginal cost and pulls the marginal cost upward.
C)the marginal cost is below average total cost and pulls average total cost downward.
D)there are diseconomies of scale.

Question 57

What is the difference between a public franchise and a public enterprise?

A)A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.
B)A public enterprise grants a firm the right to be the sole legal provider of a good or service. A public franchise refers to a service that is provided directly to consumers through the government.
C)A public enterprise is owned by the public through its holdings of shares of stock in the enterprise. A public franchise is a firm owned by the government.
D)Both refer to a service provided directly to consumers through the government, but "public franchise" is a term more commonly used in the United States while "public enterprise" is more commonly used in European countries.

Question 58

There are several types of barriers to entry that can create a monopoly.Which of the following barriers is the result of government action?

A)network externalities
B)public franchise
C)economies of scale
D)control of a key resource

Question 59

To have a monopoly in an industry there must be

A)barriers to entry so high that no other firms can enter the industry.
B)a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C)an inelastic demand for the industry's product.
D)a public franchise, making the monopoly the exclusive legal provider of a good or service.

Question 60

The Aluminum Company of America (Alcoa)had a monopoly until the 1940s because

A)it was a public enterprise.
B)it had a patent on the manufacture of aluminum.
C)the company had a secret technique for making aluminum from bauxite.
D)it had control of almost all the available supply of bauxite.

Question 61

If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would

A)decrease marginal cost.
B)raise average total cost.
C)increase total revenue.
D)make marginal revenue less elastic.

Question 62

Figure 15-1

Refer to Figure 15-1.Which of the following statements about the firm depicted in the diagram is true?

A)The fact that this firm is a natural monopoly is shown by the long-run average total cost curve still falling when it crosses the demand curve.
B)The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output rises.
C)The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output rises.
D)The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average total cost where the firm maximizes its profits.

Question 63

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies.To maintain its market share, De Beers

A)began buying so-called "blood diamonds" in order to keep these diamonds out of the control of other diamond companies.
B)adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand.
C)bought diamond mines in Canada and Russia that had been its competitors.
D)lowered the prices of its diamonds to make the market appear less profitable to potential competitors.

Question 64

Network externalities

A)can only exist when there are economies of scale.
B)prevent the dominance of a market by one firm.
C)exist when the usefulness of a product increases with the number of consumers who use it.
D)are created when celebrity endorsements of products lead to a surge in the demand for those products.

Question 65

What type of protection does U.S.law grant the creator of a book, film, or piece of music?

A)A public franchise, which grants the exclusive right to use the creation during the creator's lifetime and to his or her heirs for 70 years after the creator's death.
B)A copyright, which grants exclusive rights to the creator for 20 years after the work is created.
C)A patent, which grants the exclusive right to use the creation during the creator's lifetime and to his or her heirs for 70 years after the creator's death.
D)A copyright, which grants the exclusive right to use the creation during the creator's lifetime and to his or her heirs for 70 years after the creator's death.

Question 66

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.

Question 67

A natural monopoly is most likely to occur in which of the following industries?

A)the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years
B)the diamond mining and marketing industry because one firm can control a key resource
C)the software industry because of the importance of network externalities
D)an industry where fixed costs are very large relative to variable costs

Question 68

To be a natural monopoly, a firm must

A)control a key resource input.
B)have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms.
C)have significant network externalities.
D)be in a government-regulated market.

Question 69

The National Football League has long-term leases with the stadiums in major cities.Control of these stadiums is an entry barrier to a potential new football league.

Question 70

Although some economists believe network externalities are important barriers to entry, other economists disagree because

A)they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of the efficiency of firms in offering products that satisfy consumer preferences.
B)they believe that most examples of network externalities are really barriers to entry caused by the control of a key resource.
C)network externalities are really negative externalities.
D)they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of economies of scale.

Question 71

BHP Billiton is a Canadian company that owns mines in Canada that

A)produce nickel. After World War II, BHP Billiton began to compete with another Canadian firm, the International Nickel Company. This competition eventually ended International Nickel's monopoly in this market.
B)produce bauxite, the mineral needed to produce aluminum. BHP Billiton began to mine bauxite after World War II. This competition eventually ended the Aluminum Company of America (ALCOA)'s monopoly in this market.
C)produce coal. Until World War II, BHP Billiton had a monopoly on coal in Canada.
D)produce diamonds.

Question 72

Some economists argue that Microsoft became a monopoly in the market for computer software by developing MS-DOS, an operating system used for the first IBM personal computers.The more people who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system.The explanation for Microsoft's monopoly is

A)the development of new technology that other firms could not copy.
B)control of a key resource which, in this case, is the MS-DOS operating system.
C)network externalities.
D)patents Microsoft obtained when it developed the MS-DOS operating system.

Question 73

The De Beers diamond mining and marketing company of South Africa became one of the most profitable and longest-lived monopolies in history.Which of the following has always threatened De Beers' control of the diamond market?

A)Since few diamonds are ever destroyed, De Beers has constantly faced possible competition from other firms reselling diamonds.
B)Competition from imitation diamonds. Technology has made it possible to make fake diamonds look exactly like real diamonds.
C)Competition from other gemstones, including rubies and emeralds, that have become more popular over time.
D)At different times in the past some countries have banned the importation of diamonds from South Africa for political reasons.

Question 74

A natural monopoly is characterized by large fixed costs relative to variable costs.

Question 75

The International Nickel Company of Canada is often cited as an example of monopoly, but International Nickel eventually lost its monopoly.What event was responsible for this?

A)New technology allowed other firms to achieve network externalities after World War II.
B)The Canadian government, which had owned International Nickel, sold the company after World War II. The government no longer blocked entry into the market for nickel.
C)Competition in the market for nickel increased after nickel fields were developed in Russia after World War II.
D)Competition in the market for nickel increased after Canada signed the North American Free Trade Agreement with the United States and Mexico in 1994.

Question 76

If a restaurant was a natural monopoly, its

A)marginal cost curve would still be declining when it crossed the demand curve.
B)average total cost curve would still be declining when it crossed the demand curve.
C)marginal revenue curve would be the same as its demand curve.
D)marginal revenue curve would be horizontal.

Question 77

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

A)A virtuous cycle refers to successful research and development that leads to information that is used to develop other new products.
B)A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another market.
C)A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an increase in social welfare (the "invisible hand").
D)A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional customers because its product's value has been increased by other customers using it, which attracts even more customers.

Question 78

In the United States, barriers to entry in professional team sports (for example, football and baseball)result from

A)the draft of college players, which grants teams exclusive signing rights to individual players.
B)long-term leases teams sign for stadiums and ballparks in major cities.
C)television contracts, which give networks the exclusive rights to broadcast games.
D)the reserve clause, which is a provision in contracts of professional athletes that require them to play for specific teams over the length of their contracts.

Question 79

The International Nickel Company of Canada is often cited as an example of monopoly.What was the source of the barrier to entry that gave this firm monopoly power?

A)It was a public enterprise; therefore, the Canadian government blocked entry into the market for nickel.
B)There were important network externalities in the production of nickel.
C)Economies of scale resulted in the company becoming a natural monopoly.
D)It had control of a key resource.

Question 80

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.