Deck 8: Monopoly, Oligopoly, and Monopolistic Competition

Question 1

Which of the following firms is most likely to be a pure monopolist?

A)A clothing retailer with the best location in a mall
B)A grocery store in a large city
C)The most popular hot dog vendor on a city street corner
D)The only gas station in a small, isolated town

Answer 1

The only gas station in a small, isolated town

Question 2

A good is characterized by network economies if it:

A)can be used by more than one person at a time.
B)becomes cheaper to produce as more people buy it.
C)becomes more valuable as more people own it.
D)is widely advertised on television.

Answer 2

becomes more valuable as more people own it.

Question 3

An imperfectly competitive firm faces a demand curve that is:

A)perfectly elastic.
B)more than perfectly elastic.
C)perfectly inelastic.
D)downward sloping.

Answer 3

downward sloping.

Question 4

If a firm functions in an oligopoly, it is:

A)one of a small number of firms that produce goods that are either close or perfect substitutes.
B)the only firm that produces a good with no close substitutes.
C)one of a large number of firms that produce goods that are either close or perfect substitutes.
D)one of a large number of firms that produce a good with no close substitute.

Question 5

A price setter is a firm that:

A)attempts but fails to be perfectly competitive.
B)has the ability to set price at any level it wishes.
C)has some degree of control over its price.
D)faces perfectly inelastic demand.

Question 6

A pure monopoly exists when:

A)many firms produce a good with no close substitutes.
B)a single firm produces a good with no close substitutes.
C)only a single firm is present in the market.
D)a single firm produces a good with many close substitutes.

Question 7

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

A)increase its advertising.
B)increase the value of its product.
C)lower its price.
D)lower its quality.

Question 8

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n):

A)pure monopolist.
B)oligopolist.
C)monopolistic competitor.
D)perfect competitor.

Question 9

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

A)its exclusive ownership of South African diamond mines.
B)its patent on diamond production.
C)the perfectly inelastic demand for diamonds.
D)the engagement customs of couples in Western cultures.

Question 10

A monopolistically competitive firm is one:

A)that behaves like a monopolist.
B)of many firms that sell products that are close but not perfect substitutes.
C)of many firms that all sell the exact same product.
D)of a small number of firms that sell products that are close but not perfect substitutes.

Question 11

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. CheapFizz now has market power due to:

A)economies of scale in the production of soda.
B)its exclusive ownership of an input.
C)its exclusive license to sell soda.
D)network economies in the consumption of soda.

Question 12

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

A)produces a good with no close substitutes.
B)faces high barriers to entry.
C)coordinates their output decisions with other firms.
D)faces a downward-sloping demand curve.

Question 13

If a firm faces a downward-sloping demand curve, then:

A)the firm could be either a perfectly competitive firm or an imperfectly firm.
B)the firm's marginal revenue from selling an additional unit of output is less than price.
C)it is a perfectly competitive firm.
D)the firm's production process exhibits economies of scale.

Question 14

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

A)the marginal benefit from selling an additional unit of output is $5 for both firms.
B)the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.
C)the marginal benefit from selling an additional unit of output is less than $5 for both firms.
D)the competitive firm is charging too much, and the monopolist is charging too little.

Question 15

"Market power" refers to a firm's ability to:

A)undercut its competitors' prices.
B)force consumers to buy high-priced products.
C)raise its price without losing all of its sales.
D)influence the price its competitors charge.

Question 16

An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______.

A)perfectly inelastic; downward sloping
B)horizontal; downward sloping
C)perfectly inelastic; perfectly elastic
D)downward sloping; perfectly elastic

Question 17

In many cities in the United States, a single firm provides electricity. Those firms are:

A)monopolists.
B)oligopolists.
C)monopolistic competitors.
D)perfect competitors.

Question 18

To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly competitive firm ______.

A)need not alter its price; must lower its price
B)must hope the market price falls; must lower its price
C)need not alter its price; need not alter its price
D)must lower its price; must lower its price

Question 19

Which of the following is NOT an example of a good with network economies?

A)A cell phone
B)Internet service
C)A computer printer
D)Facebook

Question 20

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for:

A)75 cents because that is the market price.
B)less than 75 cents because CheapFizz will have greater volume and so can lower its price.
C)more than 75 cents because the demand curve for CheapFizz soda will shift to the left.
D)more than 75 cents because CheapFizz is the only company that can sell soda on campus.

Question 21

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

A)increasing
B)low
C)high
D)decreasing

Question 22

A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ______.

A)double
B)more than double
C)less than double
D)remain constant

Question 23

According to the textbook, the most important and enduring source of market power is:

A)government franchises.
B)patents.
C)copyrights.
D)economies of scale.

Question 24

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost ______ and your marginal cost ______.

A)decreases; increases
B)increases; decreases
C)decreases; stays the same
D)stays the same; increases

Question 25

If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to _____.

A)double
B)more than double
C)less than double
D)fall by one-half

Question 26

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is ______.

A)$3
B)$3.10
C)$10.30
D)$1.03

Question 27

Economies of scale exist when:

A)firms become larger.
B)input prices are falling.
C)the average cost of production falls as output rises.
D)doubling all the inputs leads to less than double the output.

Question 28

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.

A)$3
B)$10
C)$3.10
D)$13

Question 29

If a natural monopoly decreases the quantity of output it produces, then:

A)its average cost will decrease.
B)its average cost will increase.
C)it will have to decrease its price.
D)its profit will increase.

Question 30

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______­­.

A)300; 10
B)300/Q; 30
C)300; 10Q
D)300/Q; 10

Question 31

Start-up costs:

A)have no impact on the number of firms in an industry because they are sunk costs.
B)are inversely related to variable costs.
C)are the one-time costs incurred when beginning the production of a new product.
D)are always greater than marginal costs.

Question 32

Patents, which confer market power, are intended to:

A)protect consumers from imitations, or knock-offs.
B)enable patent holders to charge lower prices for new and innovative products.
C)encourage innovation by helping firms recoup the costs of research and development.
D)maintain the dominance of U.S.firms.

Question 33

Economies of scale arise from:

A)constant returns to scale.
B)increasing returns to scale.
C)decreasing returns to scale.
D)constant marginal returns to scale.

Question 34

Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______.

A)$2; $2
B)$4; $2
C)$4; $2,000
D)$4,000; $2,000

Question 35

A monopoly that results from economies of scale is called a(n):

A)antitrust violator.
B)large-scale monopolist.
C)natural monopoly.
D)cost-plus firm.

Question 36

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

A)start-up costs; fixed costs
B)fixed costs; start-up costs
C)start-up costs; variable costs
D)marginal costs; variable costs

Question 37

Which of the following industries does not fit the natural monopoly model?

A)Electricity
B)Cable TV
C)Fast food restaurants
D)Natural gas

Question 38

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. The beneficiaries of this deal is/are _______.

A)the students at State U
B)State U
C)State U and CheapFizz
D)CheapFizz

Question 39

A natural monopoly is a monopoly that arises from:

A)having an exclusive right to operate in a national park.
B)having exclusive control over the natural resources used to produce a good.
C)a firm's natural desire to maximize its profit.
D)economies of scale.

Question 40

If a natural monopoly increases the quantity of output it produces, then:

A)its average cost will decrease.
B)its average cost will increase.
C)it will have to increase its price.
D)its profit will increase.

Question 41

If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n):

A)perfectly competitor.
B)monopolistic competitor.
C)oligopolist.
D)monopolist.

Question 42

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q.
Big Inc: TC = 4,000 + 200Q.
If each firm produces 10 units, Mega Corp's total cost will ______, and Big Inc's total cost will be ______.

A)$6,000; $6,000
B)$5,000; $4,000
C)$5,100; $4,200
D)$15,000; $14,200

Question 43

The demand curve for a perfectly competitive firm is ______, while the demand curve for a monopolist is ______.

A)perfectly elastic; downward-sloping
B)vertical; downward-sloping
C)perfectly elastic; perfectly inelastic
D)perfectly inelastic; perfectly elastic

Question 44

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

A)large number of small firms.
B)small number of large firms.
C)large number of large firms.
D)small number of small firms.

Question 45

Both a perfectly competitive firm and a monopolist find that:

A)price and marginal revenue are the same.
B)they can sell as many units of output as they want at the market price.
C)it is best to expand production until the benefit and the cost of the last unit produced are equal.
D)price is less than marginal revenue.

Question 46

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q.
Big Inc: TC = 4,000 + 200Q.
For both firms, average total cost:

A)declines as quantity increases.
B)increases as quantity increases.
C)is constant for all quantities.
D)declines as quantity increases for Mega Corp and increases as quantity increases for Big Inc.

Question 47

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q.
Big Inc: TC = 4,000 + 200Q.
If each firm is producing 15 units, you would expect:

A)both firms to continue to produce 15 units.
B)Big Inc to be able charge a lower price than Mega Corp.
C)Mega Corp to be able charge a lower price than Big Inc.
D)Both Mega Corp and Big Inc to reduce output and charge higher prices.

Question 48

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

A)total revenue always rises; total revenue could rise, fall, or remain unchanged
B)total revenue does not change; total revenue rises
C)marginal revenue stays the same; marginal revenue rises
D)total revenue rises; total revenue falls

Question 49

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q.
Big Inc: TC = 4,000 + 200Q.
______ has a higher fixed cost and ______ has a higher marginal cost.

A)Big Inc; Mega Corp
B)Mega Corp; Big Inc
C)Big Inc; Big Inc
D)Mega Corp; Mega Corp

Question 50

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q.
Generic Industries: TC = 500 + 3Q.
Which of the following statements is true?

A)Acme has a lower marginal cost than does Generic.
B)Acme and Generic have the same marginal cost.
C)Marginal cost at each firm depends on the level of output.
D)Acme has greater economies of scale than does Generic.

Question 51

The primary objective of an imperfectly competitive firm is to:

A)charge the highest possible price.
B)maximize total revenue.
C)minimize total cost.
D)maximize profit.

Question 52

If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $105 in revenue when it sells 6 units, then one can infer the firm is a:

A)perfect competitor.
B)profit maximizer.
C)price taker.
D)monopolist.

Question 53

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q.
Generic Industries: TC = 500 + 3Q.
Suppose that Acme and Generic face the same demand curve. If each firm produces its profit-maximizing level of output and earns a positive economic profit, then which of the following statements is true?

A)Acme will produce more output than Generic.
B)Generic will produce more output than Acme.
C)Acme and Generic will produce the same quantity and will have the same profits.
D)Acme and Generic will produce the same quantity, but Acme will have higher profits.

Question 54

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q.
Generic Industries: TC = 500 + 3Q.
When each firm is producing the same quantity, Acme's average total cost is:

A)lower than Generic's average total cost.
B)equal to Generic's average total cost.
C)higher than Generic's average total cost.
D)lower than Generic's average total cost at some levels of output, and higher than Generic's average total cost at other levels of output.

Question 55

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

A)price.
B)average revenue.
C)marginal profit.
D)marginal revenue.

Question 56

Suppose the table below describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity } \\\hline \$ 10 & 1 \\\hline \$ 9 & 2 \\\hline \$ 8 & 3 \\\hline \$ 7 & 4 \\\hline \$ 6 & 5 \\\hline \$ 5 & 6 \\\hline \$ 4 & 7 \\\hline\end{array}$$ The monopolist's marginal revenue from selling the 4^th unit of output is less than $7 because:

A)marginal cost is greater than $3.
B)the consumer only pays $4 for the 4^th unit.
C)it has to charge $1 less for each of the first 3 units of output.
D)demand is perfectly elastic.

Question 57

Suppose the table below describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity } \\\hline \$ 10 & 1 \\\hline \$ 9 & 2 \\\hline \$ 8 & 3 \\\hline \$ 7 & 4 \\\hline \$ 6 & 5 \\\hline \$ 5 & 6 \\\hline \$ 4 & 7 \\\hline\end{array}$$ The total revenue from selling 6 units is ______, and the marginal revenue of selling the 6^th unit is ______.

A)$5; 5
B)$30; 0
C)$24; $5
D)$30; $1

Question 58

For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal revenue ______ price.

A)equals; equals
B)equals; is greater than
C)is less than; equals
D)equals; is less than

Question 59

Suppose the table below describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity } \\\hline \$ 10 & 1 \\\hline \$ 9 & 2 \\\hline \$ 8 & 3 \\\hline \$ 7 & 4 \\\hline \$ 6 & 5 \\\hline \$ 5 & 6 \\\hline \$ 4 & 7 \\\hline\end{array}$$ The monopolist's total revenue from selling 3 units is ______, and the monopolist's marginal revenue from selling the 3^rd unit is ______.

A)$28; 8
B)$24; 6
C)$52; 1
D)$24; 8

Question 60

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q.
Big Inc: TC = 4,000 + 200Q.
When each firm produces 8 units, ______ has a lower total cost, and when each firm produces 12 units, ______ has a lower total cost.

A)Big Inc; Mega Corp
B)Mega Corp; Big Inc
C)Big Inc; Big Inc
D)Mega Corp; Mega Corp

Question 61

Suppose the figure below illustrates the demand curve facing a monopolist. Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm's:

A)marginal cost is $8.
B)marginal cost is $0.
C)average total cost is $8.
D)marginal cost is less than $8.

Question 62

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

A)do nothing.
B)decrease output in order to increase the gap between marginal revenue and marginal cost.
C)increase output until marginal revenue equals marginal cost.
D)increase output until price equals marginal cost.

Question 63

Suppose the figure below illustrates the demand curve facing a monopolist. At a price of $8 per unit, the total revenue for this monopolist is ______ per day, and the marginal revenue earned from the last unit sold is ______.

A)$8; $8
B)$3,200; $8
C)$3,200; $4
D)$3,200; $0

Question 64

Suppose the figure below illustrates the demand curve facing a monopolist. If the monopolist decreases its price from $12 to $10, its total revenue will ______.

A)increase by $1000
B)decrease by $1000
C)increase by $600
D)decrease by $600

Question 65

Suppose a monopolist faces the demand curve shown below. If the monopolist were to sell 20 units of output, its total revenue would be:

A)$50.
B)$100.
C)$140.
D)$1,000.

Question 66

The monopolist will maximize profits at the output level for which:

A)price equals marginal cost.
B)price equals average total cost.
C)marginal revenue equals average total cost.
D)marginal revenue equals marginal cost.

Question 67

Suppose the table below describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity } \\\hline \$ 10 & 1 \\\hline \$ 9 & 2 \\\hline \$ 8 & 3 \\\hline \$ 7 & 4 \\\hline \$ 6 & 5 \\\hline \$ 5 & 6 \\\hline \$ 4 & 7 \\\hline\end{array}$$ Based on the data in the table, we know the firm should:

A)be able earn an economic profit.
B)produce more than 7 units.
C)not produce the seventh unit.
D)not produce the fifth unit.

Question 68

Suppose a monopolist faces the demand curve shown below: If you were to draw the monopolist's marginal revenue curve, it would:

A)lie on top of the demand curve.
B)intersect the vertical axis at $35.
C)intersect the horizontal axis at 35.
D)have a slope equal to the reciprocal of the slope of the demand curve.

Question 69

Suppose a monopolist faces the demand curve shown below. The marginal revenue of the 35^th unit of output is:

A)$20.
B)$10.
C)$0.
D)$-5.

Question 70

The profit maximizing rule MR = MC applies to:

A)all firms.
B)monopolists only.
C)perfectly competitive firms only.
D)imperfectly competitive firms only.

Question 71

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

A)the average cost of making the product.
B)the demand curve facing the firm.
C)the marginal cost of making the product.
D)the firm's marginal revenue curve.

Question 72

If the demand curve facing a monopolist shifts, then the monopolist's:

A)marginal revenue curve and profit-maximizing level of output will change.
B)marginal revenue curve will not change, but its profit-maximizing level of output will.
C)total cost curve will change, but its variable cost curve will not.
D)marginal revenue curve will change, but its profit-maximizing level of output will not.

Question 73

When marginal revenue is zero:

A)profit is maximized.
B)total cost is minimized.
C)elasticity of demand is zero.
D)total revenue is maximized.

Question 74

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists:

A)earn a positive economic profit.
B)earn a negative economic profit.
C)produce more than the socially optimal level of output.
D)produce less than the socially optimal level of output.

Question 75

If the demand curve facing the monopolist is P = 70 - 14Q, then the slope of its marginal revenue curve is:

A)-28.
B)-14.
C)-7.
D)-35.

Question 76

Suppose a monopolist faces the demand curve shown below. If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing level of output is:

A)50 units.
B)40 units.
C)20 units.
D)30 units.

Question 77

Suppose a monopolist faces the demand curve shown below: This demand curve can be used to determine:

A)the total cost associated with producing different levels of output.
B)the monopolist's total revenue at different price and quantity combinations.
C)the impact of advertising on demand.
D)the marginal cost associated with producing different levels of output.

Question 78

Refer to the figure below. This firm's marginal revenue curve would intersect the vertical axis at ______.

A)$70
B)$0
C)$20
D)$35

Question 79

Suppose a monopolist faces the demand curve shown below. The monopolist maximizes its profits by:

A)charging $70 for each unit.
B)producing 35 units, since this is where total revenue is maximized.
C)producing the level of output at which marginal revenue minus marginal cost is greatest.
D)producing the level of output at which marginal revenue equals marginal cost.

Question 80

The profit maximizing rule P = MC applies to:

A)all firms.
B)monopolists only.
C)both perfectly competitive firms and imperfectly competitive firms.
D)perfectly competitive firms only.