Deck 8: Monopoly, Oligopoly, and Monopolistic Competition

Question 1

If a firm functions in an oligopoly,it:

A) is one of a few firms that produces a good with close substitutes.
B) has no close substitutes in a market.
C) is one of many suppliers of a good with perfect substitutes.
D) is the only firm in a geographic region.

Answer 1

A
Explanation: An oligopoly is an industry in which a small number of large firms produce products that are close or perfect substitutes.

Question 2

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) a single firm is present in the market.
D) a single firm produces a good with many close substitutes.

Answer 2

B
Explanation: A monopoly is the only supplier of a unique product with no close substitutes.

Question 3

To sell an extra unit of output,a perfect competitor __________ while an imperfect competitor __________.

A) does not alter price;must lower price
B) must hope the market price falls;must lower price
C) does not alter price;does not alter price either
D) must lower price;must lower price

Answer 3

A
Explanation: Perfectly competitive firms face a horizontal demand curve.Imperfectly competitive firms face a downward sloping demand curve.

Question 4

Products have network economies if they:

A) can be used by more than one person at a time.
B) are cheaper to produce as more people buy them.
C) are more valuable to own as more people own them.
D) have many complements.

Question 5

In exchange for a share in 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 or at university events.
Refer to the information above.CheapFizz now has market power due to:

A) the economies of scale gained by having more sales on campus.
B) the grant of a patent.
C) the grant of an exclusive license to sell.
D) network economies caused by all students consuming their product.

Question 6

In order to sell another unit,an imperfectly competitive firm must:

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

Question 7

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

A) monopolists.
B) oligopolists.
C) monopolistic competitors.
D) the government.

Question 8

Price-setters face:

A) perfectly elastic demand.
B) more than perfectly elastic demand.
C) perfectly inelastic demand.
D) less than perfectly elastic demand.

Question 9

A firm might have a monopoly in a market because:

A) its average total cost function is increasing over the entire relevant range of output.
B) the market is geographically isolated from other sellers.
C) the firm's technology is obsolete.
D) it faces a perfectly elastic demand curve.

Question 10

A monopolistically competitive firm is one:

A) that behaves like a monopolist.
B) of many firms that produce slightly different but very similar goods.
C) of many firms that produce goods with no close substitutes.
D) that is competitive but wants to be a monopolist.

Question 11

A firm's revenue is determined by:

A) its production technology.
B) its implicit costs.
C) its profit.
D) the demand curve that the firm faces.

Question 12

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

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

Question 13

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

A) Text messaging capabilities
B) An internet connection
C) A computer printer
D) Computer operating systems

Question 14

De Beers accounts for approximately 80% of diamond sales worldwide.The source of their 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) Western engagement customs.

Question 15

Suppose a competitive firm and a monopolist are both charging $5 for their respective outputs.You can infer that:

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

Question 16

Market power refers to the firm's ability to:

A) undercut its competitors.
B) force consumers to pay prices higher than their reservation prices.
C) raise its price without losing all of its sales.
D) influence the price its competitors charge.

Question 17

Suppose a firm is collecting $100 in total revenues when it sells 10 units and it receives $110 in total revenues when it sells 11 units.The firm is a(n):

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

Question 18

An imperfectly competitive firm is one:

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

Question 19

A downward sloping demand function:

A) is characteristic of both a perfectly competitive firm and a monopolistic firm.
B) necessarily implies that the firm's marginal revenue will be less than price.
C) is true only of firms in a perfectly competitive industry.
D) indicates the presence of economies of scale.

Question 20

The common feature in pure monopoly,oligopoly,and monopolistic competition is:

A) the absence of close substitutes.
B) blocked entry.
C) interdependent decision making by firms.
D) downward sloping demand.

Question 21

A firm that emerges as the only seller in an industry with economies of scale is termed a(n):

A) antitrust violator.
B) oligopoly.
C) natural monopoly.
D) natural oligopoly.

Question 22

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

A) its average costs will decrease.
B) its average costs will increase.
C) it will have to decrease the price that it charges.
D) its profits will increase.

Question 23

Patents and copyrights,which confer market power,exist to:

A) protect the consumer from imitations.
B) ensure excessive profits to the holders.
C) protect research,development and creative expression.
D) magnify the dominance of large firms.

Question 24

When a drug company introduces a new drug on the market its research,development,and testing costs are ________,and 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 25

Imagine that you are an entrepreneur,making designer t-shirts in your garage.Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q,where Q represents the number of t-shirts you make.
Refer to the information given above.If you make 100 t-shirts,your average total cost is _______.

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

Question 26

Imagine that you are an entrepreneur,making designer t-shirts in your garage.Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q,where Q represents the number of t-shirts you make.
Your fixed costs are _______ and your marginal cost is _____.

A) $300;$10
B) $300/Q;$30
C) $300;$10 times quantity
D) $300/Q;$10

Question 27

Imagine that you are an entrepreneur,making designer t-shirts in your garage.Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q,where Q represents the number of t-shirts you make.
Refer to the information given above.As you increase production of t-shirts your average fixed costs _____ and your marginal costs ________.

A) decrease;increase
B) increase;decrease
C) decrease;stay the same
D) stay the same;increased

Question 28

Imagine that you are an entrepreneur,making designer t-shirts in your garage.Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q,where Q represents the number of t-shirts you make.
Refer to the information given above.If you make 1,000 t-shirts,your average total cost is _______.

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

Question 29

A firm is most likely to experience economies of scale if it has _____ start up costs and ______ variable costs.

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

Question 30

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

A) government franchise.
B) patents.
C) copyright.
D) economies of scale.

Question 31

Start up costs are:

A) irrelevant in firm decision making because they are sunk costs.
B) inversely related to variable costs.
C) one-time costs of starting production of a new product.
D) always greater than marginal costs.

Question 32

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 33

The term "natural monopoly" refers to:

A) government ownership of parks.
B) industries with constant returns to scale.
C) the desire of all firms to be monopolists.
D) industries with economies of scale.

Question 34

A firm that doubles its use of inputs to produce ______ output has constant returns to scale.

A) twice as much
B) three times as much
C) 50% more
D) half the original

Question 35

A firm that doubles its use of inputs to produce ______ output has increasing returns to scale.

A) twice as much
B) three times as much
C) 50% more
D) half the original

Question 36

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

A) its average costs will decrease.
B) its average costs will increase.
C) it will have to increase the price that it charges.
D) its profits will increase.

Question 37

A firm that enjoys economies of scale is said to have:

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

Question 38

Economies of scale exist when:

A) firms become extremely large.
B) input prices are falling.
C) average costs fall as the scale of production grows.
D) a 10% increase in all inputs causes a 9% increase in output.

Question 39

In exchange for a share in 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 or at university events.
Refer to the information above.The beneficiaries of this deal are _______.

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

Question 40

In exchange for a share in 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 or at university events.
Refer to the information above.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 sell for a lower price.
C) more than 75 cents because demand for CheapFizz will shift to the left.
D) more than 75 cents because other firms must exit the market.

Question 41

Consider an industry with two firms producing similar products.
Mega Corp's total costs are TC = $5,000 + 100 × Quantity.
Big Inc's total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above.If each firm starts out producing 15 units you would expect that:

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

Question 42

Consider an industry with two firms producing similar products.
Mega Corp's total costs are TC = $5,000 + 100 × Quantity.
Big Inc's total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above.Average total costs for these firms:

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 43

Suppose a firm collects $90 in revenues when it sells 4 units,$100 in revenues when it sells 5 units,and $105 when it sells 6 units.You could infer the firm is likely to be:

A) a perfect competitor.
B) a cost minimizer.
C) a perfect competitor or a monopolist.
D) a monopolist.

Question 44

Suppose that there are just two firms in a small market.
Acme Manufacturing's Total Costs equal $100 + $3 × Quantity.
Generic Industries' Total Costs equal $500 + $3 × Quantity.
Refer to the information given above.If each firm is producing the same quantity:

A) Acme has lower average total costs than Generic.
B) Acme's average total costs are equal to Generic's variable costs.
C) Acme has higher average total costs than Generic.
D) at some levels of output,Acme's average total costs are less than Generic's,but at some levels of output,Generic's average costs are less than Acme's.

Question 45

If the demand function facing a firm shifts:

A) the firm's marginal revenue function and profit maximizing output will also change.
B) the firm's cost functions will also change.
C) the firm's total cost functions will change,but its variable cost functions will be the same.
D) the firm's marginal revenue function will change,but its profit maximizing level of output will not change.

Question 46

Consider an industry with two firms producing similar products.
Mega Corp's total costs are TC = $5,000 + 100 × Quantity.
Big Inc's total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above.If each firm produces 10 units,Mega Corp will have total costs of _____ and Big Inc will have total costs of _____.

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

Question 47

Suppose that there are just two firms in a small market.
Acme Manufacturing's Total Costs equal $100 + $3 × Quantity.
Generic Industries' Total Costs equal $500 + $3 × Quantity.
Refer to the information given above.Compare cost functions at the two firms.Which statement is true?

A) Acme will always have lower marginal costs than Generic.
B) Acme and Generic have equal marginal costs.
C) Marginal costs at each firm will depend on the quantity,or output,of the firms.
D) Acme has greater economies of scale than does Generic.

Question 48

Consider an industry with two firms producing similar products.
Mega Corp's total costs are TC = $5,000 + 100 × Quantity.
Big Inc's total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above.When each firm produces 8 units _____ has lower costs,and when each firm produces 12 units _____ has lower costs.

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

Question 49

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

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

Question 50

Consider an industry with two firms producing similar products.
Mega Corp's total costs are TC = $5,000 + 100 × Quantity.
Big Inc's total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above.______ has higher fixed costs and ______ has greater variable costs.

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

Question 51

If a firm collects $80 in revenues when it sells 4 units,$100 in revenues when it sells 5 units,and $120 when it sells 6 units,one can infer the firm is more likely to be:

A) a perfect competitor.
B) a monopolistic competitor.
C) an oligopolist.
D) a monopolist.

Question 52

For perfectly competitive firms price _____ marginal revenue;for monopolists price ____ marginal revenue.

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

Question 53

Imagine that you are an entrepreneur,making designer t-shirts in your garage.Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q,where Q represents the number of t-shirts you make.
Given the total cost function TC = 2,000 + 2 × Q,when output is 1,000 units average total costs are __________ and total fixed costs is __________.

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

Question 54

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

A) the cost of making the product.
B) the demand curve that the firm faces.
C) market demand for the product minus cost.
D) the explicit cost of making the product plus the implicit costs incurred by the firm owner.

Question 55

Both the perfectly competitive firm and the monopolist find that:

A) price and marginal revenue are the same.
B) they can sell all they want to at the market price.
C) it is best to expand production until the benefits and costs of the last unit produced are equal.
D) price is less than marginal revenue.

Question 56

When a perfect competitor sells additional units,__________,and when a monopolist sells additional units,___________.

A) total revenue always rises;total revenue may rise,fall,or remain unchanged
B) total revenue remains unchanged;total revenue always rises
C) marginal revenue stays the same;marginal revenue rises
D) total revenue always rises;total revenue always falls

Question 57

The primary objective of a monopolist is to:

A) charge the highest possible price.
B) maximize total revenues.
C) minimize total costs.
D) maximize profits.

Question 58

Suppose that there are just two firms in a small market.
Acme Manufacturing's Total Costs equal $100 + $3 × Quantity.
Generic Industries' Total Costs equal $500 + $3 × Quantity.
Refer to the information given above.Suppose that Acme and Generic face the same demand function,that they are both pursuing a profit-maximization policy,and that both companies are earning positive economic profits at that quantity.Which statement 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 59

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 60

Industries in which the firms have large fixed costs and small,constant marginal costs will,over time:

A) have more and more small firms.
B) see an increase in the average size of firms.
C) see no change in the average size of firms.
D) see no change in the average number of firms.

Question 61

The monopolist will maximize profits if it produces where:

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

Question 62

The profit maximizing rule MR = MC applies to:

A) all firms.
B) monopolists only.
C) perfect competitors only.
D) all firm types except perfect competitors.

Question 63

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } \text { Customer } & \begin{array} { c } \text { Reservation Price } \\\text { (\$/book) }\end{array} \\\mathrm { Q } & 60 \\\mathrm { R } & 54 \\\mathrm {~S} & 48 \\\mathrm {~T} & 42 \\\mathrm { U } & 36 \\\mathrm {~V} & 30 \\\mathrm {~W} & 24 \\\mathrm { X } & 18\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.At the profit maximizing price how many books will they sell?

A) 3
B) 4
C) 5
D) 7

Question 64

Perfect competition is efficient and monopoly is not because in perfect competition __________ while in monopoly __________.

A) P = MC;P > MC
B) P < MR;P = MR
C) P = MR;P < MR
D) P = MC;P < MC

Question 65

When marginal revenues are zero:

A) profits are maximized.
B) total costs are minimized.
C) elasticity of demand is zero.
D) total revenue is maximized.

Question 66

This graph illustrates the demand faced by a firm.
Refer to the figure above.At a price of $8 per unit of output,the total revenue for the monopolist is ____,and the marginal revenue earned from the last unit sold is ____.

A) $8;8
B) $24;8
C) $32;4
D) $40;0

Question 67

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } \text { Customer } & \begin{array} { c } \text { Reservation Price } \\\text { (\$/book) }\end{array} \\\mathrm { Q } & 60 \\\mathrm { R } & 54 \\\mathrm {~S} & 48 \\\mathrm {~T} & 42 \\\mathrm { U } & 36 \\\mathrm {~V} & 30 \\\mathrm {~W} & 24 \\\mathrm { X } & 18\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.What will be the economic profit for the bookstore when selling its profit-maximizing quantity?

A) $60
B) $120
C) $180
D) $240

Question 68

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

A) -28.
B) -14.
C) -7.
D) -1.

Question 69

Perfect price discrimination occurs when:

A) each buyer pays his or her marginal cost.
B) most buyers pay their reservation price.
C) each buyer pays exactly his or her reservation price.
D) the buyer with the highest reservation price sets the market price.

Question 70

Imperfect price discrimination occurs when:

A) the monopolist charges a single price to all consumers.
B) some buyers pay less than their reservation price.
C) some buyers pay more than their reservation price.
D) all buyers pay less than their reservation price.

Question 71

Price discrimination means charging:

A) higher prices to women and minorities.
B) different prices to different consumers because production costs are different.
C) the same price to all consumers even if production costs are different.
D) different prices to different consumers when production costs are the same.

Question 72

This graph illustrates the demand faced by a firm.
Refer to the figure above.The firm will charge a price of $8 only if:

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

Question 73

This graph illustrates the demand faced by a firm.
Refer to the figure above.If the monopolist decreases price from $14 to $12,its total revenue will ______.

A) increase by $2
B) decrease by $2
C) increase by $8
D) decrease by $8

Question 74

If a monopolist finds that its marginal revenue exceeds its marginal costs at the current level of output,it should:

A) do nothing;it has maximized profits.
B) contract production until the difference between marginal revenues and marginal costs is larger.
C) expand output until marginal revenue equals marginal costs.
D) expand output until price equals marginal costs.

Question 75

The reason economists consider monopoly socially undesirable is that the monopolist:

A) always earns excessive profits.
B) can charge any price he wants.
C) exploits the inelastic nature of demand.
D) produces less than the socially efficient amount.

Question 76

The profit maximizing rule P = MC applies to:

A) all firms.
B) monopolists only.
C) monopolists and perfect competitors.
D) perfect competitors only.

Question 77

A monopolist calculates its marginal revenue to be $15 and marginal cost to be $16.The firm:

A) is loss minimizing.
B) should increase output.
C) is profit-maximizing.
D) should decrease output.

Question 78

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } \text { Customer } & \begin{array} { c } \text { Reservation Price } \\\text { (\$/book) }\end{array} \\\mathrm { Q } & 60 \\\mathrm { R } & 54 \\\mathrm {~S} & 48 \\\mathrm {~T} & 42 \\\mathrm { U } & 36 \\\mathrm {~V} & 30 \\\mathrm {~W} & 24 \\\mathrm { X } & 18\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.How much should the bookstore charge for this book if it must charge a single price to all customers?

A) $36
B) $18
C) $24
D) $12

Question 79

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } \text { Customer } & \begin{array} { c } \text { Reservation Price } \\\text { (\$/book) }\end{array} \\\mathrm { Q } & 60 \\\mathrm { R } & 54 \\\mathrm {~S} & 48 \\\mathrm {~T} & 42 \\\mathrm { U } & 36 \\\mathrm {~V} & 30 \\\mathrm {~W} & 24 \\\mathrm { X } & 18\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.If the bookstore is selling the socially efficient number of books,how many will it sell?

A) 8
B) 5
C) 6
D) 7

Question 80

Because the monopolist charges a price in excess of marginal costs,it must be the case that the monopolist:

A) earns an excessive profit.
B) exploits the consumers who do make a purchase.
C) fails to equate the benefits to the costs of the last unit produced.
D) produces less than the socially efficient level of output.