Deck 8: Pure Monopoly

Question 1

Which is a barrier to entry?

A) Close substitutes
B) Diseconomies of scale
C) Government licensing
D) Price-taking behavior

Answer 1

C

Question 2

One major barrier to entry under pure monopoly arises from:

A) the availability of close substitutes for a product.
B) ownership of essential resources.
C) the price taking ability of the firm.
D) diseconomies of scale.

Answer 2

B

Question 3

What do economies of scale,the ownership of essential raw materials,and patents have in common?

A) They must all be present before price discrimination can be practiced.
B) They are all barriers to entry.
C) They all help explain why a monopolist's demand and marginal revenue curves coincide.
D) They all help explain why the long-run average cost curve is U-shaped.

Answer 3

B

Question 4

Which is an example of a privately owned monopoly?

A) The De Beers diamond syndicate
B) State of Utah Liquor Commission Stores
C) U.S.Postal Service
D) New Jersey State Lottery

Question 5

Which is a barrier to entry?

A) Patents
B) Revenue maximization
C) Profit maximization
D) Elastic product demand

Question 6

Which is most characteristic of a pure monopoly?

A) There is a dominant firm in a multifirm industry.
B) The firm produces a good or a service for which there are no close substitutes.
C) The firm has considerable control over the quantity of the output produced,but not over price.
D) Exit from the industry is blocked but entry into the industry is relatively easy.

Question 7

Barriers to entry:

A) usually result in pure competition.
B) can result from government regulation.
C) exist in economic theory but not in the real world.
D) are typically the result of wrongdoing on the part of a firm.

Question 8

A monopoly is most likely to emerge and be sustained when:

A) output demand is relatively elastic.
B) firms have U-shaped average total cost curves.
C) fixed capital costs are small relative to total costs.
D) economies of scale are large relative to market demand.

Question 9

Natural monopolies result from:

A) patents.
B) copyrights.
C) control over an essential natural resource.
D) extensive economies of scale in production.

Question 10

One feature of pure monopoly is that the monopolist is:

A) a producer of products with close substitutes.
B) one of several producers of a product.
C) a price taker.
D) a price maker.

Question 11

In many large U.S.cities,taxicabs operate as near monopolies because of:

A) patents.
B) licenses.
C) economies of scale.
D) control of essential resources.

Question 12

Which is a barrier to entry in an industry?

A) Economies of scale
B) Allocative efficiency
C) Profit maximization
D) Economic profits

Question 13

One feature of pure monopoly is that the demand curve:

A) is vertical.
B) is horizontal.
C) slopes upward.
D) slopes downward.

Question 14

Under conditions of pure monopoly:

A) there are close substitutes.
B) there is no advertising.
C) the firm is a price taker.
D) entry is blocked.

Question 15

An exclusive right granted by government for a number of years to an inventor of a product is a:

A) copyright.
B) franchise.
C) patent.
D) license.

Question 16

One defining characteristic of pure monopoly is that:

A) the monopolist is a price taker.
B) the monopolist uses advertising.
C) the monopolist produces a product with no close substitutes.
D) there is relatively easy entry into the industry,but exit is difficult.

Question 17

The classic example of a private,unregulated monopoly is:

A) Intel.
B) De Beers.
C) General Motors.
D) General Electric.

Question 18

A barrier to entry that significantly contributes to the establishment of a monopoly would be:

A) patents.
B) X-inefficiency.
C) price-taking behavior.
D) diseconomies of scale.

Question 19

Which phrase would be most characteristic of pure monopoly?

A) Close substitutes
B) Efficient advertiser
C) Price taker
D) Single seller

Question 20

Other things equal,which reduces competition in an industry?

A) Patent laws
B) Freedom of entry for new firms
C) An increase in the number of producers
D) An increase in the number of buyers

Question 21

A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will:

A) increase total revenue,increase total cost,and decrease profit.
B) decrease total revenue,increase total cost,and decrease profit.
C) increase total revenue,decrease total cost,and decrease profit.
D) decrease total revenue,total cost,and profit.

Question 22

The pure monopolist who is nondiscriminating must decrease price on all units of a product sold in order to sell additional units.This explains why:

A) there are barriers to entry in pure monopoly.
B) a monopoly has a perfectly elastic demand curve.
C) marginal revenue is less than average revenue at all levels of output.
D) total revenues are greater than total costs at the profit-maximizing level of output.

Question 23

Many people believe that monopolies charge any price they want to without affecting sales.Instead,the output level for a profit-maximizing monopoly is determined by:

A) Marginal cost = Demand.
B) Marginal revenue = Demand.
C) Average total cost = Demand.
D) Marginal cost = Marginal revenue.

Question 24

Refer to the above graph.The profit-maximizing monopolist shown sets its price at:

A) 0J.
B) 0G.
C) 0K.
D) 0H.

Question 25

Suppose a monopolist calculates that at present output and sales levels,marginal revenue is $1.00 and marginal cost is $2.00.He could maximize profits (or minimize losses)by:

A) decreasing price and increasing output.
B) increasing price and decreasing output.
C) decreasing price and leaving output unchanged.
D) decreasing output and leaving price unchanged.

Question 26

If a monopolist is operating at an output level where marginal revenue is positive,the firm:

A) has maximized total revenues.
B) could raise revenues by raising prices.
C) can always increase profits by lowering its price.
D) is operating on the elastic portion of its demand curve.

Question 27

A nondiscriminating monopolist will find that marginal revenue:

A) exceeds average revenue or price.
B) is identical to price.
C) is sometimes greater and sometimes less than price.
D) is less than average revenue or price.

Question 28

Which of the above shows the correct relationship between demand and marginal revenue?

A) A
B) B
C) C
D) D

Question 29

Refer to the above diagram.The quantity difference between areas A and C for the indicated price reduction measures:

A) marginal cost.
B) marginal revenue.
C) monopoly price.
D) a welfare or efficiency loss.

Question 30

Under pure monopoly,a profit-maximizing firm will produce:

A) in the inelastic range of its demand curve.
B) in the elastic range of its demand curve.
C) only where total costs are zero.
D) only where marginal revenue is zero.

Question 31

The above diagram implies that whenever a firm's demand curve is downsloping:

A) price discrimination is not possible.
B) monopolists will be more efficient than competitors.
C) the demand and marginal revenue curves will coincide.
D) marginal revenue is less than price.

Question 32

Suppose a monopolist produces output where total revenue is maximized.At that output,the price elasticity of demand for the monopolist's output is:

A) greater than or equal to one.
B) less than one.
C) equal to one.
D) impossible to determine without data.

Question 33

The data below relate to a pure monopolist and the product it produces.What is the profit-maximizing output and price for this monopolist?

A) P = $12;Q = 5
B) P = $14;Q = 4
C) P = $16;Q = 3
D) P = $18;Q = 2
To maximize profit,the monopolist sets MC equal to or less than MR.This occurs at Q = 4,where MC = $7 .

Question 34

The demand curve confronting a nondiscriminating pure monopolist is:

A) horizontal.
B) the same as the industry's demand curve.
C) more elastic than the demand curve confronting a competitive firm.
D) derived by vertically summing the individual demand curves competitors.

Question 35

The nondiscriminating monopolist's demand curve:

A) is less elastic than a purely competitive firm's demand curve.
B) is perfectly elastic.
C) coincides with its marginal revenue curve.
D) is perfectly inelastic.

Question 36

At the profit-maximizing level of output,a monopolist will always operate where:

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

Question 37

The nondiscriminating pure monopolist's demand curve:

A) is the industry demand curve.
B) shows a direct or positive relationship between price and quantity demanded.
C) tends to be inelastic at high prices and elastic at low prices.
D) is identical to its marginal revenue curve.

Question 38

A nondiscriminating pure monopolist's demand curve:

A) is perfectly inelastic.
B) coincides with its marginal revenue curve.
C) lies above its marginal revenue curve.
D) lies below its marginal revenue curve.

Question 39

Which is true with respect to the demand data confronting a monopolist?

A) Demand is perfectly price inelastic.
B) Price increases as the output of the firm increases.
C) Marginal revenue increases as price decreases.
D) Marginal revenue is less than price.

Question 40

Suppose that a monopolist calculates that at present output and sales,marginal cost is $1.00 and marginal revenue is $2.00.He could maximize profits by:

A) decreasing price and increasing output.
B) increasing price and decreasing output.
C) decreasing price and leaving output unchanged.
D) decreasing output and leaving prices unchanged.

Question 41

Which does not necessarily apply to a pure monopoly?

A) The product the firm produces must have no close substitutes.
B) The firm must be the sole producer of a product.
C) The firm must earn economic profits.
D) Entry must be blocked.

Question 42

Refer to the above figure.In the short run,this monopolist will:

A) shut down.
B) produce 0A.
C) produce 0B.
D) produce 0C.

Question 43

Refer to the above graph.Consider a monopolist in short-run equilibrium.This monopolist:

A) has a loss per unit equal to DE.
B) has total fixed costs equal to area BEFC.
C) earns economic profit equal to area ABED.
D) will cease production since its economic profits are negative.

Question 44

Refer to the above graph.Consider a monopolist in short-run equilibrium.This monopolist:

A) has total fixed costs equal to area BEFC.
B) has total variable costs equal to area 0CFQ.
C) earns economic profit equal to area ABED.
D) will cease production since its economic profits are negative.

Question 45

Under which of the following conditions would a profit-maximizing monopolist necessarily raise price?

A) If product demand was price-elastic
B) If product demand was price-inelastic
C) If marginal revenue was greater than marginal cost
D) If marginal cost was greater than marginal revenue

Question 46

If marginal costs decrease,a typical monopolist will:

A) reduce price and reduce quantity of output.
B) reduce price and increase quantity of output.
C) increase price and reduce quantity of output.
D) increase price and increase quantity of output.

Question 47

Which statement is correct?

A) In the short run,the pure monopolist will maximize total profits by producing at that level of output where the difference between price and average total cost is greatest.
B) In the short run,the pure monopolist will charge the highest price it can get for its product.
C) Because of its ability to administer prices,the pure monopolist can increase its price and increase its volume of sales simultaneously.
D) Pure monopolists do not always realize economic profits.

Question 48

A firm will earn economic profits whenever:

A) marginal revenue exceeds marginal costs.
B) marginal revenue exceeds variable costs.
C) average revenue exceeds average total costs.
D) average revenue exceeds average variable costs.

Question 49

Refer to the above graph.The profit-maximizing monopolist shown sets its price and output at:

A) 0J and 0V,respectively.
B) 0G and 0Y,respectively.
C) 0G and 0V,respectively.
D) 0H and 0X,respectively.

Question 50

In the short run,a monopolist's profits:

A) may be positive,negative,or zero.
B) are positive because of the monopolist's market power.
C) are positive if the monopolist's elasticity of demand is less than 1.
D) are positive if the monopolist's selling price is above average variable cost.

Question 51

Refer to the above graph.Consider a monopolist in short-run equilibrium.This monopolist has total fixed cost equal to area:

A) BEFC.
B) ABED.
C) ADFC.
D) 0CFQ.

Question 52

The following data show the relationship between output,total costs,and total revenue for a pure monopoly Within which of the following output ranges does the firm earn maximum economic profits?

A) 50 to 60 units
B) 60 to 70 units
C) 70 to 80 units
D) 80 to 90 units
In output range 60-70,profit is $300.This is higher than profits in any other range.

Question 53

A profit-maximizing monopolist facing the situation shown in the graph above should:

A) shut down immediately.
B) continue producing to minimize losses.
C) continue producing to make economic profits.
D) continue producing as long as price is greater than marginal cost.

Question 54

In response to a cost-reducing technological breakthrough in the production of its product,a profit-maximizing monopolist will normally:

A) increase price and decrease production.
B) not change its level of output or price.
C) decrease the price it charges for its product.
D) increase its output and practice price discrimination.

Question 55

Pure monopolists:

A) maximize MR.
B) are price takers.
C) sell where P > MC.
D) confront demand curves that are perfectly inelastic.

Question 56

Economic theory predicts a monopolist will discontinue production in the short run if:

A) price is less than average total cost.
B) price is less than average variable cost.
C) marginal revenue is less than average total cost.
D) marginal revenue is less than average variable cost.

Question 57

A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than:

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

Question 58

In the figure above:

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

Question 59

The supply curve for a monopoly is:

A) the portion of the marginal cost curve that lies above the average variable cost curve.
B) the portion of the marginal cost curve that lies above the average total cost curve.
C) the portion of the marginal cost curve that lies above the average fixed cost curve.
D) not a curve but a single point.

Question 60

Refer to the above graph.The profit-maximizing monopolist shown sets its output at:

A) 0V.
B) 0Y.
C) 0T.
D) 0X.

Question 61

If a monopolized industry should become purely competitive without any change in cost conditions:

A) both price and quantity produced will increase.
B) both price and quantity produced will decrease.
C) price will increase and quantity produced will decrease.
D) price will decrease and quantity produced will increase.

Question 62

A nondiscriminating pure monopolist is generally viewed as:

A) productively efficient but allocatively inefficient.
B) productively inefficient,but allocatively efficient.
C) both productively and allocatively inefficient.
D) both productively and allocatively efficient.

Question 63

Based on the diagram above,what is the difference between the purely competitive level of output and the pure monopolist level of output?

A) 10
B) 20
C) 50
D) 100
The purely competitive level of output occurs where the demand curve crossed the MC curve,that is,100 units.The monopoly output occurs where MC = MR,that is,50 units.The difference is 50 units.

Question 64

If a monopolist produces 100 units of output at a market price of $5 per unit with marginal revenue per unit equaling $4,we would expect that if the monopolist's good were provided under pure competition,quantity would be:

A) higher than 100 units,price would be lower than $5,and MR = price.
B) lower than 100 units,price would be greater than $5,and MR = price.
C) higher than 100 units,price would be greater than $5,and MR = price.
D) lower than 100 units,price would be lower than $5,and MR = price.

Question 65

What is the term that refers to increases in the value of a product to each user,including existing users,as the total number of users increases?

A) Income transfer
B) Price discrimination
C) Simultaneous consumption
D) Network effects

Question 66

Refer to the above graph.The pure monopolist firm will charge a price of:

A) P₁.
B) P₂.
C) P₃.
D) P₄.

Question 67

Allocative inefficiency due to unregulated monopoly is characterized by the condition:

A) P = MC.
B) P = MR.
C) P > MC.
D) P > AVC.

Question 68

At an equilibrium level of output in a pure monopoly:

A) P = MC and P = minimum ATC.
B) P = MC and P > minimum ATC.
C) P > MC and P > minimum ATC.
D) P > MC and P = minimum ATC.

Question 69

Given the same cost data,a pure monopolist producer will charge:

A) a lower price and produce a smaller output than a purely competitive industry.
B) a higher price and produce a smaller output than a purely competitive industry.
C) the same price and produce the same output as a purely competitive industry.
D) a higher price and produce a larger output than a purely competitive industry.

Question 70

On the graph above,what is the profit-maximizing level of output for a pure monopolist?

A) A
B) B
C) C
D) D

Question 71

When compared with the purely competitive industry with identical costs of production,a monopolist will produce:

A) more output and charge the same price.
B) more output and charge a higher price.
C) less output and charge a higher price.
D) less output and charge the same price.

Question 72

Refer to the above graph.The monopolist's profits:

A) will be equal to the area P₁P₃AE.
B) will be equal to the area P₂P₃B.
C) will be equal to the area P₁P₃AC.
D) cannot be determined from the information given.

Question 73

Compared to the purely competitive firm,a pure monopoly:

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

Question 74

A product's ability to satisfy a large number of consumers at the same time is called:

A) network effects.
B) rent-seeking.
C) simultaneous consumption.
D) consumer sovereignty.

Question 75

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

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

Question 76

Based on the graph above,what is the difference between the purely competitive equilibrium level of output and the pure monopolist equilibrium level of output?

A) 5
B) 20
C) 70
D) 90
The purely competitive equilibrium output occurs where the demand curve crosses the MC curve,that is,110 units.The monopoly equilibrium output occurs where MC = MR,that is,90 units.The difference is 20 units.

Question 77

Assuming no economies of scale and identical costs,if the firms in a purely competitive industry were replaced by a profit-maximizing monopolist,the likely result would be:

A) an increase in both price and output.
B) unchanged price and reduced output.
C) an increase in price and unchanged output.
D) an increase in price and reduced output.

Question 78

Monopolists are said to be allocatively inefficient because:

A) they produce where MR > MC.
B) at the profit-maximizing output,price is greater than AVC.
C) they produce only the type of product they desire and do not consider the consumer.
D) at the profit-maximizing output,the marginal benefit to society from increasing output is greater than the marginal cost to society.

Question 79

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

A) 0
B) 35
C) 70
D) 105
The purely competitive level of output occurs where the demand curve crossed the MC curve,that is,160 units.The monopoly output occurs where MC = MR,that is,90 units.The difference is 70 units.

Question 80

The supply curve for a pure monopolist:

A) is the portion of the marginal cost curve that lies above the average variable cost curve.
B) is perfectly price-elastic at the market price.
C) is upsloping across all relevant ranges of output.
D) does not exist because there is no fixed relationship between price and quantity supplied.