Deck 9: Monopoly

Question 1

Legal barriers protect firms from:

A) losses.
B) high prices.
C) potential competitors.
D) taxes.

Answer 1

C

Question 2

Which barrier to entry results in the creation of a natural monopoly?

A) Legal barriers like government franchises.
B) Economies of scale.
C) Ownership of a vital resource.
D) Patents and copyrights.

Answer 2

B

Question 3

A casino is often protected by license because:

A) it is helping gamblers to access the services.
B) it allows the casino to enjoy the competitive pricing.
C) it creates a stream of revenue to the government.
D) it invites more casinos to open.

Answer 3

C

Question 4

Water is often provided to households by one supplier because:

A) there is not enough competition in the market.
B) the single supplier cannot supply the entire market demand at a lower cost than two or more smaller firms could.
C) long-run average total cost increases over the entire range of output.
D) it is a natural monopoly.

Question 5

There is only one hairdressing salon on campus. That means it is possibly a/an:

A) oligopoly.
B) monopolistically competitive firm.
C) monopoly.
D) competitive firm.

Question 6

The demand curve for a monopolist is:

A) the demand curve for the industry.
B) less than the market demand curve.
C) below the marginal revenue curve.
D) non-existent.

Question 7

An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a:

A) natural monopoly.
B) competitive monopoly.
C) patent monopoly.
D) limit monopoly.

Question 8

If a good has no close substitutes, the market is likely to be:

A) a monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) perfectly competitive.

Question 9

A natural monopoly occurs because:

A) of the lack of competition.
B) of ownership of vital resources.
C) its long-run average cost of production declines throughout the entire range of output.
D) of the patent.

Question 10

The only dentist in a small isolated country town is an example of a/an:

A) oligopoly.
B) monopolistically competitive firm.
C) monopoly.
D) competitive firm.

Question 11

A monopoly can result because of:

A) an ownership of a vital resource with other firms.
B) a legal patent over a good shared with another large firm.
C) successful operations.
D) production of a unique good which no one else can replicate.

Question 12

The most effective barrier/s to protect a monopoly from competition is/are:

A) legal barriers or government ownership.
B) excessive advertising by the monopoly.
C) higher wages paid to the monopoly's workers.
D) the high quality product offered by a monopoly.

Question 13

Monopoly is a market structure characterised by:

A) a couple of large sellers.
B) a high quality product.
C) a high entry barrier to the market.
D) many close substitutes.

Question 14

Economies of scale means that competition is unsustainable because:

A) competition results in lower quantity and lower price.
B) as firms become larger, the inefficiency grows.
C) one large scale firm can produce at lower cost than several firms.
D) it is easier to control one firm than many firms.

Question 15

The only one bakery in a small regional town would face:

A) strong competition.
B) a downward-sloping demand curve.
C) barriers to entry.
D) a horizontal demand curve.

Question 16

The only hairdresser in a small town is an example of:

A) monopsy.
B) luxury.
C) monopoly.
D) oligopoly.

Question 17

If the firm owns vital resources, the market is likely to be:

A) a monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) perfectly competitive.

Question 18

The monopoly can emerge naturally because:

A) as a firm becomes larger, the cost of production grows.
B) of the relationship between average cost and the scale of an operation.
C) new firms have excess capacity.
D) firms are not interested in entering the monopoly industry.

Question 19

The monopolist's demand curve is:

A) below the marginal revenue curve.
B) identical to the marginal revenue curve.
C) a downward-sloping market demand curve.
D) a horizontal line at the market price.

Question 20

Under monopoly, the consumers:

A) can influence the price.
B) have a choice of many producers.
C) have a choice to buy a product or to do without it.
D) have an option to get a variety of products from several suppliers.

Question 21

In the long run, a monopoly:

A) will always earn economic profit.
B) is always free from competition, either real or potential.
C) will always be protected by the government to prevent competition.
D) can change its plant size.

Question 22

There is only one petrol station within hundreds of miles. The owner finds that when she charges $3 a litre, she sells 99 litres a day, and when she charges $2.95 a litre, she sells 100 litres a day. The marginal revenue of the 100th litre of petrol (in absolute terms) is:

A) $5.
B) $2.
C) $0.
D) $3.

Question 23

To maximise its profit, a monopoly should choose a price where demand is:

A) unitary elastic.
B) inelastic.
C) elastic.
D) vertical.

Question 24

At a price of $5, 24 units of a good would be sold. At a price of $10, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:

A) $14.
B) $55.
C) $100.
D) $130.

Question 25

Which of the following is true for the single priced monopolist?

A) Marginal revenue is equal to the price charged.
B) Economic profit is always zero in the long run.
C) Profit-maximising occurs when marginal revenue is greater than the marginal cost.
D) Profit-maximising occurs when marginal revenue is equal to the marginal cost.

Question 26

A monopolist will operate in the short run if which of the following is above average variable cost?

A) Marginal cost.
B) Marginal revenue.
C) Price.
D) Average total cost.

Question 27

At the level of output where the marginal cost and marginal revenue curves intersect, a monopolist's demand curve passes above its average total cost curve. The firm will:

A) be able to make a positive economic profit.
B) stay in operation in the short run, but then shut down.
C) shut down in the short run.
D) increase its price.

Question 28

When marginal revenue is zero for a monopolist facing a downward-sloping, straight-line demand curve, the price elasticity of demand is:

A) greater than 1.
B) equal to 1.
C) less than 2.
D) equal to zero.

Question 29

A single-priced monopolist earns an economic profit only when:

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

Question 30

A monopoly firm can sell its fourth unit of output for a price of $250. In order to sell more than five units, it must expect to receive a price:

A) equal to $250.
B) greater than $250.
C) less than $250.
D) equal to $340.

Question 31

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

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

Question 32

Monopolies exist because of:

A) diseconomies of scale.
B) lack of legal protection.
C) barriers to entry.
D) public ownership of resources.

Question 33

What is the major difference between perfect competition and monopoly?

A) The slope of the supply curve faced by the firm.
B) The slope of the demand curve faced by the industry.
C) The slope of the supply curve faced by the industry.
D) The slope of the demand curve faced by the firm in different market structure.

Question 34

A single priced monopoly:

A) can increase price and increase output at the same time.
B) can charge any price it wants and still sell all of its output.
C) can sell any output it produces provided it accepts the market price.
D) must lower price in order to increase output.

Question 35

At any point where a monopolist's marginal revenue is positive, the downward-sloping, straight-line demand curve is:

A) perfectly elastic.
B) elastic.
C) unit elastic.
D) inelastic.

Question 36

At the point where the marginal revenue equals zero for a monopolist facing a downward-sloping straight-line demand curve, total revenue is:

A) greater than 1.
B) maximum.
C) less than 1.
D) equal to zero.
E) not determinable.

Question 37

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

A) Raise price or lower output.
B) Lower price.
C) Raise output.
D) Lower price and raise output.

Question 38

Electricity and water are usually supplied to households by one supplier because:

A) the government can collect more taxes from a monopoly firm.
B) the single supplier can provide electricity and water at lower cost than two or more firms.
C) long-run average total cost increases over the entire range of output.
D) it is a monopoly protected by the ownership of vital resources.

Question 39

Suppose a monopolist's demand curve lies below its average variable cost curve. The firm will:

A) stay in operation in the short run.
B) increase the price.
C) earn an economic profit in the long run.
D) shut down.

Question 40

Both a perfectly competitive firm and a monopolist:

A) always earn an economic profit.
B) maximise profit by setting marginal cost equal to marginal revenue.
C) maximise profit by setting marginal cost equal to average total cost.
D) are price takers.

Question 41

Narrbegin Exhibit 8.3 Demand and cost curves for GeneTech, a monopolist with a patented vaccine

-In Exhibit 8.3, what is the maximum hourly profit that GeneTech can earn from its vaccine?

A) $1500.
B) $3000.
C) $4500.
D) $10 500.

Question 42

A monopolist that lowers its price and increases output, even at the expense of short-run profits, is engaging in:

A) predatory pricing.
B) price discrimination.
C) predatory discrimination.
D) multi-purpose pricing.

Question 43

Narrbegin Exhibit 8.4 Demand and cost curves for a monopolist

-As shown in Exhibit 8.4, in order to maximise its profit (or minimise its loss), how much output should the monopoly produce?

A) 2 units per hour.
B) 4 units per hour.
C) 6 units per hour.
D) 8 units per hour.

Question 44

The monopolist can choose:

A) any price for its product.
B) the demand curve.
C) price and quantity to produce.
D) price or quantity to produce.

Question 45

Price is always greater than marginal revenue because:

A) the monopolist cannot charge a price below the demand curve.
B) the reduction in revenue due to the higher price is subtracted from the increase in revenue from the extra unit produced.
C) the reduction in revenue due to the lower price is subtracted from the increase in revenue from the extra unit produced.
D) the increase in revenue due to the lower price is subtracted from the increase in revenue from the extra unit produced.

Question 46

Another way to say that marginal revenue is less than the price at a given level of output is that:

A) the marginal output curve lies below the demand curve.
B) the marginal revenue curve lies above the demand curve.
C) the marginal revenue curve is the same as the demand curve.
D) the marginal revenue curve lies below the demand curve.

Question 47

Narrbegin Exhibit 8.4 Demand and cost curves for a monopolist

-As shown in Exhibit 8.4, in order to maximise its profit (or minimise its loss), what price should the monopoly charge for its product?

A) $60 per unit.
B) $90 per unit.
C) $120 per unit.
D) $150 per unit.

Question 48

Predatory pricing can occur in a monopoly market because:

A) the firm has no potential competitors to stop it doing so.
B) the firm wishes to create an entry barrier for the potential entrants.
C) the government has a tax incentive to let it happen.
D) the monopolist is trying to maximise short-term profits.

Question 49

Narrbegin Exhibit 8.3 Demand and cost curves for GeneTech, a monopolist with a patented vaccine

-In Exhibit 8.3, how much vaccine should GeneTech produce to maximise its profit?

A) 300 doses per hour.
B) 400 doses per hour.
C) Between 400 and 500 doses per hour.
D) 500 doses per hour.

Question 50

Narrbegin Exhibit 8.2 Demand and cost information for a monopoly
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Tatal Cost } \\\hline 0 & 40 & 10 \\\hline 1 & 30 & 15 \\\hline 2 & 20 & 25 \\\hline 3 & 10 & 40 \\\hline 4 & 0 & 60 \\\hline\end{array}$$

-Refer to Exhibit 8.2. Using the rule that focuses on the marginal approach to maximising profits, the monopolist maximises profit by choosing price equal to:

A) $0.
B) $10.
C) $20.
D) $30.

Question 51

Narrbegin Exhibit 8.5 Demand and cost data for a monopolist
$\begin{array}{|c|c|c|c|c|c|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \mathrm{TC} & \text { Profi } \\\hline \$ 10 & 1 & 10 & 10 & 4 & \\\hline 9 & 2 & & & 8 & \\\hline 8 & 3 & & & 12 & \\\hline 7 & 4 & & & 16 & \\\hline 6 & 5 & & & 20 & \\\hline 5 & 6 & & & 24 & \\\hline 4 & 7 & & & 28 & \\\hline 3 & 8 & & & 32 & \\\hline 2 & 9 & & & 36 & \\\hline 1 & 10 & & & 40 & \\\hline\end{array}$

-By calculating the data provided in Exhibit 8.5, how much is the profit if the firm decides to produce 7 units?

A) zero.
B) 6.
C) 12.
D) 16.

Question 52

If a firm charges $100 and consumers buy 10 units, the total revenue is:

A) $0
B) $100.
C) $1000.
D) not determinable from information provided.

Question 53

Narrbegin Exhibit 8.5 Demand and cost data for a monopolist
$\begin{array}{|c|c|c|c|c|c|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \mathrm{TC} & \text { Profi } \\\hline \$ 10 & 1 & 10 & 10 & 4 & \\\hline 9 & 2 & & & 8 & \\\hline 8 & 3 & & & 12 & \\\hline 7 & 4 & & & 16 & \\\hline 6 & 5 & & & 20 & \\\hline 5 & 6 & & & 24 & \\\hline 4 & 7 & & & 28 & \\\hline 3 & 8 & & & 32 & \\\hline 2 & 9 & & & 36 & \\\hline 1 & 10 & & & 40 & \\\hline\end{array}$

-Refer to Exhibit 8.5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximises profit?

A) 2.
B) 4.
C) 5.
D) 6.

Question 54

Marginal revenue can be:

A) never negative.
B) always positive.
C) only zero.
D) zero, positive or negative.

Question 55

Predatory pricing in monopolies is the practice of:

A) increasing prices to prey on consumers.
B) increasing prices to raise revenue.
C) decreasing prices to deter potential competitors.
D) decreasing prices to deter potential consumers.

Question 56

Narrbegin Exhibit 8.2 Demand and cost information for a monopoly
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Tatal Cost } \\\hline 0 & 40 & 10 \\\hline 1 & 30 & 15 \\\hline 2 & 20 & 25 \\\hline 3 & 10 & 40 \\\hline 4 & 0 & 60 \\\hline\end{array}$$

-The marginal revenue of the third unit of output in Exhibit 8.2 is:

A) -10.
B) 10.
C) 20.
D) 30.

Question 57

Narrbegin Exhibit 8.6 Monopolist

-According to the information provided in Exhibit 8.6, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?

A) Stay where he is currently operating because he is charging the profit-maximising price.
B) Increase price and increase output.
C) Decrease price and increase output.
D) Increase output and hold price constant.

Question 58

Narrbegin Exhibit 8.3 Demand and cost curves for GeneTech, a monopolist with a patented vaccine

-As shown in Exhibit 8.3, in order to maximise its profit, what price should GeneTech charge for its vaccine?

A) $20 per dose.
B) $25 per dose.
C) $35 per dose
D) $50 per dose.

Question 59

Suppose a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If the price is between its average variable cost and average total cost curves, the firm will:

A) earn an economic profit.
B) stay in operation in the short run, but shut down in the long run if demand remains the same.
C) shut down.
D) charge a higher price.

Question 60

For every level of output, marginal revenue is:

A) higher than price.
B) less than price.
C) equal to price.
D) undetermined.

Question 61

If a firm is able to price-discriminate:

A) some groups of the population will benefit.
B) the monopolist earns a lower profit but all consumers gain.
C) all consumers are worse off.
D) both the monopolist and the consumer are worse off.

Question 62

The monopolist:

A) sometimes charges different customers different prices regardless of the cost of supplying the good.
B) always charges each buyer the same price.
C) charges different customers different prices regardless of the cost of supplying the good.
D) never charges each buyer the same price.

Question 63

For a monopolist to practise price discrimination, one necessary condition is that the product offered for sale must be:

A) high quality.
B) expensive.
C) cheap.
D) impossible or difficult to resell.

Question 64

Price discrimination occurs when:

A) for the same product, a seller charges different customers different prices justified by cost differences.
B) for a different product, a seller charges different customers different prices not justified by cost differences.
C) for a different product, a seller charges the same customers different prices not justified by cost differences.
D) for the same product, a seller charges different customers different prices not justified by cost differences.

Question 65

Narrbegin Exhibit 8.6 Monopolist

-According to the information provided in Exhibit 8.6, if the Rudd Ice Company is a monopoly and is currently charging a price of $8, what would you advise Rudd to do?

A) Stay where he is currently operating because he is charging the profit-maximising price.
B) Increase price and increase output.
C) Decrease price and increase output.
D) Increase output and hold price constant.

Question 66

A monopolist can engage in price discrimination:

A) if it faces a perfectly elastic demand curve.
B) if it is able to buy a good at a low price and resell it at a higher price.
C) if it is a price maker, can segment the market and prevent customers from reselling.
D) if it faces a perfectly inelastic demand curve.

Question 67

The condition/s required for a monopolist to engage in price discrimination is/are:

A) that buyers are not able to resell the good.
B) when it cannot identify specific groups of consumers with different elasticities.
C) that the demand curve must be perfectly elastic.
D) for potential competitors to threaten entry into the market.

Question 68

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:

A) buying long.
B) selling short.
C) a tariff.
D) arbitrage.

Question 69

Mobile phone companies offer alternative pricing plans to consumers, who can then choose the one that suits them best. This is an example of:

A) predatory pricing.
B) perfect competition.
C) price discrimination.
D) arbitrage.

Question 70

A recent study has concluded that working adults have a price elasticity of demand of 1.72 for train services, while pensioners have a price elasticity of demand of 3.74. If price discrimination is possible, then the company providing the train service will:

A) charge a lower price to working adults than to pensioners.
B) charge a lower price to pensioners than to working adults.
C) earn higher profits by charging everyone the same price.
D) lower prices for all customers because demand is elastic for both groups.

Question 71

Price discrimination can benefit some consumers because:

A) a uniform price may be above their willingness to pay.
B) they can resell that good at a higher price and earn some extra money.
C) it forces monopolists to earn lower profits.
D) it forces monopolists to operate on the elastic section of their demand curve.

Question 72

Firms employ price discrimination because:

A) they want to give discounts whenever they can.
B) it prevents predatory pricing.
C) it increases profits.
D) they dislike arbitrage.

Question 73

A common criticism of price discrimination is that it seems to:

A) cost some people more for similar goods or services.
B) cost some people more for the exact same good or service.
C) decrease a monopolist's profits.
D) make monopoly unviable.

Question 74

One necessary condition for effective price discrimination is:

A) identical tastes among buyers.
B) difference in the price elasticity of demand among buyers.
C) a single, homogeneous market.
D) two or more markets with easy resale of products between them.

Question 75

Airlines often charge customers more if they don't stay over at their destination on a Saturday night. The best explanation for this is that the airline is engaging in:

A) predatory pricing.
B) arbitrage.
C) price discrimination.
D) perfect competition.

Question 76

Arbitrage is the practice of:

A) earning a profit by buying and reselling goods and services.
B) redistributing the profit from monopoly to consumers.
C) losing a profit by buying and reselling goods and services.
D) producing goods and services for reselling.

Question 77

Suppose there is only one airline that travels from one island to another. Assume that business travellers have a low elasticity of demand for air travel. Holiday travellers on the other hand are flexible and are sensitive to price. Price discrimination can occur because:

A) business travellers have to travel.
B) there is a monopoly.
C) of the difference between price elasticities.
D) there are no close substitutes.

Question 78

Bus services often offer lower prices for students and pensioners because:

A) they have a more inelastic demand for bus services.
B) its the right thing to do morally.
C) they have a higher elasticity for bus services than the adult working population.
D) they have a higher willingness to pay.

Question 79

A price-discriminating monopoly charges the lowest price to the group that:

A) has the most elastic demand.
B) purchases the largest quantity.
C) engages in the most arbitrage.
D) is least responsive to price changes.

Question 80

Arbitrage will occur:

A) when a person can buy the good at one price and then resell it at a higher price.
B) when the monopolist wants to employ it to increase profits.
C) when the monopolist is able to practise price discrimination.
D) when the monopolist faces a downward-sloping demand curve.