Deck 8: Monopoly

Question 1

Figure 9-I

Monopoly profits cannot persist in the long run, because there are barriers to entry.

Answer 1

False

Question 2

Figure 9-I

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Answer 2

False

Question 3

Figure 9-I

A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive.

Answer 3

True

Question 4

Figure 9-I

A price-discriminating monopoly firm will tend to charge a higher price to customers with a greater willingness to pay than it does to customers with a lower willingness to pay.

Question 5

Figure 9-I

The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Question 6

Figure 9-I

Monopolists, unlike perfectly competitive firms, can continue to earn positive economic profits over time.

Question 7

Figure 9-I

The demand curve faced by a monopolist is the same as the marginal revenue curve.

Question 8

Figure 9-I

A profit-maximizing monopolist will choose to operate along the inelastic portion of its demand curve.

Question 9

Figure 9-I

Control of a scarce resource or input can serve as an entry barrier.

Question 10

Figure 9-I

Monopoly firms, which are provided a subsidy equal to their losses and subject to marginal cost-pricing regulation, have little incentive to minimize costs.

Question 11

Figure 9-I

A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.

Question 12

Figure 9-I

A monopolistic firm is a:

A)price taker that faces the market supply curve.
B)price taker that faces the market demand curve.
C)price maker that faces the market supply curve.
D)price maker that faces the market demand curve.

Question 13

Figure 9-I

In order for a firm to be able to price discriminate it must not be a price taker, there must be different demand from different groups of consumers, and there must be an ability to prevent resale.

Question 14

Figure 9-I

A natural monopolist will voluntarily choose to produce at the point of allocative efficiency.

Question 15

Figure 9-I

A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.

Question 16

Figure 9-I

Monopoly is at the other end of the spectrum from ____.

A)monopolistic competition
B)perfect competition
C)oligopoly
D)none of the above

Question 17

Figure 9-I

A monopoly firm can sell as much output as it wants at whatever price it sets.

Question 18

Figure 9-I

One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Question 19

Figure 9-I

The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

Question 20

Figure 9-I

Monopolies will tend to produce a greater quantity and charge higher prices than perfectly competitive industries.

Question 21

Based on the table below what is the marginal revenue of the 14^th unit of output? $\begin{array}{llcc} \underline{\text { Quantity } }& \underline{\text {Price }} \\13&\$50.00\\14&\$49.75\\15&\$49.50\end{array}$

A)$0.25
B)$46.00
C)$46.50
D)$49.75

Question 22

A natural monopoly exists if:

A)several former competitors merge to become the only producer in the industry.
B)average cost of production is lowest when only one firm produces the entire industry output.
C)one firm controls the supply of an essential input used by the industry.
D)a firm has a patent or copyright.

Question 23

If there are economies of scale throughout the relevant output range of production, which is false?

A)It is a natural monopoly.
B)It is more efficient to have a single firm produce the good.
C)It would typically result from a firm's possession of an exclusive patent.
D)One large firm can produce at lower cost than two or more smaller firms.
E)None of the above is false; all are true.

Question 24

Which of these contributes to the existence of monopoly power?

A)the control of critical resources
B)legal barriers
C)patents
D)All of the above contribute to the existence of monopoly power.

Question 25

A market structure in which only one firm survives because of economies of scale:

A)is called a structural monopoly.
B)is called a patented monopoly.
C)is called a natural monopoly.
D)is called a government monopoly.

Question 26

Figure 9-I

Which of the following is a characteristic of a monopoly?

A)a large number of sellers
B)homogeneous products
C)larger barriers to entry
D)price taking firms

Question 27

Many communities have granted monopoly rights to cable companies.This is an example of a monopoly created through:

A)government licensing.
B)ownership of the cable resources.
C)patent protection.
D)smart business practices by shrewd entrepreneurs.

Question 28

A natural monopoly is likely to arise when:

A)the government restricts entry through licensing.
B)patents provide protection of intellectual property.
C)economies of scale exist over the relevant range of demand.
D)a firm controls a crucial input to production.
E)any of the above occur.

Question 29

Which of the following would likely be an example of a monopolistic industry?

A)fast-food restaurants
B)wireless phone service
C)auto manufacturing
D)none of the above

Question 30

Which of the following is false?

A)A true or pure monopoly exists where there is only one seller of a product for which no close substitute is available.
B)The situation in which one large firm can provide the output of the market at a lower cost than two or more smaller firms is called a natural monopoly.
C)In monopoly, the market demand curve may be regarded as the demand curve for the firm because it is the market for that particular product.
D)A monopoly firm is a price maker, and it will pick a price that is the highest point on its demand curve.
E)None of the above are false.

Question 31

When a single firm can produce output over the relevant range of demand more efficiently than two or more firms can, because of the existence of economies of scale, we have:

A)perfect competition.
B)monopolistic competition.
C)diseconomies of scale.
D)a natural monopoly.

Question 32

Why does the government allow some markets to be monopolized by granting patents?

A)to promote a more equal distribution of income
B)to correct for negative externalities
C)to promote technological progress
D)to ensure lower prices for consumers in the short run

Question 33

Figure 9-I

Pure monopoly:

A)is characterized by a single supplier.
B)is a market structure in which no close substitute products are available.
C)exists when entry and survival of potential competitors is extremely unlikely.
D)is characterized by all of the above.

Question 34

The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade.This market power was obtained through:

A)illegal means.
B)control of a scarce resource.
C)patent protection.
D)government licensing.

Question 35

Which of the following is not a source of monopoly?

A)technologies that allow each of many small firms to produce at the same per-unit costs as one large firm
B)patents
C)control of crucial inputs
D)government licensing requirements

Question 36

Based on the table below what is the marginal revenue of the 28^th unit of output? $\begin{array}{llcc} \underline{\text { Quantity } }& \underline{\text {Price }} \\27&\$28.50\\28&\$27.00\\29&\$25.50\end{array}$

A)-$16.50
B)-$13.50
C)$13.50
D)$16.50
E)$27.00

Question 37

Figure 9-I

In a perfectly competitive industry, the industry demand curve is ____, while in a monopolistic industry, the industry demand curve is:

A)horizontal; downward sloping.
B)downward sloping; horizontal.
C)downward sloping; downward sloping.
D)horizontal; horizontal.

Question 38

Which of the following is not potentially a barrier to entry into a product market?

A)patent protection on the design of the product
B)the absence of economies of scale in the product market
C)government licensing of the product's producers
D)the control of a crucial input necessary to produce the product
E)All of the above are potentially barriers to entry into a product market.

Question 39

Which of the following can serve as a barrier to entry?

A)legal restrictions
B)patents
C)control of scarce inputs or resources
D)all of the above

Question 40

A key element to preserving a monopoly is:

A)government subsidization of critical enterprises.
B)keeping potential rivals out of the market.
C)guaranteeing the availability of substitute products.
D)increased advertising expenditures.

Question 41

The demand curve of a monopolist is:

A)is identical to the marginal cost curve.
B)downward sloping and above the marginal revenue curve.
C)downward sloping and below the marginal revenue curve.
D)kinked because of recognized interdependence with other firms.
E)horizontal at the market price.

Question 42

If marginal revenue on the tenth unit of output equals $4 for a non-discriminating, profit-maximizing monopolist, then price:

A)equals $4.
B)is less than $4.
C)is greater than $4.
D)must be equal to average total cost.
E)can be equal to, less than, or greater than $4.

Question 43

Which of the following is inconsistent with a monopoly?

A)a single seller
B)a downward-sloping demand curve
C)marginal revenue exceeds price
D)a U-shaped average total cost curve
E)barriers to entry

Question 44

For any monopolist with a positive marginal cost of production, its demand curve at its profit maximizing level:

A)would be elastic.
B)would be unit elastic.
C)would be inelastic.
D)could be either elastic or inelastic.

Question 45

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

A)To sell more units, a monopolist must increase the price on all units sold.
B)As a monopolist expands output, its average total cost declines.
C)When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
D)When a monopolist reduces price in order to sell more units, it must lower the price of some units that could otherwise have been sold at a higher price.

Question 46

Graphically which of the following is true for a monopoly?

A)The marginal revenue curve lies below the demand curve and is steeper than the demand curve.
B)The marginal revenue curve lies above the demand curve and is steeper than the demand curve.
C)The marginal revenue curve lies below the demand curve and is flatter than the demand curve.
D)The marginal revenue curve lies above the demand curve and is flatter than the demand curve.
E)none of the above

Question 47

A profit-maximizing monopolist operates where demand is:

A)inelastic.
B)unit elastic.
C)elastic.
D)infinitely elastic.
E)none of the above.

Question 48

A monopolist can sell 6 units per day at $8 per unit, or 7 units per day at $7 per unit.Its marginal revenue for the seventh unit of output is:

A)$49.
B)$7.
C)$1.
D)$-1
E)impossible to determine.

Question 49

If a monopolist's marginal revenue is less than zero over a range of output, then price elasticity of demand must be:

A)greater than one.
B)equal to one.
C)less than one.
D)equal to zero.
E)infinite.

Question 50

If the demand curve facing a monopoly was 1 unit at $7, 2 units at $6, 3 units at $5, 4 units at $4, and 5 units at $3, the marginal revenue from selling the third unit of output:

A)is $5.
B)is $4.
C)is $3
D)is $1
E)cannot be determined from the above information.

Question 51

The following represents a portion of the demand schedule faced by a monopoly firm. $$\begin{array} { l c } \text { Price } & \text { Qurantity } \\\$12 & 1 \\\$ 11 & 2 \\\$ 10 & 3 \\\$9 & 4\end{array}$$ The marginal revenue of the third unit of output equals:

A)$12.
B)$10.
C)$8.
D)$1.

Question 52

A monopolist can sell 20 units a week at a price of $10 per unit.To sell 21 units a week, it would have to lower its price to $9 per unit.The marginal revenue of the 21^st unit would be:

A)$9.
B)-$11
C)-$12
D)-$20
E)-$21

Question 53

If the demand curve facing a monopoly was 1 unit at $7, 2 units at $6, 3 units at $5, 4 units at $4, and 5 units at $3, at the point along the curve where 3 units are being sold, the elasticity of demand:

A)is greater than one.
B)is equal to one.
C)is less than one.
D)cannot be determined from the above information.

Question 54

Which of the following best explains why marginal revenue for a monopolist is less than the sales price?

A)To sell more units, the monopolist must reduce price on all units sold.
B)As the monopolist expands output, the average total cost of production declines.
C)The monopolist charges each consumer the highest possible price.
D)When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.

Question 55

Say that a monopolist is currently operating on the inelastic region of its demand curve.To maximize its profits, it should:

A)raise its prices.
B)lower its prices.
C)maintain its current price.
D)either raise or lower its prices, depending on how high its marginal cost curve is.

Question 56

A monopolist can sell 7 units per day at $7 per unit, or 8 units per day at $6 per unit.Its marginal revenue for the eighth unit of output is:

A)$48.
B)$6.
C)$1.
D)$-1
E)impossible to determine.

Question 57

Show Stoppers is a monopoly provider of ticket services for the concerts and sporting events and their current service charge is $10.00.In order to attract one more customer, they have to lower their service charge to $9.50.Show Stoppers' marginal revenue of this additional customer is:

A)$9.50.
B)greater than $9.50.
C)less than $9.50.
D)between $10.00 and $9.50.

Question 58

If a firm seeks to maximize total revenue, it should produce the quantity where:

A)marginal revenue equals zero.
B)elasticity of demand is less than one.
C)elasticity of demand is greater than one.
D)marginal revenue is maximized.
E)average total cost is minimized.

Question 59

The demand curve facing a monopolist:

A)is the same as its marginal revenue curve.
B)is perfectly elastic.
C)is perfectly inelastic.
D)is less elastic than a perfectly competitive firm's demand curve.

Question 60

Graphically, the marginal revenue curve of a monopolist:

A)lies below the demand curve of a monopolist.
B)is the same as the demand curve of a monopolist.
C)lies above the demand curve of a monopolist.
D)is the same as the marginal cost curve of a monopolist.

Question 61

At a given output level, a monopolist earns a profit only if:

A)the slope of the total revenue curve exceeds the slope of the total cost curve.
B)the height of the marginal revenue curve at the output produced exceeds the height of the marginal cost curve at that output.
C)the height of the demand curve at the output produced exceeds the height of the marginal revenue curve at that output.
D)the height of the demand curve at the output produced exceeds the height of the average total cost curve at that output.

Question 62

What is the maximum amount of profit that the firm below could generate?

A)-$2,800
B)$2,400
C)$2,480
D)$2,880
E)$5,280

Question 63

A monopolist will operate at the quantity where:

A)MR = MC and charge a price equal to marginal revenue.
B)MR = MC and charge a price equal to average variable cost.
C)MR = MC and charge a price corresponding to demand at that level.
D)MR = MC and charge a price corresponding to average total cost at that level.

Question 64

At his current level of output, a monopolist has a MR of $10, a MC of $6, and an economic profit of zero.If the market demand curve is downward sloping and his marginal cost curve is upward sloping, the monopolist:

A)is producing at the profit-maximizing level of output.
B)could increase profit by increasing output.
C)could increase profit by increasing his price.
D)should exit the market if significant fixed costs have been incurred.

Question 65

If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, it should:

A)increase output and decrease price.
B)increase price and decrease output.
C)decrease both price and output.
D)increase both price and output.

Question 66

Based on the table below, what is the maximum amount of profit this firm could earn? $$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } & \mathrm { TC } \\\hline 40 & \$ 80 & \$ 2,500 \\41 & \$ 79 & \$ 2,510 \\42 & \$ 78 & \$ 2,530 \\43 & \$ 77 & \$ 2,560 \\44 & \$ 76 & \$ 2,600\end{array}$$

A)$746
B)$751
C)$2,560
D)$3,311
E)$3,344

Question 67

What is the maximum amount of profit that the firm below could generate?

A)$2,220
B)$3,000
C)$3,300
D)$3,700
E)$5,700

Question 68

A profit-maximizing monopolist, if producing at all, chooses a level of output where:

A)total revenue is maximized.
B)total cost is minimized.
C)average total cost is minimized.
D)marginal revenue equals marginal cost.
E)price equals marginal cost.

Question 69

A monopoly firm will earn economic profits whenever:

A)marginal revenue exceeds marginal cost.
B)marginal revenue equals marginal cost.
C)marginal revenue is less than marginal cost.
D)marginal revenue is greater than average cost.
E)average revenue is greater than average cost.

Question 70

Profit-maximizing monopolists choose a level of output such that:

A)average total cost is minimized.
B)price equals marginal revenue but exceeds average variable cost.
C)price equals marginal cost but exceeds average variable cost.
D)marginal revenue equals marginal cost.

Question 71

Which of the following is not generally true about a profit-maximizing monopolist?

A)The monopolist faces a perfectly elastic demand curve.
B)The monopolist can potentially continue to earn economic profits in the long run.
C)The monopolist charges a price that exceeds marginal cost.
D)The monopolist chooses output where marginal revenue equals marginal cost.
E)All of the above are true.

Question 72

A monopoly firm is charging the maximum price the market will bear at a level of output where MC equals $10 and is increasing, MR equals $10, and average variable cost equals $9.To maximize profits, the firm should:

A)increase both output and price.
B)increase output but decrease the price.
C)decrease output and increase the price.
D)decrease both output and price.
E)not change either the output or the price.

Question 73

Based on the table below, what is the profit maximizing quantity of output? $$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } & \mathrm { TC } \\\hline 40 & \$ 80 & \$ 2,500 \\41 & \$ 79 & \$ 2,510 \\42 & \$ 78 & \$ 2,530 \\43 & \$ 77 & \$ 2,560 \\44 & \$ 76 & \$ 2,600\end{array}$$

A)40
B)41
C)42
D)43
E)44

Question 74

A monopoly firm is charging the price the market will bear at a level of output where MC equals $6 and is increasing, MR equals $9, and average variable cost equals $5.To maximize profits, the firm should:

A)increase both output and price.
B)increase output but decrease the price.
C)decrease output and increase the price.
D)decrease both output and price.
E)not change either the output or the price.

Question 75

A price-taking firm and a monopoly firm are alike in that:

A)price equals marginal revenue for both.
B)both maximize profits by choosing an output where marginal revenue equals marginal cost.
C)price exceeds marginal cost at the profit-maximizing level of output for both.
D)in the long run, both earn zero economic profits.

Question 76

A monopoly firm is charging the price the market will bear at a level of output where MC equals $22 and is increasing, MR equals $20, and average variable cost equals $17.To maximize profits, the firm should:

A)increase both output and price.
B)increase output but decrease the price.
C)decrease output and increase the price.
D)decrease both output and price.
E)not change either the output or the price.

Question 77

In the long run, economic profits are:

A)possible both for a monopolist and for a perfectly competitive firm.
B)possible for a monopolist but not for a perfectly competitive firm.
C)possible for a perfectly competitive firms but not for a monopolist.
D)impossible for both a monopolist and for a perfectly competitive firm.

Question 78

In the short run, a monopolist:

A)always earns an economic profit.
B)never earns an economic profit.
C)never earns an accounting profit.
D)always earns an accounting profit.
E)None of the above are correct.

Question 79

For a profit-maximizing monopolist, the price of a product is:

A)always equal to marginal revenue.
B)always greater than marginal revenue.
C)always less than marginal revenue.
D)always equal to the average total cost of production.
E)always greater than the average total cost of production.

Question 80

If a firm seeks to maximize profits, it should produce the quantity where:

A)marginal revenue equals zero.
B)elasticity of demand is less than one.
C)elasticity of demand is greater than one.
D)marginal revenue is maximized.
E)average total cost is minimized.