Question 1

To practice long-run price discrimination,a monopolist must:

Accepted Answer

A)   be a natural monopoly.
B)   charge one price to all buyers.
C)   permit the resale of the product by the original buyers.
D)   be able to separate buyers into different markets with different price elasticities. D

Question 2

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

Accepted Answer

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. B

Question 3

Which would be evidence of price discrimination at a local bar called Heaters?

Accepted Answer

A)   Charging higher prices than under perfect competition
B)   Charging higher prices for imported than for domestic beer
C)   Charging lower prices to customers wearing Heaters t-shirts
D)   Charging lower prices during Happy Hour from 5 to 6 p.m. C

Question 4

If a monopolist discovers that it is operating at a level of output where price is less than average variable costs,it will continue to operate in the short run.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

A)   5
B)   20
C)   70
D)   90The 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 6

Other things equal,which reduces competition in an industry?

Accepted Answer

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 7

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

Accepted Answer

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 8

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

Accepted Answer

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

Question 9

In most cases,a monopolist practicing price discrimination will earn more economic profit.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

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

Question 11

When marginal costs decrease,a monopolist will usually lower its price and increase its level of output.

Accepted Answer

A) True 
 B)False

Question 12

In general,the amount of X-inefficiency in an industry:

Accepted Answer

A)   increases as the amount of competition increases.
B)   increases as the amount of competition decreases.
C)   decreases as the amount of competition stays the same.
D)   has no relationship to the amount of competition in an industry.

Question 13

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:

Accepted Answer

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 14

The supply curve for the pure monopolist is upsloping.

Accepted Answer

A) True 
 B)False

Question 15

Price discrimination is:

Accepted Answer

A)   always legal.
B)   always illegal.
C)   only illegal if it hurts consumers more than nondiscrimination.
D)   only illegal if used to lessen or eliminate competition.

Question 16

Refer to the figures above.Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly).P denotes the price of a round of golf and Q is the quantity of rounds sold each day.If the left graph represents the demand during weekdays and the right graph the weekend demand,this profit-maximizing golf course should:

Accepted Answer

A)   charge $9 for each round,regardless of the day of the week.
B)   charge $7 for each round,regardless of the day of the week.
C)   charge $7 for each round on weekdays,and $10 during the weekend.
D)   charge $9 for each round on weekdays,and $10 during the weekend.The monopolist should set MC = MR in both markets.That means the weekday output should be 200 per day with a price of $7 and the weekend output should be 100 per day with a price of $10.

Question 17

Monopolists are said to be allocatively inefficient because:

Accepted Answer

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 18

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

Accepted Answer

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

Question 19

One defining characteristic of pure monopoly is that:

Accepted Answer

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 20

The supply curve for a pure monopolist:

Accepted Answer

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.

Exam 8: Pure Monopoly

To practice long-run price discrimination,a monopolist must:

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

Which would be evidence of price discrimination at a local bar called Heaters?

If a monopolist discovers that it is operating at a level of output where price is less than average variable costs,it will continue to operate in the short run.

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?

Other things equal,which reduces competition in an industry?

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

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

In most cases,a monopolist practicing price discrimination will earn more economic profit.

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

When marginal costs decrease,a monopolist will usually lower its price and increase its level of output.

In general,the amount of X-inefficiency in an industry:

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:

The supply curve for the pure monopolist is upsloping.

Price discrimination is:

Monopolists are said to be allocatively inefficient because:

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

One defining characteristic of pure monopoly is that:

The supply curve for a pure monopolist: