Deck 15: Monopoly

Question 1

Australia Post's monopoly on first-class mail service is the result of

A) a government licence.
B) a patent.
C) government ownership.
D) a natural monopoly.
E) an ownership barrier to entry.

Answer 1

government ownership.

Question 2

A natural monopoly exists when

A) one firm can supply an entire market at a lower average total cost than can two or more firms.
B) a firm can engage in price discrimination.
C) a monopoly firm faces a horizontal demand curve.
D) diseconomies of scale exist in an industry.
E) the producers in an industry have formed a cartel.

Answer 2

one firm can supply an entire market at a lower average total cost than can two or more firms.

Question 3

A natural monopoly's average cost curve i. intersects the demand curve while the average cost curve slopes downward.
Ii) reaches its minimum before it intersects the demand curve.
Iii) intersects the demand curve below the intersection of the marginal cost curve and the demand curve.

A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii and iii

Answer 3

i only

Question 4

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

A) A local book store
B) A local bank
C) A clothing store
D) A local restaurant
E) A local distributor of natural gas

Question 5

The good produced by a monopoly

A) has no close substitutes.
B) has perfect substitutes.
C) must be unable to be resold.
D) can be easily duplicated.
E) has no substitutes at all.

Question 6

Which of the following is an example of a natural monopoly?

A) SA Water, the water company in South Australia.
B) David Jones, the large department store chain.
C) The Adelaide Crows, an AFL team.
D) Ford Motors, the large car-producing company.
E) Sony, the Japanese producer of the PlayStation III.

Question 7

A monopoly

A) is not protected by barriers to entry.
B) produces a good with no close substitutes.
C) faces a downward-sloping demand curve.
D) Both answers A and B are correct.
E) Both answers B and C are correct.

Question 8

A natural monopoly is one that arises from

A) copyright law.
B) mergers.
C) economies of scale.
D) any government-imposed barrier to entry.
E) patent law.

Question 9

Which of the following is a legal barrier to entry? i. A public franchise
Ii) A government licence
Iii) A patent

A) iii only
B) i and ii
C) ii and iii
D) i, ii and iii
E) i and iii

Question 10

Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work?

A) A patent
B) A natural barrier
C) A public franchise
D) Copyright
E) A government licence

Question 11

A natural barrier to entry is defined as a barrier that arises because of

A) many firms producing the good and thereby allowing choice for all consumers.
B) technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.
C) one firm owning a key natural resource.
D) patents or licences that exclude others from producing a good or service.
E) anticompetitive practices by a firm that keep other firms from producing.

Question 12

Which of the following is a characteristic of monopoly?

A) The firm faces competition from many other firms.
B) There are barriers to enter the market.
C) The firm's demand is perfectly elastic.
D) The firm produces a product identical to that produced by its many competitors.
E) The firm produces a product that has many close substitutes.

Question 13

A major characteristic of monopoly is

A) multiple sellers of a product.
B) two sellers of a product.
C) a few sellers of differentiated products.
D) a few sellers of an identical product.
E) a single seller of a product.

Question 14

Patents

A) remove legal barriers to entry.
B) are prohibited in Australia.
C) create economies of scale.
D) decrease the incentive to innovate.
E) are a legal barrier to entry.

Question 15

Which of the following describes a barrier to entry?

A) Something that establishes a barrier to expanding output.
B) Firms are legally prohibited from exiting the market in order to enter another market.
C) A government regulation that bars a monopoly from earning an economic profit.
D) Firms already in the market incurring economic losses so that no new firm wants to enter the market.
E) Anything that protects a firm from the arrival of new competitors.

Question 16

A monopoly

A) must determine the price it will charge.
B) cannot price discriminate because such a pricing strategy is illegal in Australia.
C) has no control over the price it can charge.
D) faces extensive competition from firms making close substitutes.
E) Both answers B and C are correct.

Question 17

Patents

A) increase the incentive to innovate.
B) require that monopolies increase the amount they produce.
C) increase the incentive to capture economies of scale.
D) are granted only to competitive firms and not monopolies.
E) grant the holder a monopoly that lasts forever.

Question 18

Which of the following would create a natural monopoly?

A) An exclusive right granted to supply a good or service.
B) A patent granted the producer of the good or service.
C) Technology enabling a single firm to produce at a lower average total cost than two or more firms.
D) The requirement to obtain a government licence before a firm can sell the good or service.
E) Ownership of all the available units of a necessary input.

Question 19

For a natural monopoly, economies of scale

A) are totally absent.
B) lead to a legal barrier to entry.
C) and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.
D) exist along the long-run average cost curve at least until it crosses the market demand curve.
E) as well as constant returns to scale and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.

Question 20

Which of the following goods is the best example of a natural monopoly?

A) The distribution of electricity
B) Diamonds
C) First-class mail
D) Women's clothing
E) A patented good

Question 21

If a monopoly wants to sell a larger quantity, it must

A) maintain the current price.
B) implement new technology.
C) increase the barrier to entry that protects it.
D) set a lower price.
E) set a higher price.

Question 22

Which of the following is NOT correct about patents?

A) Patents stimulate innovation.
B) Patents are granted to the inventor of a product or service.
C) Patents encourage invention of new products.
D) A patent is a barrier to entry.
E) Patents enable a firm to become a permanent monopoly.

Question 23

A single-price monopoly faces a linear demand curve. If the marginal revenue for the second unit is $20, then the marginal revenue for the

A) third unit is also $20.
B) first unit is less than $20.
C) third unit is less than $20.
D) third unit is more than $20.
E) more information is needed to determine if the marginal revenue for the third unit is more than, less than or equal to $20.

Question 24

For a monopoly, marginal revenue is equal to

A) the price multiplied by the quantity sold.
B) the price of the product.
C) the amount people buy at a given price.
D) the change in total revenue brought about by a one-unit increase in quantity sold.
E) the amount people buy between two prices.

Question 25

A price-discriminating monopoly is a monopoly that

A) has control over the resources used to produce the product.
B) illegally charges different customers different prices for the good it produces.
C) sells its output at a single price to all of its customers.
D) has a licence to sell the product.
E) sells different units of a good or service at different prices.

Question 26

The table above gives the demand for a monopolist's output. Between which two quantities is demand elastic?

A) 3 and 2
B) 4 and 3
C) 5 and 4
D) 6 and 5

Question 27

A single-price monopoly can sell 10 units of its product at a price of $45 each, but to sell 11 units the monopoly must cut the price to $44. What is the marginal revenue of the extra unit sold?

A) $484
B) $44
C) $34
D) $450
E) -$1

Question 28

Price discrimination is

A) always illegal in Australia.
B) defined as charging different prices for different units.
C) setting the price to minimise the quantity sold.
D) defined as charging the same price to all consumers.
E) Both answers A and C are correct.

Question 29

The table above gives the demand for a monopolist's output. Between which two quantities is marginal revenue equal to 0?

A) 4 and 5
B) 1 and 2
C) 2 and 3
D) 3 and 4

Question 30

If a monopoly wants to sell a greater quantity of output, it must

A) raise its marginal cost.
B) raise its price.
C) lower its price.
D) tell consumers to buy more because it's a monopolist.
E) change its fixed costs.

Question 31

Pizza producers charge one price for a single pizza and almost give away a second one. This is an example of

A) price discrimination.
B) monopoly.
C) behaviour that is not profit-maximising.
D) rent seeking.
E) a barrier to entry.

Question 32

Which of the following is ALWAYS true for a single-price monopolist?

A) P = MR
B) P = elasticity of demand
C) P < MR
D) P > MR
E) None of the above answers is correct because none of them is ALWAYS true.

Question 33

Which of the following is an example of price discrimination?

A) DHL charges more if a package is sent from Sydney to Hawaii and less if it is sent from Sydney to Melbourne.
B) Albert pays 25 per cent less on prescription drugs because he is a senior citizen.
C) Frank's Furniture shop charges no delivery fee for furniture delivered within the Adelaide metro area, but charges $40 delivery fee outside of the city.
D) Only answers A and B are correct.
E) Answers A, B and C are all correct.

Question 34

A monopoly market has

A) only two firms in it.
B) a single firm.
C) a few firms.
D) two dominating firms in the market.
E) some unspecified number of firms in it.

Question 35

For a single-price monopolist, why is marginal revenue less than price?

A) Because the firm is a price taker.
B) Demand is inelastic when another unit is sold.
C) Demand is elastic when another unit is sold.
D) The question is false because marginal revenue is always equal to price.
E) To sell another unit, the price must be lowered.

Question 36

Price discrimination is prevented in situations where

A) firms have monopolies.
B) customers can resell the good.
C) customers have different willingness to pay for the good.
D) there are no close substitutes for the good or service.
E) there are legal barriers to entry.

Question 37

A petrol station on a remote stretch of the Stuart Highway in the Northern Territory has a monopoly over the retail petrol market for hundreds of kilometres. The station decides not to price discriminate. As a result, all consumers will pay

A) the lowest price possible.
B) multiple prices.
C) a price that depends on their willingness to pay.
D) the highest price each consumer is willing to pay.
E) a single price.

Question 38

A natural monopoly is one that arises from

A) a firm buying all of a natural resource.
B) economies of scale.
C) copyright law.
D) patent law.
E) ownership of a natural resource.

Question 39

In Norway, where the government runs liquor stores, the monopoly results from

A) control of an essential resource.
B) patents.
C) public fear.
D) economies of scale.
E) legal restrictions.

Question 40

A ________ can price discriminate if, in part, it ________.

A) monopoly; can prevent resale of its product
B) perfectly competitive firm; can sell goods at a lower price than a monopoly
C) perfectly competitive firm; changes from a price taker to a price maker
D) monopoly; is the only seller of a good or service
E) natural monopoly; is the only seller of a good or service

Question 41

In order to maximise its profit, a single-price monopoly produces the amount of output so that

A) P = ATC.
B) MR = MC.
C) P = MC.
D) P = MC - MR.
E) P = MR.

Question 42

Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per hour, then

A) profit will be maximised.
B) marginal revenue will be maximised.
C) marginal revenue will be negative.
D) marginal revenue will exceed marginal cost.
E) both the marginal revenue and the price will be negative.

Question 43

Suppose that, along a linear demand curve, the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units. Then the

A) marginal revenue is positive at 100 units.
B) marginal revenue is negative at 100 units.
C) total revenue is at its maximum when 100 units are produced.
D) Both answers A and B are correct.
E) Both answers A and C are correct.

Question 44

Which of the following is NOT correct about a single-price monopoly?

A) Marginal revenue is negative when demand is inelastic.
B) To maximise its profit, the firm produces so that marginal revenue equals marginal cost.
C) Maximum profit is found where demand is the most inelastic.
D) Marginal revenue is positive when demand is elastic.
E) To sell more output, the firm must lower its price.

Question 45

The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, the difference between marginal cost and price is

A) $0.
B) $20.
C) $60.
D) $40.
E) $30.

Question 46

The above table gives the demand schedule for a monopoly. The demand is elastic at all prices between

A) $3 and $1.
B) $5 and $1.
C) $6 and $1.
D) $6 and $4.
E) $4 and $3.

Question 47

Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. What quantity will the Busy Bee produce to maximise its profit?

A) 30 hamburgers per hour
B) 0 hamburgers per hour
C) 50 hamburgers per hour
D) 10 hamburgers per hour
E) 20 hamburgers per hour

Question 48

The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 2 to 3 units?

A) $7
B) $18
C) $4
D) $6

Question 49

Use the figure above to answer this question. Mary is the only veterinarian in a small town and rents a space for her practice. If Mary's landlord decided to charge ________ per hour in rent, Mary would ________.

A) $20 more; still earn an economic profit because she is a monopolist
B) $30 more; operate on the inelastic portion of her demand curve
C) $30 more; earn $0 economic profit
D) $10 less; raise her prices and earn a higher profit
E) $20 more; earn $0 economic profit

Question 50

The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, the price is ________ per pillow and the marginal cost is ________ per pillow.

A) $60; $60
B) $60; $40
C) $70; $60
D) $100; $40
E) $70; $40

Question 51

The above table gives the demand schedule for a monopoly. The demand is inelastic over the entire price range between

A) $4 and $3.
B) $3 and $1.
C) $6 and $1.
D) $5 and $1.
E) $6 and $4.

Question 52

The relationship between marginal revenue and elasticity is

A) that total revenue equals zero at the quantity for which the demand is unit elastic.
B) whenever the elasticity is negative, marginal revenue is positive.
C) whenever the elasticity is positive, marginal revenue is positive.
D) when demand is elastic, marginal revenue is negative and when demand is inelastic, marginal revenue is positive.
E) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative.

Question 53

If the Geelong Cats football team is currently charging a ticket price where its demand is inelastic, then the Cats' marginal revenue is

A) undefined.
B) maximised.
C) positive.
D) negative.
E) zero.

Question 54

Use the figure above to answer this question. Mary is the only veterinarian in a small town. To maximise her profit, Mary will choose to treat ________ animals per hour and charge ________ per customer in order to ________.

A) 6; $20; minimise cost in order to attract more customers
B) 4; $50; operate on the inelastic portion of her demand curve
C) 6; $20; maximise profit
D) 6; $30; minimise average total cost
E) 4; $50; maximise profit

Question 55

The table above gives the demand for a monopolist's output. What is the total revenue when 3 units of output are produced?

A) $20
B) $18
C) $6
D) $21

Question 56

Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. What price will the Busy Bee charge to maximise its profit?

A) $5.00 for a hamburger
B) $1.00 for a hamburger
C) $2.00 for a hamburger
D) $3.00 for a hamburger
E) $4.00 for a hamburger

Question 57

The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 5 to 6 units?

A) -$2
B) $18
C) $4
D) $3

Question 58

To maximise its profit, a perfectly competitive firm produces so that ________ and a single-price monopoly produces so that ________.

A) MR > MC; MR = MC
B) MR = MC; MR > MC
C) P = ATC; P = ATC
D) MR > MC; MR > MC
E) MR = MC; MR = MC

Question 59

If Microsoft is a monopoly and currently charges prices where its demand is elastic, then Microsoft's marginal revenue is

A) undefined.
B) negative.
C) positive.
D) zero.
E) minimised.

Question 60

Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by

A) shutting down.
B) lowering its price and increasing its output.
C) lowering its price and decreasing its output.
D) not changing its price and increasing its output.
E) raising its price and decreasing its output.

Question 61

Suppose the grocery store market in Brisbane is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the quantity of steak is ________ kilograms, and when the market is a monopoly, the quantity of steak is ________ kilograms.

A) 3,000; 2,000
B) 5,000; 3,000
C) 4,000; 4,000
D) 4,000; less than 2,000 kilograms.
E) 2,000; 4,000

Question 62

Assume someone organises all farms in the nation into a monopoly. Which of the following occurs? i. Consumer surplus decreases.
Ii) Economic profit increases.
Iii) A deadweight loss is created.

A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii and iii

Question 63

The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The deadweight loss when the market has a monopoly producer is

A) bcd.
B) bcef.
C) acd.
D) ace.
E) abf.

Question 64

For a single-price monopoly, price is

A) one half of marginal revenue.
B) greater than marginal revenue.
C) unrelated to marginal revenue.
D) equal to marginal revenue.
E) always less than average total cost when the firm maximises its profit.

Question 65

A monopolist can make an economic profit in the long run because of

A) the firm's price setting behaviour.
B) the fact that the firm produces where MR = MC.
C) the relatively inelastic demand for its product.
D) the relatively elastic demand for its product.
E) barriers to entry.

Question 66

Which of the following statements is FALSE?

A) In the long run, a monopoly can earn a larger economic profit than can a perfectly competitive firm.
B) A perfectly competitive market produces more output and charges a lower price than a monopoly.
C) In a perfectly competitive market, the price is equal to the marginal cost, but in a market with a single-price monopoly, price exceeds marginal cost.
D) A perfectly competitive firm produces where MR = MC but a monopoly produces where MR > MC.
E) The consumer surplus is smaller for a market with a monopoly than for a perfectly competitive market.

Question 67

In the above figure, the profit-maximising output for this single-price monopoly is ________ units and the price is ________.

A) 500; $50
B) 300; $30
C) 200; $30
D) 300; $20
E) 200; $10

Question 68

In the above figure, a perfectly competitive market will have a price of ________, and a single-price monopoly will have a price of ________.

A) P2 and quantity of Q1; P1 and quantity of Q1
B) P2 and quantity of Q2; P1 and quantity of Q1
C) P2 and quantity of Q2; P3 and quantity of Q1
D) P1 and quantity of Q1; P2 and quantity of Q2
E) P3 and quantity of Q3; P1 and quantity of Q1

Question 69

Once a monopoly has determined how much it produces, it will charge a price that

A) is determined by its demand curve.
B) is equal to its average total cost.
C) is independent of the amount produced.
D) is determined by the intersection of the marginal cost and average total cost curves.
E) minimises marginal cost.

Question 70

If a single-price monopoly is making a large economic profit, what keeps other firms from competing away the profit?

A) The monopoly must be keeping the amount earned secret.
B) The existing firm's ATC must be too large to allow competitors to enter and earn an economic profit.
C) There are barriers to entry.
D) The market must be too small.
E) Nothing, other firms will enter and will compete away the profit.

Question 71

A single-price monopoly has marginal cost of $23 and marginal revenue of $28. Which of the following is definitely correct?

A) To increase profit, it should produce less.
B) It is maximising profit.
C) To increase profit, it should produce more.
D) It is making an economic profit.
E) It should shut down.

Question 72

Assume someone organises all farms in the nation into a single-price monopoly. What is the monopoly's marginal revenue curve?

A) It is a line that lies above the new monopoly's demand curve.
B) It is a vertical line at the monopoly's chosen output level.
C) It is a horizontal line at the competitive industry's price.
D) It is a line that lies below the new monopoly's demand curve.
E) It is identical to the demand curve for the monopolist's output.

Question 73

Assume someone organises all farms in the nation into a single-price monopoly. As a result, the amount of food produced

A) increases.
B) remains constant.
C) decreases.
D) might increase or decrease depending on whether the demand for food is elastic or inelastic.
E) might increase or decrease depending on whether the monopoly's marginal revenue curve lies below or above its demand curve.

Question 74

When compared to a perfectly competitive market, a single-price monopoly with the same costs produces ________ output and charges ________ price.

A) a smaller; the same
B) the same; a higher
C) a larger; a lower
D) a smaller; a higher
E) a smaller; a lower

Question 75

The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, his total economic profit is

A) $210,000.
B) $405.
C) $60.
D) $0.
E) unknown because more information is needed to determine Paul's profit.

Question 76

The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The amount of consumer surplus when the market has a monopoly producer is ________ and the amount of consumer surplus when the market is perfectly competitive is ________.

A) ace; abf
B) bcd; ace
C) abf; ace
D) ace; bcd
E) abf; bcd

Question 77

Suppose the grocery store market in Brisbane is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the price of a kilogram of steak is ________ and when it is a monopoly, the price of a kilogram of steak is ________.

A) $4; $20
B) $4; $12
C) $4; $8
D) $8; $4
E) $8; $12

Question 78

Assume someone organises all farms in the nation into a single-price monopoly. As a result, the price consumers pay for food

A) rises.
B) does not change, that is, it remains constant.
C) falls.
D) might rise or fall depending on whether the demand for food is elastic or inelastic.
E) might rise or fall depending on whether the monopoly's marginal revenue curve lies above or below its demand curve.

Question 79

When demand is elastic, marginal revenue is

A) positive.
B) negative.
C) zero.
D) undefined.
E) increasing as output increases.

Question 80

A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of output where the price on the demand curve is $38. At this output, average total cost is $15. What is the total profit earned?

A) $225
B) $285
C) $570
D) $345
E) $19