Deck 13: Monopoly

Question 1

Which of the following statements best characterizes a monopoly? A monopoly:

A)produces a product with no close substitutes.
B)is composed of a single buyer and several sellers.
C)is composed of a large number of small firms.
D)is composed of a small number of large firms.

Answer 1

A

Question 2

A monopolist is likely to ________ and than a comparable perfectly competitive firm.

A)produce more; charge more .B.produce less; charge more .C.produce more; charge less .D.produce less; charge less

Answer 2

B

Question 3

Diamond rings are relatively scarce because:

A)according to geologists, diamonds are less common than any other gem-quality colored stone.
B)the demand for diamonds is so high.
C)De Beers limits the quantity of diamonds supplied to the market.
D)of monopolistic competition.

Answer 3

C

Question 4

A monopoly is a market characterized by:

A)a single seller.
B)a product with many close substitutes.
C)a large number of small firms.
D)a small number of large firms.

Question 5

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

A)a duopoly.
B)a monopoly.C.an oligopoly.
D)perfect competition.

Question 6

Firms in which of the following market structures have the most market power?

A)monopoly
B)duopoly
C)oligopoly
D)monopolistic competition

Question 7

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles.High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand.Your monopoly would result from:

A)control of a scarce resource or input.
B)technological superiority.
C)increasing returns to scale.
D)government-created barriers.

Question 8

An industry with a single producer that sells a single product with no substitutes is a:

A)perfect competition.
B)monopoly.
C)oligopoly.
D)monopolistic competition.

Question 9

Market structures are categorized by the following two criteria:

A)the number of firms and the size of the firms
B)whether or not products are differentiated and the extent of advertising
C)the number of firms and whether or not products are differentiated .
D)the size of the firms and the extent of advertising

Question 10

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

A)A monopolist has market power, while a perfect competitor does not.
B)Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.
C)A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure.
D)Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

Question 11

Most electric, gas, and water companies are examples of:

A)unregulated monopolies.
B)natural monopolies.
C)restricted-input monopolies.
D)sunk-cost monopolies.

Question 12

If your farm had the only known source of a rare cocoa bean needed to make chocolate- covered peanuts, your monopoly would result from:

A)control of a scarce resource or input.
B)technological superiority.
C)increasing returns to scale.
D)government-created barriers.

Question 13

If your local government gave you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:

A)control of a scarce resource or input.
B)technological superiority.
C)increasing returns to scale.
D)government-created barriers.

Question 14

Compared to a perfectly competitive market, a monopolist will produce and charge a price.

A)less; higher
B)less; lower
C)more; higher
D)more; lower

Question 15

Because of monopoly, consumers experience than with perfect competition.

A)more choices
B)larger quantities
C)higher quality
D)higher prices

Question 16

In contrast with perfect competition, a monopolist:

A)produces more at a lower price.
B)produces where MR > MC, and a perfectly competitively firm produces where P = MC.
C)may have economic profits in the long run.
D)earns zero economic profits in the long run.

Question 17

De Beers became a monopoly by:

A)establishing control over diamond mines.
B)economies of scale.
C)technological superiority.
D)ownership of a patent.

Question 18

Which of the following statements concerning monopoly is true?

A)Monopoly firms are automatically larger than perfectly competitive firms.
B)A monopoly has no rivals.
C)Barriers to entry do not prevent other firms from entering a monopolized industry.
D)Monopolists produce more output than competitive firms.

Question 19

The De Beers company is described as a monopolist in the production of:

A)diamonds.
B)software.
C)oil.
D)beer.

Question 20

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

A)product differentiation.
B)barrier to entry.
C)market power.
D)patents and copyrights.

Question 21

A natural monopoly exists whenever a single firm:

A)is owned and operated by the federal or local government.
B)is investor owned but has been granted the exclusive right by the government to operate in a market.
C)has economies of scale over the entire range of production that is relevant to its market.
D)has gained control over a strategic input of an important production process.

Question 22

Which of the following is a barrier to entry?

A)control of scarce resources
B)economies of scale
C)government-created barriers such as patents and copyrights
D)control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

Question 23

You own a lemonade stand in a competitive lemonade market, and as such, you are a price- taking firm.Which of the following events would most likely increase your market power?

A)The government abolishes the system of patents and copyrights.
B)A booming economy increases the demand for lemonade and attracts entry into the market.
C)The average total cost curve for firms in the industry is horizontal.
D)You own exclusive rights to harvest lemons from all domestic citrus orchards.

Question 24

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor.You have high fixed costs due to the quantity of capital used to build the jets.There's decreasing average cost for all levels of demand.In this case, your monopoly would result from which of the following?

A)sunk costs
B)location
C)economies of scale
D)government restrictions

Question 25

If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from:

A)sunk costs.
B)government restrictions.
C)economies of scale.
D)location.

Question 26

The land you own has the only known source of aloe needed to make anti-itch lotion.In this case, your monopoly results from which of the following?

A)government restrictions.
B)location
C)sunk costs
D)ownership of scarce inputs

Question 27

A firm that has economies of scale:

A)at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly.
B)over the entire range of output demanded is called a natural monopoly.
C)at any particular level of output is called a natural monopoly.
D)has a continually rising long-run average cost curve.

Question 28

Which of the following is true?

A)A monopoly firm is a price-taker.
B)MR > P if the demand curve is downward sloping.
C)MR = MC is a profit-maximizing rule for any firm.
D)In monopoly P = MC when profits are maximized.

Question 29

Network externalities exist when a good's value to the consumer rises as:

A)the number of people who use the good increases.B.the number of people who use the good decreases.
C)the number of people who use the good remains constant.
D)technology improves.

Question 30

Which of the following is not a barrier to entry?

A)control of an input essential for production
B)government-created barriers such as patents .C.a ban on certain kinds of advertising
D)the existence of significant economies of scale

Question 31

A monopoly is an industry structure characterized by:

A)a single buyer and several sellers.
B)a product with many close substitutes.
C)a large number of small firms.
D)barriers to entry and exit.

Question 32

Lenoia runs a natural monopoly producing electricity for a small mountain village.The barrier preventing other firms from competing with her is:

A)her control of scarce natural resources.
B)economies of scale.
C)her technological superiority.
D)a government-created barrier.

Question 33

Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:

A)ownership of a resource.
B)patents.
C)network externalities.
D)large economies of scale.

Question 34

Conditions that prevent the entry of new firms in a monopoly market are:

A)barriers to entry.
B)terms of sale.
C)labor market stipulations.
D)production controls.

Question 35

Situations in which the more users of a product there are, the more useful the product becomes are:

A)network effects.
B)monopolies.
C)conglomerates.
D)exclusive franchises.

Question 36

The large barriers to entry are a reason a monopoly:

A)earns an economic profit in the long run.
B)produces at the minimum average total cost in the long run.
C)produces with no fixed costs in the long run.
D)maximizes its profits by producing where P = MC.

Question 37

Natural monopolies include all of the following except:

A)a diamond mining company.
B)a gas company.
C)an electricity company.
D)railways.

Question 38

The demand curve facing a monopolist is:

A)horizontal, the same as that facing a perfectly competitive firm.
B)downward sloping, the same as that facing a perfectly competitive firm.
C)upward sloping, the same as that facing a perfectly competitive firm.
D)downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.

Question 39

A monopoly can be temporary because of:

A)high barriers to entry.
B)a lack of substitutes for the monopolist's product.
C)economies of scale.
D)technological change.

Question 40

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student-athletes from earning money while in college.If this is true, what type of entry barrier does the NCAA have?

A)a patent
B)a copyright
C)control of a scarce resource or input.
D)economies of scale

Question 41

Because monopoly firms are price-setters:
A.they can sell more only by lowering price.
B.they sell more at higher prices than at lower prices.
C.they take the market-determined price as given and sell all they can at that price.
D.they charge the highest possible price.

Question 42

A downward-sloping demand curve will ensure that:
A.P = ATC.
B.P > MR.
C.P < MC.
D.P = MC.

Question 43

The demand curve for a monopoly is:
A.above the marginal revenue curve.below the
B.marginal revenue curve.
C.horizontal because of economics of scale.
D.infinitely elastic.

Question 44

The demand curve for a monopoly is:
A.the MR curve above the AVC curve.
B.the MR curve above the horizontal axis.
C.the entire MR curve.
D.above the MR curve.

Question 45

The demand curve facing a monopolist is:
A.downward sloping.
B.vertical.
C.horizontal.
D.upward sloping.

Question 46

A downward-sloping demand curve will ensure that:
A.P = MR.
B.P > MR.
C.P < MR.
D.P = MC.

Question 47

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________
demand curve.
A.downward-sloping; perfectly elastic
B.perfectly inelastic; perfectly elastic
C.downward-sloping; perfectly inelastic
D.perfectly elastic; downward-sloping

Question 48

The demand curve for a monopoly is:

A)the sum of the supply curves of all of the firms in the monopoly's industry.
B)the industry demand curve.
C)horizontal because no one can enter.
D)perfectly elastic.

Question 49

A firm that faces a downward-sloping demand curve is a:
A.price-setter.
B.quantity-minimizer.
C.quantity-taker.
D.price-taker.

Question 50

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips.If the market price declines from $30 per unit to $29 per unit, marginal revenue
for the eleventh unit is:
A.$1.
B.$9.
C.$19.
D.$29.

Question 51

Wendy has a monopoly in the retailing of motor homes.She can sell five per week at $21,000 each.If she wants to sell six, she can charge only $20,000 each.The quantity effect of selling the sixth motor home is:
A.$20,000.
B.$10,000.
C.$15,000.
D.$21,000.

Question 52

The demand curve for a monopoly is:
A.the MC curve above the AVC curve.
B.the MR curve above the horizontal axis.
C.identical to the MR curve.
D.also the industry demand curve.

Question 53

Marginal revenue for a monopolist is:

A)equal to price.
B)greater than price.
C)less than price.
D)equal to average revenue.

Question 54

The demand curve facing a monopolist is:
A.vertical, the same as that facing a perfectly competitive firm.
B.perfectly inelastic, the same as that facing a perfectly competitive firm.
C.upward sloping, the same as that facing a perfectly competitive firm.
D.downward sloping, like the industry demand curve in perfect competition.

Question 55

The demand curve facing a monopolist is always:
A.the same as the industry's demand curve.
B.perfectly elastic.
C.unit-elastic.
D.perfectly inelastic.

Question 56

Marginal revenue for a monopolist is:

A)equal to price.
B)greater than price.
C)not equal to price.
D)the change in total revenue divided by the change in output.

Question 57

Wendy has a monopoly in the retailing of motor homes.She can sell five per week at $21,000 each.If she wants to sell six, she can only charge $20,000 each.The price effect of selling the sixth motor home is:
A.$20,000.
B.-$15,000.
C.-$5,000.
D.$25,000.

Question 58

Mr.Porter sells 10 bottles of champagne per week at a price of $50 per bottle.He can sell 11 bottles per week if he lowers the price to $45 per bottle.The quantity and the price effects on total revenue would be, respectively:
A.an increase of $450 and a decrease of $500.
B.an increase of $495 and a decrease of $550.
C.an increase of $45 and a decrease of $5.
D.an increase of $45 and a decrease of $50.

Question 59

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:
A.diminishing marginal returns.
B.increasing marginal cost.
C.a downward-sloping demand curve.
D.declining average fixed cost.

Question 60

Which of the following is true?
A.Instead of applying the marginal decision rule, monopoly firms just set the price as high as possible.
B.If demand is downward sloping, P = MR.
C.If demand is downward sloping, P = ATC.
D.If demand is downward sloping, P > MR.

Question 61

Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40.If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will:
A.rise.
B.fall.
C.remain unchanged.
D.It is not possible to make a determination from the information given.

Question 62

A monopoly is producing at the output level where average total cost equals $30, marginal revenue is $40, and the price is $50.If ATC is at its minimum level and the ATC curve is
U-shaped, in order to maximize profits this firm should:
A.increase output.
B.reduce output.
C.do nothing; it is already maximizing profits.
D.shut down.

Question 63

Suppose that the Yankee Cap Company is a profit-maximizing firm that has a monopoly in the production of baseball caps.The firm sells its baseball caps for $25 each.For this information, we can assume that the Yankee Cap Company is producing a level of output at which:

A)marginal revenue equals $25.
B)marginal cost equals marginal revenue.
C)average total cost equals $25.
D)average total cost is greater than $25.

Question 64

Suppose a monopoly is producing at the level of output where marginal revenue equals marginal cost.If the monopolist reduces output, it:
A.can charge a higher price.
B.will increase profits.
C.will decrease marginal revenue.
D.can charge a higher price and it will increase profits.

Question 65

Figure: Short-Run Monopoly
(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly.The profit-maximizing quantity of output is quantity:

A)Q.
B)R.
C)S.
D)T.

Question 66

Suppose a monopoly is producing at the profit-maximizing level of output.At that level of output:
A.marginal revenue equals marginal cost.
B.marginal revenue is greater than marginal cost.
C.marginal revenue is less than marginal cost.
D.price is less than marginal cost.

Question 67

Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40.If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total economic profit will:
A.fall.
B.remain unchanged.
C.rise.
D.It is not possible to make a determination from the information given.

Question 68

If a monopolist is producing a quantity that generates MC = P, then profit:
A.is maximized.
B.is maximized only if MR = P.
C.can be increased by increasing production.
D.can be increased by decreasing production.

Question 69

A monopolist responds to a decrease in demand by ________ price and output.
A.increasing; decreasing
B.increasing; increasing
C.decreasing, increasing
D.decreasing; decreasing

Question 70

If a monopolist is producing a quantity that generates MC > MR, then profit:

A)is maximized.
B)is maximized only if MC = P.
C)can be increased by increasing price.
D)can be increased by decreasing price.

Question 71

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down.Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and its level of production.
A.raise; decrease
B.not change; decrease
C.raise; increase
D.lower; increase

Question 72

If a monopolist is producing a quantity that generates MC < MR, then profit:
A.is maximized.
B.is maximized only if MC = P.
C.can be increased by increasing production.
D.can be increased by decreasing production.

Question 73

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants.The firm sells its pennants for $10 each.We can conclude that GoSports is producing a level of output at which:
A.average total cost equals $10.
B.average total cost is greater than $10.
C.marginal revenue equals $10.
D.marginal cost equals marginal revenue.

Question 74

If a monopolist is producing a quantity that generates MC > MR, then profit:
A.is maximized.
B.is maximized only if MC = P.
C.can be increased by increasing production.
D.can be increased by decreasing production.

Question 75

A monopolist responds to an increase in demand by ________ price and output.
A.increasing; decreasing
B.increasing; increasing
C.decreasing; increasing
D.decreasing; decreasing

Question 76

If a monopolist is producing a quantity that generates MC = MR, then profit:
A.is maximized.
B.is maximized only if MC = P.
C.can be increased by increasing production.
D.can be increased by decreasing production.

Question 77

Which of the following is true?
A.Profit-maximizing behavior occurs only in perfectly competitive markets.
B.Additional units of a good should be produced as long as MR < MC.
C.The profit-maximizing solution occurs where MR = MC.
D.The profit-maximizing solution occurs where MR > MC.

Question 78

A monopolist responds to an increase in marginal cost by ________ price and ________
output.
A.increasing; decreasing
B.increasing; increasing
C.decreasing; increasing
D.decreasing; decreasing

Question 79

Figure: Short-Run Monopoly (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly.The profit-maximizing price is price:

A)N.
B)O.
C)P.
D)Q.

Question 80

A monopoly responds to a decrease in marginal cost by ________ price and ________
output.
A.increasing; decreasing
B.increasing; increasing
C.decreasing; increasing
D.decreasing; decreasing