Deck 14: Monopoly

Question 1

A monopoly is a firm that:

A)is the sole producer of a good or service with no close substitutes.
B)is the sole producer of a good or service with many close substitutes.
C)is the producer of a good or service with just a few large competitors.
D)produces a good or service that is identical to many others sold in the market.

Answer 1

is the sole producer of a good or service with no close substitutes.

Question 2

A perfect monopoly:

A)has no competition at all.
B)has complete market control.
C)restricts output to maximize profits.
D)All of these statements are true.

Answer 2

All of these statements are true.

Question 3

Monopoly power in a market allows:

A)monopolists to earn profit through higher prices.
B)consumers to gain surplus.
C)market surplus to be constant.
D)governments to ban monopolies.

Answer 3

monopolists to earn profit through higher prices.

Question 4

A natural monopoly is a market in which a single firm:

A)owns a key resource or input into the production of the good.
B)can produce the entire market quantity at a lower cost than multiple firms.
C)is protected from competition through government legislation.
D)gains market share over time through aggressive tactics.

Question 5

Which of the following is a characteristic of a firm that has a high degree of monopoly power, but is not a perfect monopoly?

A)Is the single producer of a good
B)Controls 80 to 90 percent of the market
C)Only has a small number of competitors
D)Intimidates the other businesses in the market

Question 6

DeBeers, a diamond seller, profits the most from the diamond market because it sells ______ diamonds at _______ prices.

A)many; low
B)few; high
C)many; high
D)few; low

Question 7

Which of the following is a potential barrier to entry into a monopoly market?

A)The monopolist owns a key resource or input.
B)Too many competitors already exist in the market.
C)High input costs.
D)Few buyers.

Question 8

Which of the following is an essential characteristic of a monopoly?

A)The good must have no close substitutes.
B)There can only be a few sellers in the market.
C)Only one buyer can exist.
D)Many buyers must exist.

Question 9

A monopoly has:

A)no competition at all.
B)just a few large competitors.
C)many competitors.
D)no ability to set price.

Question 10

Which of the following is a key reason why monopolies exist?

A)There is easy entry and exit into and out of the market.
B)The goods sold are highly inaccessible to buyers.
C)There are barriers to entry into the market.
D)Geographical differences exist.

Question 11

A monopoly:

A)is a price taker.
B)faces competition from other firms producing close substitutes.
C)restricts its output.
D)sets a low price by controlling the level of output.

Question 12

One barrier to entry into a monopoly market is:

A)a natural monopoly.
B)commonplace inputs.
C)bulk buying.
D)price gouging.

Question 13

A perfect monopoly:

A)refers to a single seller.
B)can extract all consumer surplus from a market.
C)controls 90 to 100 percent of the market for a product.
D)would produce efficient outcomes.

Question 14

Most U.S. firms face:

A)perfect competition.
B)some degree of competition.
C)market power resting in a few large firms in every industry.
D)no competition at all.

Question 15

Which of the following is not a potential barrier to entry into a monopoly market?

A)The market is a natural monopoly.
B)The incumbent firm owns a key resource.
C)The government intervenes in the market.
D)A new type of product is offered.

Question 16

What is the most important reason why diamonds are expensive?

A)Very few diamonds are discovered each year.
B)The seller of most diamonds in the world restricts output.
C)They are a symbol of luxury.
D)They are a form of conspicuous consumption.

Question 17

Which of the following is a potential barrier to entry into a monopoly market?

A)Fixed costs are large relative to variable costs.
B)Large economies of scale exist.
C)The required infrastructure for an industry is high cost.
D)All of these are potential barriers to entry.

Question 18

A perfect monopoly:

A)can be a single seller or a small group of firms.
B)can offer a product at the lowest cost possible.
C)controls 100 percent of the market for a product.
D)always engages in price discrimination.

Question 19

A firm that is the sole producer of a good or service with no close substitutes is called a(n):

A)perfectly competitive firm.
B)monopolist.
C)oligopolist.
D)monopolistically competitive firm.

Question 20

Monopoly power in a market causes:

A)monopolists to earn economic profits of zero.
B)consumers to gain.
C)market surplus to be lost.
D)producers to worry about competition.

Question 21

When the monopolist chooses its quantity supplied, it will:

A)set the price equal to marginal cost.
B)set the price higher than what consumers are willing to pay for that quantity.
C)set the price equal to the amount consumers are willing to pay for that quantity.
D)set the price lower than the demand curve to create a perceived shortage.

Question 22

The table shown represents the revenues faced by a monopolist.

What is the firm's marginal revenue for the third unit?

A)$100
B)$800
C)$600
D)$500

Question 23

At the price a monopolist sets, it will sell:

A)as much as it wants.
B)as much as consumers are willing to buy.
C)more than a firm in a perfectly competitive market would sell.
D)less than the quantity demanded to encourage scarcity.

Question 24

A monopoly:

A)is constrained because its decisions cannot affect the market price.
B)is constrained by demand.
C)faces a horizontal demand curve.
D)is constantly threatened by the entry of new firms.

Question 25

If the monopolist charges a high price:it will always earn more profits than if it had set a lower price.the quantity sold will be less than if it had set a lower price.it can keep other firms from entering the market.

A)III only
B)I and II only
C)II only
D)I and III only

Question 26

The monopolist is always constrained by:

A)the amount consumers are willing to buy at any given price.
B)high fixed costs.
C)barriers to entry.
D)government regulation.

Question 27

The monopolist faces a:

A)perfectly elastic demand curve.
B)downward sloping demand curve.
C)perfectly inelastic demand curve.
D)perfectly elastic supply curve.

Question 28

Government regulations:

A)always seek to increase competition.
B)sometimes protect monopoly power in certain industries.
C)never protect monopoly rights.
D)usually are ineffective.

Question 29

Consider a market in which one firm controls 80 percent of the market. Suppose a new firm tries to enter the market, and the firm with market power responds by temporarily cutting its prices to very low levels. This practice is known as:

A)predatory pricing.
B)monopoly pricing.
C)aggressive pricing.
D)All of these are exemplified by this practice.

Question 30

One way a government might protect monopoly rights is by:

A)granting a patent.
B)heavily taxing alcohol and cigarettes.
C)running unsubsidized state-owned enterprises that compete with private firms.
D)All of these are ways a government protects monopoly rights.

Question 31

A market in which a single firm can produce, at a lower cost than multiple firms, the entire quantity of output demanded is called:

A)diseconomies of scale.
B)government intervention.
C)a natural monopoly.
D)price gouging.

Question 32

Protecting intellectual property rights:

A)always benefits society.
B)never benefits society.
C)rarely affects society overall.
D)may or may not benefit society overall.

Question 33

Predatory pricing is:

A)temporarily slashing prices below cost to force competitors out of the market.
B)an aggressive business move to maintain market power.
C)used to discourage competitors.
D)All of these are true.

Question 34

All of the following are reasons a government might choose to protect monopoly rights in an industry except:

A)to act in the public's interest.
B)to benefit insiders.
C)to encourage innovation.
D)to increase consumer surplus beyond what is achieved through competition.

Question 35

The most a monopolist can sell at any given price is:

A)the amount that the monopolist alone can supply.
B)the amount consumers are willing to buy at that price.
C)constrained by the availability of inputs.
D)less than it could sell in a perfectly competitive market.

Question 36

The government protects intellectual property rights because they:

A)incentivize companies to decrease production.
B)encourage research and development.
C)increase total surplus for society.
D)benefit only producers in a society.

Question 37

Which of the following is not one way a government might protect monopoly rights?

A)Protecting intellectual property rights
B)Subsidizing a state-owned entity
C)Making it illegal to enter an industry
D)Heavy taxation of potential competitors

Question 38

One way DeBeers managed to maintain control over the diamond industry was to:

A)continue to be the sole diamond producer by buying all existing diamonds.
B)create the illusion of no close substitutes through marketing.
C)punish consumers who sought to store their wealth in diamonds.
D)All of these statements are true.

Question 39

When the government protects intellectual property rights, it:

A)can reduce total surplus for society.
B)never increases total surplus for society.
C)does not affect total surplus for society.
D)always increases total surplus for society.

Question 40

Natural monopolies are the natural result of:

A)competition in markets where economies of scale exist over the relevant range of output.
B)geographical happenstance.
C)fierce competition from firms in a market.
D)government regulations intended to encourage competition.

Question 41

When a monopolist increases output, total revenue will:

A)increase if the price effect outweighs the quantity effect.
B)decrease if the quantity effect outweighs the price effect.
C)increase if the quantity effect outweighs the price effect.
D)increase, but there will be no price effect.

Question 42

For a monopolist, marginal revenue for all units greater than one is:

A)always equal to price.
B)never less than price.
C)always less than price.
D)minimized at the profit-maximizing price.

Question 43

When a perfectly competitive firm increases output, total revenue _______ because there is no _______ effect.

A)increases; price
B)decreases; price
C)increases; quantity
D)decreases; quantity

Question 44

For a monopolist, the price effect:

A)is the increase in revenue from selling a greater quantity at a lower price.
B)is always outweighed by the quantity effect.
C)is the decrease in revenue from selling a greater quantity at a lower price.
D)always outweighs the quantity effect.

Question 45

The table shown represents the revenues faced by a monopolist.

Graphing the first two columns of the table would yield which curve?

A)Marginal revenue
B)Market supply
C)Market demand
D)Total productivity

Question 46

The table shown represents the revenues faced by a monopolist.

What is the firm's average revenue for five units?

A)$600
B)$300
C)$3,000
D)$120

Question 47

For a monopolist, the quantity effect:

A)is the increase in revenue from selling a greater quantity at a lower price.
B)is the decrease in revenue from selling a greater quantity at a lower price.
C)is always outweighed by the price effect.
D)always outweighs the price effect.

Question 48

For a monopolist, total revenue will:

A)initially increase and eventually decrease as output increases.
B)initially decrease and eventually increase as output increases.
C)always increase as output increases.
D)always decrease as output increases.

Question 49

For a monopoly, marginal revenue for all units greater than one:

A)is always less than the price.
B)cannot be negative.
C)is zero when total profits are maximized.
D)is always greater than marginal cost.

Question 50

For a monopoly, marginal revenue for all units greater than one is always _______ than price because of the _______ effect.

A)lower; price
B)greater; price
C)greater; quantity
D)lower; quantity

Question 51

The table shown represents the revenues faced by a monopolist.

What is the firm's marginal revenue of the sixth unit?

A)$0
B)−$200
C)$3,000
D)$500

Question 52

The table shown represents the revenues faced by a monopolist.

The average revenue for this firm:

A)decreases as output increases.
B)increases as output increases.
C)remains constant regardless of the level of output.
D)is maximized when total revenue is maximized.

Question 53

Total revenue decreases as output increases when demand is:

A)downward sloping.
B)perfectly elastic.
C)price inelastic.
D)price elastic.

Question 54

The table shown represents the revenues faced by a monopolist.

The firm's marginal revenue for the fourth unit is ______ the marginal revenue of the third unit.

A)higher than
B)lower than
C)the same as
D)This answer cannot be determined from the information given.

Question 55

The table shown represents the revenues faced by a monopolist.

Marginal revenue for the firm:

A)increases at first, then decreases as output increases.
B)is negative after the sixth unit.
C)increases constantly as output increases.
D)decreases at first, then increases after the sixth unit.

Question 56

Total revenue increases as output increases along sections of the demand curve that are:

A)downward sloping.
B)price elastic.
C)price inelastic.
D)upward sloping.

Question 57

If a monopoly wishes to sell more output, it must:

A)find a more cost-effective way to produce its goods.
B)lower the price of its goods.
C)be experiencing economies of scale.
D)eliminate its existing competition.

Question 58

For a monopoly, for all units greater than one the marginal revenue curve:

A)lies above the demand curve.
B)lies below the average revenue curve.
C)cannot be negative.
D)All of these are true.

Question 59

For a monopolist, average revenue:

A)is always equal to price.
B)equals price only at the profit maximizing quantity.
C)is always zero at the profit maximizing quantity.
D)is maximized when total revenues are maximized.

Question 60

For a monopoly producing at any output level greater than one, the marginal revenue curve:

A)is minimized when total revenue is maximized.
B)lies above the average revenue curve.
C)lies below the demand curve.
D)is the same as the demand curve.

Question 61

The graph shown represents the cost and revenue curves faced by a monopoly. What is the monopolist's profit-maximizing decision?

A)Q1, P1
B)Q1, P3
C)Q2, P2
D)Q1, P2

Question 62

For a monopoly, when the price effect outweighs the quantity effect of increased production:

A)total revenue will increase.
B)demand must be price inelastic.
C)marginal revenue must be increasing.
D)All of these are true.

Question 63

The monopolist is able to enjoy profits in the long run because:

A)its price is set above its marginal costs.
B)there is no threat of competition.
C)it can charge a price that is higher than its average total costs.
D)All of these are true.

Question 64

Producing any quantity of output greater than the point where the marginal revenue and marginal cost curves intersect leads to:

A)marginal revenue that is lower than marginal cost.
B)the maximization of profits.
C)average total cost that is equal to average variable cost.
D)marginal revenue that is higher than marginal cost.

Question 65

For a monopolist, at the profit-maximizing level of output:

A)price is greater than average revenue.
B)average revenue is greater than marginal cost.
C)marginal cost is greater than price.
D)total revenue is equal to total cost.

Question 66

For a monopolist, at the profit-maximizing level of output:

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

Question 67

The monopolist and the perfectly competitive firm both maximize profits by choosing to produce at the level of output where:

A)marginal cost equals marginal revenue, and price is equal to minimum average total cost.
B)marginal cost intersects demand, and the price is determined by this intersection.
C)marginal cost equals marginal revenue, and price is equal to average revenue.
D)marginal cost equals average revenue, and price is equal to minimum average total cost.

Question 68

For a monopoly, when marginal revenue is zero:

A)profits are maximized.
B)total revenue is maximized.
C)marginal revenue is minimized.
D)marginal costs are minimized.

Question 69

Which of the following statements describes how a monopolist's cost curves compare to those of a perfectly competitive firm?

A)The monopolist's marginal cost curve is downward sloping, while the perfectly competitive firm's is flat.
B)The monopolist's average total cost curve is not necessarily minimized where it crosses the marginal cost curve.
C)The monopolist's average variable cost curve in not identical to the marginal cost curve, as it is for a perfectly competitive firm.
D)The shape of the cost curves are the same for a firm regardless of market structure.

Question 70

For a monopoly producing at any output level greater than one, the average revenue curve:

A)is the same as the demand curve.
B)lies above the demand curve.
C)lies below the demand curve.
D)can be negative.

Question 71

The monopolist's outcome in the long run differs from that of the perfectly competitive firm in that the monopolist:

A)earns zero profits.
B)charges a price that is higher than average total costs.
C)charges a price where marginal cost equals average revenue.
D)charges a price equal to marginal cost.

Question 72

For a monopoly, a negative marginal revenue implies that:

A)the price effect is larger than the quantity effect.
B)total revenues are increasing.
C)the demand is price elastic.
D)the quantity effect is larger than the price effect.

Question 73

The profit-maximizing decision for the monopolist is:

A)to produce at the quantity where marginal cost equals marginal revenue.
B)the same as that of the perfectly competitive firm.
C)to choose price according to demand.
D)All of these are true.

Question 74

When a monopolist chooses to produce at the level of output where marginal cost equals marginal revenue:

A)profits are maximized.
B)price is equal to marginal revenue.
C)price is equal to average total costs.
D)total revenue is maximized.

Question 75

When a monopolist chooses to produce at the level of output where marginal cost equals marginal revenue, price:

A)equals marginal revenue.
B)equals average revenue.
C)is lower than average revenue.
D)is lower than marginal revenue.

Question 76

For a monopoly producing at any output level greater than one, the average revenue curve:

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

Question 77

A monopolist chooses its profit-maximizing quantity by:

A)selling as much as it can produce.
B)producing at the level of output at which marginal revenue equals zero.
C)following the same rule as a perfectly competitive firm does.
D)selling the amount at which price equals average total cost.

Question 78

Which of the following statements describes how a monopolist's revenue curves compare to those of a perfectly competitive firm?

A)The monopolist's marginal revenue curve is downward sloping, while the perfectly competitive firm's is flat.
B)The monopolist's average revenue curve is not equal to price, as it is for a perfectly competitive firm.
C)The monopolist's marginal revenue curve is flat, while the perfectly competitive firm's is downward sloping.
D)The monopolist's total revenue curve is linear, while the perfectly competitive firm's is convex.

Question 79

Producing any quantity of output less than the point where the marginal revenue and marginal cost curves intersect leads to:

A)average total cost that is lower than average variable cost.
B)marginal cost that is higher than marginal revenue.
C)marginal revenue that is higher than marginal cost.
D)a loss of profits when producing the units.

Question 80

For a monopolist, at the profit-maximizing level of output, price is:

A)equal to marginal revenue.
B)equal to marginal cost.
C)chosen according to demand.
D)increasing.