Deck 15: Monopoly

Question 1

Airlines often separate their customers into business travellers and personal travellers by giving a discount to those travellers who stay over a Saturday night.

Answer 1

True

Question 2

Goods that do not have close substitutes face downward-sloping demand curves.

Answer 2

True

Question 3

During the life of a drug patent, the monopoly pharmaceutical firm maximises profit by producing the quantity at which marginal revenue is greater than marginal cost.

Answer 3

False

Question 4

A natural monopoly can arise when a single firm has equal or greater average total costs than two or more firms.

Question 5

If there are no close substitutes for the monopoly's product, the monopoly has increased market power.

Question 6

When a firm operates under conditions of a monopoly, its price is unconstrained.

Question 7

Movie theatres charge different prices to different groups of people according to the differing marginal costs that exist from group to group.

Question 8

Another form of price discrimination is when a monopoly offers lower prices to customers who buy small quantities.

Question 9

Like monopolies, competitive firms choose to produce a quantity in which marginal revenue equals marginal cost.

Question 10

If the government deems a newly invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for five years.

Question 11

The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree.

Question 12

To price discriminate and raise profits, publishers release hardback books first and paperback books later. Diehard fans are willing to pay more than less enthusiastic readers to read the book first.

Question 13

Average revenue for a monopoly is the marginal revenue divided by the quantity produced.

Question 14

Firms with substantial monopoly power are quite common, because many goods are truly unique.

Question 15

It doesn't make sense to talk about a monopolist's supply curve.

Question 16

A competitive firm is a price maker and a monopoly firm is a price taker.

Question 17

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

Question 18

A monopoly is able to charge a price that is greater than its marginal cost.

Question 19

A monopoly firm is able to charge a price that is higher than their marginal revenue.

Question 20

The De Beers Diamond company is not worried about differentiating their product from all the other gemstones.

Question 21

If a firm is in a competitive market, it is not able to price discriminate.

Question 22

The key difference between a competitive firm and a monopoly firm is the ability to select the level of production.

Question 23

When a firm operates under conditions of a monopoly, its price is constrained by marginal cost.

Question 24

When a natural monopoly exists, it is never more cost-effective for two or more private firms to produce the product.

Question 25

Total economic loss due to monopoly pricing is equal to the loss to producer surplus minus the loss in consumer surplus.

Question 26

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the marginal-revenue curve.

Question 27

When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect.

Question 28

A monopoly is likely to occur if it is the incumbent firm and there are significant barriers to entry.

Question 29

A monopoly firm has an upward-sloping supply curve.

Question 30

A monopoly can generate a deadweight loss to society by exploiting monopoly pricing. This means potentially beneficial trades do not occur.

Question 31

The unrealised mutually-beneficial trades resulting from monopoly pricing are not a cost to society.

Question 32

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the market demand curve.

Question 33

If the monopolist can collect the total surplus from the market as higher profits, it must be engaged in perfect price discrimination.

Question 34

When a firm operates under conditions of a monopoly, its price is constrained by demand.

Question 35

Discount coupons have the ability to help a supermarket price discriminate.

Question 36

When a natural monopoly exists, it is always more cost-effective for two or more private firms to produce the product.

Question 37

A monopoly is likely to set the price of its product equal to its marginal cost.

Question 38

Patent and copyright laws are major sources of government created monopolies.

Question 39

If the firm is the only owner of a key resource then this will be a significant barrier to entry.

Question 40

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often efficient, but not equitable.

Question 41

Natural monopolies differ from other forms of monopoly because they:

A) are generally not worried about competition eroding their monopoly position in the market
B) are not subject to barriers to entry
C) are not regulated by government
D) generally don't make a profit

Question 42

Patent and copyright laws are major sources of:

A) government-created monopolies
B) natural monopolies
C) research and development
D) innovation

Question 43

Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for:

A) natural monopolies
B) government-created monopolies
C) resource monopolies
D) innovation

Question 44

Which of the following statements about a firm's market pricing of its product is true?

A) a competitive firm is a price taker and a monopoly is a price maker
B) a competitive firm is a price maker and a monopoly is a price taker
C) both competitive firms and monopolies are price makers
D) both competitive firms and monopolies are price takers

Question 45

The most important feature of a natural monopoly is:

A) constant returns to scale over the relevant range of output
B) it exploits a natural resource
C) diseconomies of scale over the relevant range of output
D) economies of scale over the relevant range of output

Question 46

A fundamental source of monopoly market power arises from:

A) barriers to entry
B) perfectly elastic demand
C) perfectly inelastic demand
D) availability of 'free' natural resources, such as water or air

Question 47

Suppose that Dave's Camera Shop operates in a competitive market for cameras, which of the following statements is (are) true? (i) he can maximise profit by raising his prices
(ii) he can maximise profit by altering the quantity of cameras that he supplies
(iii) he will be able to earn a profit only if he differentiates his cameras from the rest of the market

A) (i) only
B) (ii) only
C) (i) and (ii)
D) (iii) only

Question 48

An industry is a natural monopoly when which of the following is(are) true? (i) a single firm will supply a good or service at a socially optimal quantity
(ii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms
(iii) a single firm can produce additional units at a smaller marginal cost

A) (i) and (ii)
B) (ii) only
C) (ii) and (iii)
D) (iii) only

Question 49

When a firm operates under conditions of a monopoly, its price is:

A) constrained by marginal cost
B) constrained by demand
C) constrained only by its social agenda
D) not constrained

Question 50

A natural monopoly occurs when:

A) the monopolist product is an organic, pesticide-free product
B) firms are characterised by rising marginal-cost curves
C) average total cost of production increases as more output is produced
D) average total cost of production decreases as more output is produced

Question 51

Which of the following statements is(are) true of monopolies? (i) they cannot make unlimited profits
(ii) they have the ability to set prices at whatever level they desire
(iii) they do not have to worry about their revenue falling if they increase the prices

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

Question 52

The market demand curve for a monopolist is typically:

A) downward-sloping
B) horizontal
C) unit elastic
D) perfectly elastic at market price

Question 53

When a firm's average-total-cost curve continually declines, the firm is:

A) a government-created monopoly
B) a resource monopoly
C) a natural monopoly
D) all of the above

Question 54

When a natural monopoly exists, it is:

A) never more cost- effective for two or more private firms to produce the product
B) always more cost-effective for two or more private firms to produce the product
C) always more cost-effective for government-owned firms to produce the product
D) never more cost-effective for one firm to produce the product

Question 55

Characteristics of a monopoly include which of the following? (i) it is the sole seller of its product
(ii) its product does not have close substitutes
(iii) it generates large economic profits
(iv) it is located in a small geographic market

A) (i), (iii), and (iv)
B) both (i) and (iii)
C) both (i) and (ii)
D) (i), (ii), (iii) and (iv)

Question 56

Khan is a wholesale imported fish distributor. He sells his imported fish to all the restaurants in town and he is the only distributor of a specialty imported fish. Assuming that Khan is maximising his profit, which of the following statements is true?

A) imported fish prices will equal marginal cost
B) imported fish prices will exceed marginal cost
C) imported fish prices will be less than marginal cost
D) imported fish like chicken

Question 57

An unregulated monopoly is likely to have its marginal cost set:

A) above its marginal revenue
B) equal to its average total cost
C) below its average fixed cost
D) below the market price of its goods

Question 58

Which of the following qualify as barriers to entering a monopoly market? (i) a key resource's ownership is not defined
(ii) the government has given the existing monopoly the exclusive right to produce the good
(iii) the costs of production make a single producer more efficient than a large number of producers

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

Question 59

A significant difference between a competitive firm and a monopoly firm is the ability to select:

A) the price of its output
B) the level of competition in the market
C) the level of production
D) the wages of its workers

Question 60

Suppose monopoly firm has exclusive ownership of a key resource, this results in:

A) high standards of service for customers
B) a price that reflects the best interests of society
C) a price that equals marginal cost of production
D) a price that exceeds marginal cost of production

Question 61

Identify the statement that is true of monopolies?

A) monopolies are price takers
B) unlike competitive firms, monopolies are not constrained by market demand
C) monopolies will always reduce their average total cost by selling more of their goods
D) none of the above are true

Question 62

The main constraint facing the ability of a natural monopolist to price its product is:

A) its labour costs
B) the regulations imposed by the government
C) nothing - there are no constraints on the price as the monopolist has all the power
D) the market demand curve

Question 63

A monopolist's average revenue is always:

A) greater than the price of its product
B) equal to the price of its product
C) less than the price of its product
D) equal to marginal revenue

Question 64

For a profit-maximising monopolist:

A) P = MR = MC
B) P > MR > MC
C) P > MR = MC
D) P > MR < MC

Question 65

If a monopolist faces a downward-sloping market demand curve, its:

A) average revenue is always less than marginal revenue
B) marginal revenue is greater than the price of the units it sells
C) marginal revenue is always less than the price of the units it sells
D) average revenue is less than the price of its product

Question 66

A monopolist will choose to increase output when:

A) all of the below conditions exist
B) market prices rise
C) there is an expansionary shift in the market supply curve
D) marginal revenue exceeds marginal cost

Question 67

A monopolist is a price:

A) setter, and therefore has no indifference curve
B) setter, and therefore has no variable-cost curve
C) setter, and therefore has no supply curve
D) setter, and therefore has no demand curve

Question 68

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $32. The intersection of the marginal-revenue and marginal cost-curves occurs where output is 10 units and marginal cost is $16. Average cost for 10 units of output is $12.

A) $160
B) $200
C) $3200
D) $20

Question 69

For a monopolist, when does marginal revenue equal demand?

A) when output is less than profit-maximising output
B) when output is greater than profit-maximising output
C) when there is a zero output
D) marginal revenue is never equal to demand

Question 70

For a monopolist, profit is determined by which of the following equations?

A) Profit = Total revenue - Total cost
B) Profit = (TR/Q - TC/Q) * Q
C) Profit = (Price - Average total cost) * Quantity
D) all of the above

Question 71

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $24. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $12.

A) $180
B) $200
C) $360
D) there is not enough information is given to answer this question

Question 72

In a market characterised by monopoly, the market demand curve is:

A) downward-sloping
B) horizontal
C) upward-sloping
D) vertical

Question 73

The profit-maximising level of output of a monopoly is determined where the marginal-cost curve crosses the:

A) average-revenue curve
B) demand curve
C) marginal-revenue curve
D) average-variable-cost curve

Question 74

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good:

A) increases
B) decreases
C) is unaffected
D) not enough information is given to answer this question

Question 75

In order to sell more of its product, a monopolist must:

A) lower its price
B) sell in international markets
C) use its market power to force up the price of complementary products
D) sell to the government

Question 76

An important assumption about a monopoly is that it behaves as a:

A) price maximiser
B) profit maximiser
C) revenue maximiser
D) wage minimiser

Question 77

When a monopolist increases the number of units it sells, there are two effects on revenue, the:

A) competitive effect and the monopoly effect
B) output effect and the price effect
C) demand effect and the supply effect
D) competition effect and the cost effect

Question 78

The main differences between a competitive firm and a monopoly are: (i) competitive firms do not have to worry about the price effect lowering their total revenue
(ii) marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge
(iii) monopolies must lower their price in order to sell more of their product, while competitive firms do not

A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i), (ii) and (iii)

Question 79

A profit-maximising monopolist will choose a level of output at where:

A) marginal revenue equals the price
B) average revenue is equal to average total cost
C) marginal revenue is equal to marginal cost
D) average total cost is at a minimum

Question 80

For a monopolist, marginal revenue is:

A) negative when the output effect is greater than the price effect
B) negative when the price effect is greater than the output effect
C) positive when the demand effect is greater than the supply effect
D) positive when the monopoly effect is greater than the competitive effect