Monopoly 3661
33.
A fundamental source of monopoly market power arises from
a.
perfectly elastic demand.
b.
perfectly inelastic demand.
c.
barriers to entry.
d.
availability of “free” natural resources, such as water or air.
34.
The fundamental cause of monopoly is
a.
incompetent management in competitive firms.
b.
the zero-profit feature of long–run equilibrium in competitive markets.
c.
advertising.
d.
barriers to entry.
35.
Sizable economic profits can persist over time under monopoly if the monopolist
a.
produces that output where average total cost is at a maximum.
b.
is protected by barriers to entry.
c.
operates as a price taker rather than a price maker.
d.
earns revenues that exceed variable costs.
36.
Patents, copyrights, and trademarks
a.
are examples of government-created monopolies.
b.
are examples of barriers to entry.
c.
allow their owners to charge higher prices.
d.
All of the above are correct.
37.
Patents, copyrights, and trademarks
a.
are examples of government-created monopolies.
b.
allow their owners to reduce the costs of what they produce.
c.
generate more revenue for the government than they cost consumers in the form of higher
prices.
d.
All of the above are correct.
Monopoly 3663
38.
Patent and copyright laws are major sources of
a.
natural monopolies.
b.
government-created monopolies.
c.
resource monopolies.
d.
antitrust regulation.
39.
Encouraging firms to invest in research and development and individuals to engage in creative
endeavors such as
writing novels is one justification for
a.
resource monopolies.
b.
natural monopolies.
c.
government-created monopolies.
d.
breaking up monopolies into smaller firms.
40.
A government-created monopoly arises when
a.
government spending in a certain industry gives rise to monopoly power.
b.
the government exercises its market control by encouraging competition among sellers.
c.
the government gives a firm the exclusive right to sell some good or service.
d.
Both a and c are correct.
3664 Monopoly
KEYWORDS: BLOOM‘S: Comprehension
41.
Which of the following statements is true about patents and copyrights?
(i)
They have benefits and costs.
(ii)
They lead to higher prices.
(iii)
They enhance the ability of monopolists to earn above-average profits.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(ii) only
d.
(i), (ii), and (iii)
42.
The laws governing patents and copyrights
a.
promote monopolies.
b.
are intended to serve private interests, not the public’s interest.
c.
have costs but not benefits.
d.
eliminate the need for firms to engage in research and development.
Monopoly 3665
43.
The laws governing patents and copyrights
a.
eliminate the need for firms to engage in research and development.
b.
are intended to serve private interests, not the public’s interest.
c.
reduce fixed costs for firms that obtain them.
d.
None of the above is correct.
44.
A benefit to society of the patent and copyright laws is that those laws
a.
help to keep prices down.
b.
help to prevent a single firm from acquiring ownership of a key resource.
c.
encourage creative activity.
d.
discourage the production of inefficient products.
3666 Monopoly
45.
Patent and copyright laws encourage
a.
creative activity.
b.
research and development.
c.
competition among firms.
d.
Both a and b are correct.
46.
Patent and copyright laws
a.
encourage creative activity.
b.
promote competition among firms.
c.
discourage creative activity.
d.
Both a and b are correct.
Monopoly 3667
47.
Patent and copyright laws encourage
a.
creative activity.
b.
lower prices due to decreasing average total costs.
c.
competition among firms.
d.
All of the above are correct.
48.
Allowing an inventor to have the exclusive rights to market her new invention will lead to
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
desirable behavior in the sense that inventors are encouraged to invent.
(iii)
higher profits for the inventor.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
49.
Granting a pharmaceutical company a patent for a new medicine will lead to
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
incentives for pharmaceutical companies to invest in research and development.
(iii)
higher quantities of output than without the patent.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
50.
Drug companies are allowed to be monopolists in the drugs they discover in order to
a.
allow drug companies to charge a price that is equal to their marginal cost.
b.
discourage new firms from entering the drug market.
c.
encourage research.
d.
allow the government to earn patent revenue.
Monopoly 3669
51.
Drug companies are allowed to be monopolists in the drugs they discover in order to
a.
increase the availability of expensive but useful medications.
b.
increase the overall welfare of society through better health because drug companies
continually produce
better medications.
c.
encourage research.
d.
All of the above are correct.
52.
Drug companies are allowed to be monopolists in the drugs they discover in order to
a.
allow drug companies to charge a price that is equal to their marginal cost.
b.
discourage new firms from entering the drug market.
c.
allow the government to earn patent revenue.
d.
None of the above is correct.
53.
Authors are allowed to be monopolists in the sale of their books in order to
a.
encourage authors to write more and better books.
b.
correct for the negative externalities that the Internet and television impose.
c.
satisfy literary advocacy groups that exercise their lobbying power.
d.
promote a society in which people think for themselves and learn from whichever books they
please.
54.
Authors are allowed to be monopolists in the sale of their books in order to
a.
promote a society in which people think for themselves and learn from whichever books they
please.
b.
correct for the negative externalities that the Internet and television impose.
c.
satisfy literary advocacy groups that exercise their lobbying power.
d.
None of the above is correct.
Monopoly 3671
Figure 15-1
55.
Refer to Figure 15-1. The shape of the average total cost curve reveals information about the
nature of the barrier
to entry that might exist in a monopoly market. Which of the following
monopoly types best coincides with the
figure?
a.
ownership of a key resource by a single firm
b.
natural monopoly
c.
government-created monopoly
d.
a patent or copyright monopoly
56.
Refer to Figure 15-1. The shape of the average total cost curve in the figure suggests an
opportunity for a profit–
maximizing monopolist to take advantage of
a.
economies of scale.
b.
diseconomies of scale.
c.
diminishing marginal product.
d.
increasing marginal cost.
57.
Refer to Figure 15-1. Considering the relationship between average total cost and marginal
cost, the marginal cost
curve for this firm
a.
must lie entirely above the average total cost curve.
b.
must lie entirely below the average total cost curve.
c.
must be upward sloping.
d.
does not exist.
58.
Refer to Figure 15-1. Considering the relationship between average total cost and marginal
cost, the marginal cost
curve for this firm must
a.
lie entirely above the average total cost curve.
b.
lie entirely below the average total cost curve.
c.
be U-shaped.
d.
be horizontal.
Scenario 15-1
Consider a transportation corporation named Reading’s that has just completed the development
of a new light rail
system in Minneapolis. Currently, there are plenty of seats on the train, and it
is never crowded. Its capacity far
exceeds the needs of the city. After just a few years of
operation, the shareholders of Reading’s experienced
incredibly high rates of return on their
investment due to the profitability of the corporation.
59.
Refer to Scenario 15-1. Which of the following statements is most likely to be true?
(i) New entrants to the market know they will have a smaller market share than Reading’s
currently has.
(ii) Reading’s is a natural monopoly.
(iii) Reading’s is most likely experiencing increasing average total cost.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
60.
Refer to Scenario 15-1. Which of the following statements is most likely to be true?
(i) New entrants to the market know they will have a smaller market share than Reading’s
currently has.
(ii) Reading’s is most likely experiencing decreasing average total cost.
(iii) Reading’s is a natural monopoly.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
Scenario 15-2
Consider a local, privately-owned electrical cooperative named Poweshiek Power Company
(PPCo). PPCo has just
completed a clean-coal-burning electrical power plant in Iowa. Currently,
PPCo can meet the electricity needs of all
residents in the county. In fact, its capacity far exceeds
the needs of the county. After just a few years of operation,
the shareholders of PPCo
experienced incredibly high rates of return on their investment due to the profitability of
the
corporation.
Monopoly 3675
61.
Refer to Scenario 15-2. Which of the following statements is most likely to be true?
(i) New entrants to the market know they will have a smaller market share than PPCo
currently has.
(ii) PPCo is most likely experiencing rising marginal cost.
(iii) PPCo is a natural monopoly.
(iv) PPCo is most likely experiencing declining average total cost.
a.
(i) and (ii) only
b.
(i), (ii), and (iii) only
c.
(i), (iii) and (iv) only
d.
(i), (ii), (iii), and (iv)
62.
Refer to Scenario 15-2. Which of the following statements is most likely to be true?
(i) New entrants to the market know they will have a smaller market share than PPCo
currently has.
(ii) PPCo is a natural monopoly.
(iii) PPCo would experience higher profits if it were government-run.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
63.
Refer to Scenario 15-2. PPCo will continue to be a monopolist in the electricity industry only if
a.
population growth leads to an increased demand for electricity.
b.
there are no new entrants to the market.
c.
the price of natural gas decreases.
d.
All of the above are correct.
64.
Which of the following is a characteristic of a natural monopoly?
a.
Fixed costs are typically a small portion of total costs.
b.
Average total cost declines over large regions of output.
c.
The product sold is a natural resource such as diamonds or water.
d.
All of the above are correct.
Monopoly 3677
65.
Which of the following is a characteristic of a natural monopoly?
a.
Average cost exceeds marginal cost over large regions of output.
b.
Increasing the number of firms increases each firm’s average total cost.
c.
One firm can supply output at a lower cost than two firms.
d.
All of the above are correct.
66.
A natural monopoly occurs when
a.
the product is sold in its natural state, such as water or diamonds.
b.
there are economies of scale over the relevant range of output.
c.
the firm is characterized by a rising marginal cost curve.
d.
production requires the use of free natural resources, such as water or air.
3678 Monopoly
67.
An industry is a natural monopoly when
(i)
the government assists the firm in maintaining the monopoly.
(ii)
a single firm owns a key resource.
(iii)
a single firm can supply a good or service to an entire market at a smaller cost than could
two or more firms.
a.
(ii) only
b.
(iii) only
c.
(i) and (ii) only
d.
(ii) and (iii) only
68.
When a natural monopoly exists, it is
a.
always cost effective for government-owned firms to produce the product.
b.
never cost effective for one firm to produce the product.
c.
always cost effective for two or more private firms to produce the product.
d.
never cost effective for two or more private firms to produce the product.
69.
The defining characteristic of a natural monopoly is
a.
constant marginal cost over the relevant range of output.
b.
economies of scale over the relevant range of output.
c.
constant returns to scale over the relevant range of output.
d.
diseconomies of scale over the relevant range of output.
70.
Natural monopolies differ from other forms of monopoly because they are
a.
not subject to barriers to entry.
b.
not regulated by government.
c.
unable to sustain long-run profits.
d.
are generally not worried about competition eroding their monopoly position in the market.
71.
When a firm‘s average total cost curve continually declines, the firm is a
a.
government-created monopoly.
b.
natural monopoly.
c.
revenue monopoly.
d.
All of the above are correct.
72.
A natural monopolist’s ability to price its product is
a.
constrained by the market demand curve.
b.
constrained by market supply.
c.
not affected by market demand.
d.
enhanced by regulatory control of the government.
73.
When an industry is a natural monopoly,
a.
it is characterized by constant returns to scale.
b.
it is characterized by diseconomies of scale.
c.
a larger number of firms may lead to a lower average cost.
d.
a larger number of firms will lead to a higher average cost.
Figure 15–2