Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 15 Monopoly
15.1 Monopoly and How it Arises
1) A major characteristic of monopoly is
A) a single seller of a product.
B) multiple sellers of a product.
C) two sellers of a product.
D) a few sellers of differentiated products.
E) a few sellers of an identical product.
2) A monopoly is a market with
A) many suppliers each producing an identical product.
B) no barriers to entry.
C) many substitutes.
D) one supplier.
E) many suppliers each producing a slightly different product.
3) The good produced by a monopoly
A) has perfect substitutes.
B) has no substitutes at all.
C) has no close substitutes.
D) can be easily duplicated.
E) must be unable to be resold.
4) One of the requirements for a monopoly is that
A) products are high priced.
B) there are several close substitutes for the product.
C) there is a unique product with no close substitutes.
D) the product cannot be produced by small firms.
E) there is no barrier to entry.
5) We define a monopoly as a market with
A) one supplier and no barriers to entry.
B) one supplier with barriers to entry.
C) many suppliers with no barriers to entry.
D) many suppliers with barriers to entry.
E) a few suppliers and barriers to entry.
6) Which of the following is a characteristic of monopoly?
A) The firm faces competition from many other firms.
B) The firm produces a product that has many close substitutes.
C) There are barriers to enter the market.
D) The firm’s demand curve is perfectly elastic.
E) The firm produces a product identical to that produced by its many competitors.
7) A monopoly produces a product ________ and there ________ barriers to entry into the
market.
A) identical to its many competitors; are
B) with no close substitutes; are
C) identical to its many competitors; are no
D) with no close substitutes; are no
E) slightly different from those of its many competitors; are
8) 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.
9) A monopoly
A) must determine the price it will charge.
B) faces extensive competition from firms making close substitutes.
C) cannot price discriminate because such a pricing strategy is illegal in the United States.
D) has no control over the price it must charge.
E) Both answers B and C are correct.
10) A major characteristic of monopoly is that
A) no barriers to entry exist.
B) the product is identical to that produced by other companies.
C) a barrier to entry keeps out competitors.
D) competition is intense.
E) a few firms compete with each other.
11) Which of the following firms is most likely to be a monopoly?
A) local restaurant
B) local distributor natural gas
C) local book store
D) clothing store
E) local bank
12) An example of a monopoly would be
A) one of many U.S. wheat farmers.
B) one of the few U.S. auto makers.
C) AT&T cell phone service.
D) the local water company.
E) Taco Bell
13) Which of the following describes a barrier to entry?
A) something that establishes a barrier to expanding output
B) anything that protects a firm from the arrival of new competitors
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) Firms are legally prohibited from exiting the market in order to enter another market.
14) A barrier to entry is
A) the economic term for diseconomies of scale.
B) illegal in most markets.
C) anything that protects a firm from the arrival of new competitors.
D) a factor that increases competition because firms must continue to operate in the market in
which they were founded.
E) the same as rent seeking.
15) A natural barrier to entry is defined as a barrier that arises because of
A) technology that allows economies of scale over the entire relevant range of output.
B) patents or licenses that exclude others from producing a good or service.
C) many firms producing the good and thereby allowing choice for all consumers.
D) anticompetitive practices by a firm that keep other firms from producing.
E) one firm owning a key natural resource.
16) Natural barriers to entry arise when, over the relevant range of output, there
A) are diseconomies of scale.
B) are constant returns to scale.
C) are several firms who produce at the lowest average cost.
D) are economies of scale.
E) is one firm that owns a key natural resource.
17) A natural monopoly exists when
A) diseconomies of scale exist in an industry.
B) one firm can supply an entire market at a lower average total cost than can two or more firms.
C) a firm can engage in price discrimination.
D) the producers in an industry have formed a cartel.
E) a monopoly firm faces a horizontal demand curve.
18) If a single firm can meet the entire market demand at a lower average total cost than a larger
number of smaller firms, the single firm is
A) price discriminating.
B) a natural monopoly.
C) a legal monopoly.
D) efficient when profit maximizing.
E) an ownership-of-the-market monopoly.
19) A natural monopoly is one that arises from
A) patent law.
B) economies of scale.
C) copyright law.
D) any government-imposed barrier to entry.
E) mergers.
Answer: B
20) A natural monopoly
A) arises as a result of legal barriers to entry.
B) occurs when one firm controls a natural resource.
C) arises when one firm can meet the entire market demand at a lower average total cost than
two or more firms.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
21) Which of the following would create a natural monopoly?
A) ownership of all the available units of a necessary input
B) an exclusive right granted to supply a good or service
C) requirement of a government license before the firm can sell the good or service
D) technology enabling a single firm to produce at a lower average cost than two or more firms
E) a patent granted the producer of the good or service
22) If the technology for producing a good enables one firm to meet the entire market demand at
a lower average total cost than two or more firms could, then that firm has
A) patented the market.
B) a natural monopoly.
C) increasing average total costs.
D) a legal barrier to entry.
E) a discriminatory monopoly.
23) For a natural monopoly, economies of scale
A) exist along the long-run average cost curve at least until it crosses the market demand curve.
B) and diseconomies of scale exist along the long-run average cost curve at least until it crosses
the market demand curve.
C) lead to a legal barrier to entry.
D) 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..
E) are totally absent.
24) A natural monopoly arises when
A) one firm controls the supply of a unique resource.
B) a firm has many small firms that it can control.
C) there are firms which act together as a monopoly.
D) the long-run average cost curve slopes downward as it crosses the demand curve.
E) one firm naturally convinces the government to limit competition in the market.
25) 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.
26) The long-run average cost curve of a natural monopoly
A) is positively sloped until it crosses the demand curve.
B) intersects the demand curve while it is negative sloped.
C) intersects the demand curve while it is positively sloped.
D) is the natural monopoly’s supply curve.
E) is the same as the natural monopoly’s demand curve.
27) Which of the following is an example of a natural monopoly?
A) the Pittsburgh Penguins hockey team, a National Hockey League team
B) Ford Motors, the large automobile producing company
C) Florida Power and Light, an electric utility in Florida
D) Sony, the Japanese producer of the Playstation III
E) JCPenney, the large department store chain
28) Which of the following is an example of a natural monopoly?
A) the trademark protecting Gatorade
B) the talents of Tom Hanks
C) the local water company
D) the patent on an Intel processor
E) Debeers’ ownership of a large fraction of the world’s diamonds
29) Which of the following goods is the best example of a natural monopoly?
A) distribution of electricity
B) diamonds
C) first-class mail
D) a patented good
E) blouses
30) Which of the following is the best example of a natural monopoly?
A) ownership of the only ferry across Puget Sound for twenty miles
B) the United States Postal Service
C) the cable television company in your hometown
D) owning the only licensed taxicab in town
E) producing a patented drug
31) Ownership of a necessary input creates what type of barrier to entry?
A) legal barrier to entry
B) natural barrier to entry
C) a public franchise
D) a government license
E) ownership barrier to entry
32) Which of the following is a legal barrier to entry?
i) public franchise
ii) government license
iii) patent
A) iii only
B) i and iii
C) ii and iii
D) i, ii, and iii
E) i and ii
33) A monopoly will arise if
A) two out of three of a town’s pizzerias go out of business and only one new pizzeria opens.
B) the town council passes a law granting Nick’s Pizza the exclusive right to operate in that
town.
C) Papa Joe’s Pizza becomes the largest pizza producer in town and Nick’s Pizza stays small in
size.
D) several big pizza chains force several small pizzerias out of business.
E) people decide they like pizza more than before so some pizzeria’s gain new customers.
34) Which of the following can be a barrier to entry?
i. ownership of a necessary input
ii. requiring a government license
iii. large diseconomies of scale
A) i only
B) ii only
C) i and iii
D) i and ii
E) i, ii, and iii
35) Which barrier to entry is an exclusive right granted to the author or composer of a literary,
musical, dramatic or artistic work?
A) patent
B) copyright
C) public franchise
D) government license
E) natural barrier
36) The U.S. Postal Service has a monopoly over first-class mail service because
A) the government has granted this agency a public franchise.
B) stamps are copyrighted.
C) stamps are trademarked.
D) stamps are patented.
E) it owns a vital resource, namely all mailboxes.
37) The U.S. Postal Service’s monopoly on first-class mail service is the result of
A) a natural monopoly.
B) a patent.
C) a public franchise.
D) a government license.
E) an ownership barrier to entry.
38) The makers of the movie Beowulf have some monopoly power over this film because the
A) movie is patented.
B) name Beowulf is trademarked.
C) movie is protected by copyright law.
D) government has issued the maker of this movie a public franchise.
E) owner never price discriminated in marketing the movie.
39) Patents
i. encourage the invention of new products and production methods.
ii. generally discourage innovation
iii. are exclusive rights granted to the inventor of a product or service.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
40) Patents
A) are granted only to competitive firms and not monopolies.
B) require that monopolies increase the amount they produce.
C) increase the incentive to capture economies of scale.
D) increase the incentive to innovate.
E) grant the holder a monopoly that lasts forever.
41) Patents
A) are a legal barrier to entry.
B) remove legal barriers to entry.
C) create economies of scale.
D) decrease the incentive to innovate.
E) are prohibited in the United States.
42) To encourage invention and innovation, the government provides
A) patents.
B) public franchises.
C) government licenses.
D) natural monopolies.
E) easily obtained ownership barriers to entry.
43) Which of the following is NOT correct about patents?
A) Patents encourage invention of new products.
B) Patents stimulate innovation.
C) A patent is a barrier to entry.
D) Patents enable a firm to be a permanent monopoly.
E) Patents are granted to the inventor of a product or service.
44) Which of the following is an example of a person or firm that is most likely to have been
granted a public franchise?
A) medical doctor
B) taxi cab driver
C) the local pizza parlor
D) the local telephone company
E) the local Honda dealership
45) Which of the following statements is correct?
A) Monopolies are guaranteed to earn an economic profit.
B) The market demand and the firm’s demand are the same for a monopoly.
C) Monopolies have perfectly inelastic demand for the product sold.
D) Because a monopoly is the only firm in the market, its supply curve is the same as the market
demand curve.
E) Because a monopoly is the only firm in the market, its marginal revenue curve must be the
same as the market demand curve.
46) A monopoly is
A) a price taker.
B) able to ignore the demand for its product when setting its price.
C) able to set the price for its product.
D) able to earn only a normal profit in the long run.
E) a firm with no marginal revenue curve.
47) If a monopoly wants to sell a larger quantity, it must
A) set a higher price.
B) maintain the current price.
C) set a lower price.
D) implement new technology.
E) increase the barrier to entry that protects it.
48) A gas station in the mountains of Oregon has a monopoly over the retail gas market within a
50-mile radius. The station decides not to price discriminate. As a result, all consumers will pay
A) the highest price each consumer is willing to pay.
B) the lowest price possible.
C) a single price.
D) multiple prices.
E) a price that depends on their willingness to pay.
49) A single-price monopoly
A) sets a single, different price for each consumer.
B) sets a single price for all consumers.
C) asks each consumer what single price they would be willing to pay.
D) sets a single, different price for each of two different groups.
E) sells each unit of its output for the single, highest price that the buyer of that unit is willing to
pay.
50) A single-price monopoly
A) charges all of its customers a different price for the good or service.
B) sells all of its output at different prices.
C) sells each unit of output for the same price to all of its customers.
D) sells its output to wholesale customers at a different price than it sells to retail customers.
E) does not need to lower its price to sell more output.
51) A price-discriminating monopoly is a monopoly that
A) sells its output at a single price to all of its customers.
B) sells different units of a good or service at different prices.
C) has control over the resources used to produce the product.
D) has a license to sell the product.
E) illegally charges different customers different prices for the good it produces.
52) Price discrimination occurs when a firm
A) charges customers different prices for different goods.
B) is able to sell different units of a good at different prices.
C) charges customers the same price for different goods.
D) can determine which of the many market equilibrium prices it will charge.
E) has a marginal cost curve that is horizontal.
53) Price discrimination is
A) always illegal in the United States.
B) defined as charging the same price to all consumers.
C) defined as charging different prices for different units.
D) setting the price to minimize the quantity sold.
E) Both answers A and C are correct.
54) A ________ monopoly sells different units of its good or service for ________.
A) price-discriminating; different prices
B) price-discriminating; the same price
C) single-price; the same price
D) single-price; different prices
E) Both Answers A and C are correct.
55) To be able to price discriminate, a firm must
A) have a public franchise.
B) be a natural monopoly.
C) be able to prevent resales of its good.
D) have a patent.
E) have an ownership barrier to entry.
56) Which of the following statements is correct?
A) Any firm can price discriminate.
B) Only firms that sell high-priced products can price discriminate.
C) In order to price discriminate, a firm must sell a good or service that cannot be resold.
D) In order to price discriminate, the firms must sell a low-priced product.
E) Price discrimination is always illegal.
57) Price discrimination is prevented in situations where
A) customers can resell the good.
B) firms have monopolies.
C) there are legal barriers to entry.
D) there are no close substitutes for the good or service.
E) customers have different willingnesses to pay for the good.
58) In order for a hotel to successfully price discriminate so that senior citizens are given a
discount, the hotel must be able to
A) offset the economic loss from charging senior citizens a lower price by lowering the marginal
cost of renting rooms to senior citizens.
B) lower its prices to younger customers too.
C) prevent senior citizens from reselling their rooms to younger customers.
D) shift its demand curve rightward.
E) determine if a senior citizen can pay a higher price.
59) Which of the following is an example of price discrimination?
A) UPS charges more if a package is sent from New York to Hawaii and less if it is sent from
New York to New Jersey.
B) Frank’s Furniture shop charges no delivery fee for furniture delivered within Dutchess County
but charges $40 delivery fee outside of the county.
C) Albert pays 25 percent less on prescription drugs because he is a senior citizen.
D) Only answers A and B are correct.
E) Answer A, answer B, and answer C are all correct.
60) Firms that can effectively price discriminate
A) can be either perfectly competitive firms or monopolies.
B) can prevent the resale of their products.
C) have only one class of buyers, buyers willing to pay a high price.
D) Both answers A and B are correct.
E) Both answers A and C are correct.