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188. A reduction in a monopolist‘s fixed costs would
a. decrease the profit-maximizing price and increase the profit–maximizing quantity produced.
b. increase the profit-maximizing price and decrease the profit–maximizing quantity produced.
c. not effect the profit-maximizing price or quantity.
d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on
the elasticity of demand.
189. Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal
revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit.
What can we conclude about this monopolist?
a. The monopolist is currently maximizing profits, and its total profits are $200.
b. The monopolist is currently maximizing profits, and its total profits are $250.
c. The monopolist is not currently maximizing its profits; it should produce more units and charge
a lower price to maximize profit.
d. The monopolist is not currently maximizing its profits; it should produce fewer units and
charger a higher price to maximize profit.
3782 Monopoly
190. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal
revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit.
What can we conclude about this monopolist?
a. The monopolist is currently maximizing profits, and its total profits are $375.
b. The monopolist is currently maximizing profits, and its total profits are $300.
c. The monopolist is not currently maximizing profits; it should produce more units and charge a
lower price to maximize profits.
d. The monopolist is not currently maximizing profits; it should produce fewer units and charge a
higher price to maximize profits.
191. A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue
and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total
cost for 10 units of output is $5. What is the monopolist’s profit?
a. $60
b. $70
c. $100
d. $120
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192. A profit-maximizing monopolist charges a price of $14. The intersection of the marginal revenue
curve and the marginal cost curve occurs where output is 15 units and marginal cost is $7. What
is the monopolist’s profit?
a. $90
b. $105
c. $180
d. Not enough information is given to determine the answer.
193. If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit,
what is the monopolist’s profit?
a. $200
b. $400
c. $600
d. $800
3784 Monopoly
194. Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10
units of production the firm has average fixed cost equal to $10 and average variable cost equal
to $12. How much total profit is the firm earning at this price?
a. $5
b. $25
c. $50
d. $140
195. Which of the following formulas would correctly calculate a monopolist’s profit?
a. profit = price – marginal cost
b. profit = price – average total cost
c. profit = (price – marginal cost) × quantity
d. profit = (price – average total cost) × quantity
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196. A monopoly‘s marginal cost will
a. be less than its average fixed cost.
b. be less than the price per unit of its product.
c. exceed its marginal revenue.
d. equal its average total cost.
197. If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives
the firm
a. partial ownership of the right to sell the drug for a limited number of years.
b. partial ownership of the right to sell the drug for an unlimited number of years.
c. sole ownership of the right to sell the drug for a limited number of years.
d. sole ownership of the right to sell the drug for an unlimited number of years.
3786 Monopoly
198. Due to the nature of the patent laws on pharmaceuticals, the market for such drugs
a. always remains a competitive market.
b. always remains a monopolistic market.
c. switches from competitive to monopolistic once the firm’s patent runs out.
d. switches from monopolistic to competitive once the firm’s patent runs out.
199. What happens to the price and quantity sold of a drug when its patent runs out?
(i) The price will fall.
(ii) The quantity sold will fall.
(iii) The marginal cost of producing the drug will rise.
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
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200. Generic drugs enter the pharmaceutical drug market once
a. the ingredients to the name brand drug have been discovered.
b. 10 years have passed.
c. they are patented.
d. the patent on the name brand drug expires.
201. Name brand drugs are able to continue capitalizing on their market power even after generic
drugs enter the market because
(i) almost all people fear the generic drug companies are devoting too few resources to
research and development.
(ii) some people fear that generic drugs are inferior.
(iii) some people are loyal to the name brand.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
3788 Monopoly
202. After the patent runs out on a brand name drug, generic drugs enter the market. What happens
next in the market?
a. Price increases, and total surplus decreases.
b. Price decreases, and total surplus decreases.
c. Price decreases, and total surplus increases.
d. Price increases, and total surplus increases.
203. A monopolist
a. has a supply curve that is upward–sloping, just like a competitive firm.
b. does not have a supply curve because the monopolist sets its price at the same time it chooses
the quantity to supply.
c. has a horizontal supply curve, just like a competitive firm.
d. does not have a supply curve because marginal revenue exceeds the price it charges for its
products.
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204. The supply curve for the monopolist
a. is horizontal.
b. is vertical.
c. is upward sloping.
d. does not exist.
205. In a competitive market, a firm‘s supply curve dictates the amount it will supply. In a monopoly
market the
a. same is true.
b. supply curve conceptually makes sense, but in practice is never used.
c. supply curve will have limited predictive capacity.
d. decision about how much to supply is impossible to separate from the demand curve it faces.
3790 Monopoly
Multiple Choice – Section 03: The Welfare Cost of Monopolies
1. Monopolies are inefficient because they
(i) eliminate barriers to entry.
(ii) price their product at a level where marginal revenue exceeds marginal cost.
(iii) restrict output below the socially efficient level of production.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
2. A monopolist produces
a. more than the socially efficient quantity of output but at a higher price than in a competitive
market.
b. less than the socially efficient quantity of output but at a higher price than in a competitive
market.
c. the socially efficient quantity of output but at a higher price than in a competitive market.
d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a
higher price than in a competitive market.
Monopoly 3791
3. “Monopolists do not worry about efficient production and minimizing costs since they can just pass
along any increase in costs to their consumers.” This statement is
a. false; price increases will mean fewer sales, which may lower profits.
b. true; this is the primary reason why economists believe that monopolies result in economic
inefficiency.
c. false; the monopolist is a price taker.
d. true; consumers in a monopoly market have no substitutes to turn to when the monopolist raises
prices.
4. Deadweight loss
a. measures monopoly inefficiency.
b. exceeds monopoly profits.
c. equals monopoly profits.
d. equals monopoly revenues minus profits.
3792 Monopoly
5. A monopoly is an inefficient way to produce a product because
a. it can earn both short-run and long-run profits.
b. it faces a downward-sloping demand curve.
c. the cost to the monopolist of producing one more unit exceeds the value of that unit to potential
buyers.
d. it produces a smaller level of output than would be produced in a competitive market.
6. The deadweight loss associated with a monopoly occurs because the monopolist
a. maximizes profits.
b. produces an output level less than the socially optimal level.
c. produces an output level greater than the socially optimal level.
d. equates marginal revenue with marginal cost.
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7. The economic inefficiency of a monopolist can be measured by the
a. number of consumers who are unable to purchase the product because of its high price.
b. excess profit generated by monopoly firms.
c. poor quality of service offered by monopoly firms.
d. deadweight loss.
8. The economic inefficiency of a monopolist can be measured by the
a. deadweight loss.
b. value of the unrealized trades that could be made if the monopolist produced the socially-efficient
output.
c. area above marginal cost but beneath demand from the monopoly output to the socially–efficient
output.
d. All of the above are correct.
3794 Monopoly
9. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized,
mutually beneficial trades are
a. of little concern to society.
b. a deadweight loss to society.
c. a sunk cost to society.
d. also observed in competitive markets.
10. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized,
mutually beneficial trades are
a. not a concern if a market is perfectly competitive.
b. a deadweight loss to society.
c. a function of the reduction in the quantity produced by a monopolist in comparison to a
competitive market.
d. All of the above are correct.
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11. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized,
mutually beneficial trades are
a. less of a concern for a monopoly than competitive market.
b. offset by the higher profits earned by a monopolist.
c. a function of the reduction in the quantity produced by a monopolist in comparison to a
competitive market.
d. All of the above are correct.
12. The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
a. quantity is lower than the socially-optimal quantity.
b. price equals marginal revenue.
c. price is the same as average revenue.
d. earns positive profits.
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13. Which of the following statements is correct?
a. The benefits that accrue to a monopoly’s owners are equal to the costs that are incurred by
consumers of that firm‘s product.
b. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing
monopoly firm produces a quantity of output that exceeds the socially-efficient quantity.
c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a
product.
d. The primary social problem caused by monopoly is monopoly profit.
14. The social cost of a monopoly is equal to its
a. economic profit.
b. fixed cost.
c. dead weight loss.
d. variable cost.
Monopoly 3797
15. Which of the following statements is not correct?
a. Part of the deadweight loss associated with monopoly is measured by the monopolist’s
economic profit.
b. Marginal cost is always less than average total cost in a natural monopoly.
c. Discount coupons available free to the public are a type of price discrimination.
d. Anti-trust laws make it harder for firms to create synergies.
16. Monopolies are socially inefficient because the price they charge is
a. equal to marginal revenue.
b. above marginal cost.
c. equal to demand.
d. above demand.
3798 Monopoly
17. Which of the following statements is correct? Monopolies are socially inefficient because they
(i) charge a price above marginal cost.
(ii) produce too little output.
(iii) earn profits at the expense of consumers.
(iv) maximize the market’s total surplus.
a. (iii) only
b. (iii) and (iv) only
c. (i) and (ii) only
d. (i), (ii), (iii), and (iv)
18. Consider a profit–maximizing monopoly pricing under the following conditions. The profit-
maximizing quantity is 40 units, the profit-maximizing price is $160, and the marginal cost of the
40th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium
quantity would be 50, and the equilibrium price would be $150. The demand curve and marginal
cost curves are linear. What is the value of the deadweight loss created by the monopolist?
a. $40
b. $100
c. $200
d. $400
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19. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-
maximizing price charged for goods produced is $12.The intersection of the marginal revenue and
marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient
level of production is 12 units. The demand curve and marginal cost curves are linear. What is the
value of the deadweight loss created by the monopolist?
a. $4
b. $6
c. $12
d. d. $16
20. When we compare economic welfare in a monopoly market to a competitive market, the profits
earned by the monopolist represent
a. a transfer of benefits from the consumer to the producer.
b. a loss in total welfare.
c. the higher marginal costs incurred by the monopolists in comparison to competitive firms.
d. the higher marginal revenues gained by the monopolists in comparison to competitive firms.
3800 Monopoly
21. When we compare economic welfare in a monopoly market to a competitive market, the profits
earned by the monopolist represent
a. a loss in total welfare.
b. a transfer of benefits from the buyer to the seller.
c. the higher marginal costs incurred by the monopolists in comparison to competitive firms.
d. All of the above are correct.
22. Monopoly profit is not a social problem because
a. the size of the economic pie grows when monopoly profits increase.
b. producers are more efficient than consumers.
c. the profit represents a transfer from the consumer to the producer with no loss in total surplus.
d. None of the above are correct.