Figure 9–1
Figure 9–1 above shows the demand and cost curves facing a monopolist.
76)
Refer to Figure 9–1. The firm’s profit maximizing price is
76)
A)
P1.
B)
P2.
C)
P3.
D)
P4.
77)
What is a network externality?
77)
A)
It refers to a product that requires connection to a network for it to be useful.
B)
It refers to a situation in which a product’s usefulness increases with the number of people
using it.
C)
It refers to a network of suppliers and buyers for a good or service.
D)
It refers to lobbying to form a public enterprise.
B
78)
A monopolist faces
78)
A)
a perfectly elastic demand curve.
B)
a perfectly inelastic demand curve.
C)
a downward–sloping demand curve.
D)
a horizontal demand curve.
C
C
Figure 9–5
79)
Refer to Figure 9–5. What is the area that represents consumer surplus under a monopoly?
79)
A)
P0P1F
B)
P1P3HF
C)
P1P2EF
D)
P0P2E
80)
If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in
ticket revenue if it adds a sixth performance, the
80)
A)
company will be making a loss on the sixth performance because its ticket sales will be less
than the average received from the previous five.
B)
marginal revenue of the sixth performance is $48,000.
C)
marginal revenue of the sixth performance is $38,000.
D)
cost of staging the sixth performance is probably higher than the cost of staging the previous
five.
81)
A public franchise
81)
A)
is a corporation that is owned by stockholders.
B)
is a government designation that a private firm is the only legal producer of a good or service.
C)
is an unregulated monopoly necessary for the public good.
D)
results from ownership of a key raw material.
Figure 9–8
In 2006 the California government changed its regulatory policy to allow competition into the cable television market. Figure
9–8 shows the cable television market in California.
82)
Refer to Figure 9–8. What is the size of the deadweight loss prior to the policy change and what
happens to this deadweight loss after the policy change?
82)
A)
The deadweight loss of area D is converted to consumer surplus.
B)
The deadweight loss of area D is converted to producer surplus.
C)
The total deadweight loss is the area D + F; D is converted to consumer surplus and F to
producer surplus.
D)
The deadweight loss of area C+ D is converted to consumer surplus
83)
Peet’s Coffee and Teas produces some flavorful varieties of Peet’s brand coffee. Is Peet’s a
monopoly?
83)
A)
Yes, there are no substitutes to Peet’s coffee.
B)
Yes, Peet’s is the only supplier of Peet’s coffee in a market where there are high barriers to
entry.
C)
No, although Peet’s coffee is a unique product there are many different brands of coffee that
are very close substitutes.
D)
No, Peet’s is not a monopoly because there are many branches of Peet’s.
84)
The first important federal law passed to regulate monopolies in the United States was the
84)
A)
Clayton Act.
B)
Cellar–Kefauver Act.
C)
Federal Trade Commission Act.
D)
Sherman Act.
85)
A virtuous cycle occurs
85)
A)
when lobbyists petition members of Congress to grant a public franchise; the lobbyists then
raise money for those who voted to grant the franchise.
B)
when a firm’s sales volume reaches a level where the firm can take advantage of economies of
scale; this reduces the price of the product to further boost its sales.
C)
when a firm can attract enough buyers initially to increase a product’s usefulness to attract
even more buyers.
D)
when monopoly profits are used to create new products for additional monopoly profits.
Table 9–2
Price per dose Quantity
Demanded
(Dose)
Total Cost of
Production
(Dollars)
$80 0$80
72 182
64 288
56 3100
48 4124
40 5164
32 6208
24 7268
16 8340
Shakti Inc. has been granted a patent for its toothache balm. Table 9–2 shows the demand and the total cost schedule for the
firm.
86)
Refer to Table 9–2. What is Shakti’s profit–maximizing output?
86)
A)
6 units
B)
5 units
C)
4 units
D)
7 units
87)
The Ecke family’s virtual monopoly on commercial poinsettia production by grafting together two
varieties of the plant ended around 1996 when university researchers were able to independently
make the same discovery. The Ecke family did not patent their grafting process. Would the Ecke’s
have been better off if they had patented their process of growing poinsettias?
87)
A)
No, seeking patent protection necessitates divulging enough information that would enable
others to discover ways of grafting poinsettias that were similar to the Ecke method but that
did not violate the patent.
B)
No, even with patent protection the Ecke family cannot prevent government–funded
academic institutions from researching into plant breeding.
C)
Yes, it would have allowed them to earn economic profits indefinitely.
D)
That depends on how long they had a monopoly before university researchers made the
discovery. If the discovery was made after the period of time when patents expire, then the
Ecke family is not any better off.
88)
The Clayton Act prohibited
88)
A)
all conglomerate mergers.
B)
all horizontal mergers.
C)
all vertical mergers.
D)
any merger if its effect was to substantially lessen competition or create a monopoly.
89)
The De Beers Company, one of the longest–lived monopolies, is facing increasing competition. One
source of competition comes from people who resell their previously owned diamonds. Why is De
Beers worried that people might resell their diamonds?
89)
A)
The availability of previously owned diamonds increases the market demand for diamonds
and dilutes De Beers’ monopoly.
B)
Previously owned diamonds are a close substitute for newly mined diamonds; their
availability reduces De Beers’ market power.
C)
The availability of previously owned diamonds makes the demand curve for diamonds more
inelastic and forces De Beers to lower their prices.
D)
De Beers will not be able to guarantee the quality of previously owned diamonds and fears
that its reputation might be harmed.
Figure 9–7
Figure 9–7 shows the cost and demand curves for the Erickson Power Company.
90)
Refer to Figure 9–7. The firm would maximize profit by producing
90)
A)
Q1 units.
B)
Q2 units.
C)
Q3units.
D)
Q4units.
91)
A monopoly is characterized by all of the following except
91)
A)
the firm has market power.
B)
barriers to entry are high.
C)
there are only a few sellers each selling a unique product.
D)
there are no close substitutes for the firm‘s product.
92)
Market power refers to
92)
A)
the ability of a firm to advertise its product and succeed in selling more output.
B)
the ability of a firm to sell at a lower price than rival sellers.
C)
the ability of consumers to dictate what products should be produced.
D)
the ability of a firm to charge a price higher than the marginal cost of production.
Figure 9–5
93)
Refer to Figure 9–5. Compared to a perfectly competitive market, consumer surplus is lower in a
monopoly by an amount equal to the
93)
A)
area FHE.
B)
area P1P2EF.
C)
area FGE.
D)
area P1P2GF.
94)
Governments grant patents to encourage
94)
A)
firms to form public enterprises.
B)
research and development.
C)
competition.
D)
low prices.
Table 9–1
Price per unit
Quantity
demanded
(Units)
Total cost of
production
$200 1$200
180 2300
160 3350
140 4360
120 5375
100 6395
80 7425
A monopoly producer of a foreign language translation software package faces the demand and cost structure given in Table
9–1.
95)
Refer to Table 9–1. What is the firm’s maximum profit–maximizing output and what is the price
charged to sell this output?
95)
A)
Q = 1; P = $200
B)
Q = 3; P = $160
C)
Q = 5; P = $120
D)
Q = 2; P = $180
Figure 9–1
Figure 9–1 above shows the demand and cost curves facing a monopolist.
96)
Refer to Figure 9–1. If the firm’s average total cost curve is ATC2 the firm will
96)
A)
suffer a loss.
B)
break even.
C)
face competition.
D)
make a profit.
Figure 9–2
Figure 9–2 above shows the demand and cost curves facing a monopolist.
97)
Refer to Figure 9–2. Suppose the monopolist represented in the diagram above produces some
output. What is the profit maximizing/loss–minimizing output level?
97)
A)
880 units
B)
850 units
C)
800 units
D)
630 units
98)
Refer to Figure 9–2. Suppose the monopolist represented in the diagram above produces some
output. What is the price charged at the profit–maximizing/loss–minimizing output level?
98)
A)
$38
B)
$68
C)
$54
D)
$75
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
99)
What is the difference between a monopoly’s marginal revenue curve and a perfect
competitor’s marginal revenue curve?
99)
100)
How do the price and quantity of a monopoly compare to that of a perfectly competitive
industry?
100)
101)
What happens to a monopoly’s revenue when it sells more units of its product?
101)
102)
Identify two ways by which the government controls monopolies.
102)
103)
What gives rise to a natural monopoly? How do consumers benefit from a natural
monopoly?
103)
104)
How does a network externality serve as a barrier to entry? Is this barrier surmountable?
Explain.
104)
105)
Provide two examples of a government barrier to entry?
105)
106)
What is the relationship between the marginal revenue and average revenue of a
monopolist? Is this relationship the same as it is for a perfect competitor?
106)
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
107)
Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after
the patent on the prescription drugs expire because they have established a strong foothold in the
market.
107)
108)
Market power in the United States causes a huge loss of economic efficiency.
108)
109)
For a natural monopoly the marginal cost of producing an additional unit of its product is
relatively small.
109)
110)
The National Football league has long–term leases with the stadiums in major cities. Control of
these stadiums is an entry barrier to a potential new football league.
110)
111)
The term “trust” in antitrust refers to a board of trustees that has collusive control over different
companies.
111)
112)
A vertical merger takes place between firms at different stages of production of a good.
112)
113)
A monopoly is defined as a firm that has the largest market share in an industry.
113)
114)
Some economists argue that the existence of network externalities is a surmountable barrier if a
competing firm can offer a product that better satisfies consumer preferences.
114)
115)
Holding everything else constant, government approval of horizontal mergers is more likely to be
granted if the “market” that firms are in is broadly defined rather than narrowly defined.
115)
116)
If a monopolist‘s marginal revenue is $15 a unit and its marginal cost is $25, then to maximize
profit the firm should decrease output.
116)
117)
A monopolist currently sells 18 units of a good. If marginal revenue on the last unit sold is $117
then the price of the good must be less than $117.
117)
118)
The market demand curve facing a monopolist is more elastic than the market demand curve
facing a monopolistic competitor.
118)
119)
If a monopolist‘s price is $50 at the output where marginal revenue equals marginal cost and
average total cost is $43 then the average profit is $7.
119)
120)
Unlike a perfect competitor, a monopolist faces the market demand curve.
120)
121)
If a per–unit tax on output sold is imposed on a monopoly’s product, the monopolist will increase
its market price by the full amount of the tax.
121)
122)
A product’s price approaches its marginal cost as market concentration increases.
122)
123)
The U.S. government would never approve a proposed merger between two firms that could
significantly increase the newly merged firm‘s market power even if the efficiency gains from the
newly merged firm could make consumers better off.
123)
124)
In reality because few markets are perfectly competitive, some loss of economic efficiency occurs in
the market for nearly every good or service.
124)
125)
A profit–maximizing monopoly produces a lower output level that would be produced if the
industry were perfectly competitive.
125)
126)
A natural monopoly is characterized by large fixed costs relative to variable costs.
126)
127)
Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald‘s, a Taco
Bell and a Kentucky Fried Chicken. Using a broad definition of a monopoly, Joe has a monopoly.
127)