True / False
1. A pure monopoly is defined as having only one seller.
a.
True
b.
False
True
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
2. Monopolies are always large firms with great economies of scale.
a.
True
b.
False
False
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
3. Pure monopoly is able to exist because the firm’s product is better than the substitutes that are available in the market.
a.
True
b.
False
False
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
4. Pure monopoly is not studied because of its descriptive realism, but because it is a stepping stone toward more realistic
models.
a.
True
b.
False
Easy
Monopoly
5. Pure monopoly markets are very common in the real world.
a.
True
b.
False
False
Easy
Monopoly
6. Under monopoly, resources are allocated as efficiently as in perfect competition.
a.
True
b.
False
False
Easy
Monopoly
7. The two basic reasons why a monopoly exists are barriers to entry and cost advantages.
a.
True
b.
False
True
Moderate
Monopoly
8. The key element in preserving a monopoly is keeping rivals out of the market.
a.
True
b.
False
True
Easy
Monopoly
9. Owning a patent can provide a firm with monopolistic power.
a.
True
b.
False
True
Easy
Monopoly
10. There exist only two causes of monopoly: barriers to entry and government restrictions.
a.
True
b.
False
False
Moderate
Monopoly
11. Control of a scarce resource or input can serve as an entry barrier.
a.
True
b.
False
True
Easy
Monopoly
12. Technical superiority can be a source of entry barriers.
a.
True
b.
False
True
Moderate
Monopoly
13. Only government restrictions serve as entry barriers.
a.
True
b.
False
False
Moderate
Monopoly
14. The U.S. Postal Service enjoys a monopoly position because of patent rights.
a.
True
b.
False
False
Easy
Monopoly
15. The drug maker Pfizer enjoyed a monopoly of the antibiotic Lipitor because of patent rights.
a.
True
b.
False
True
Easy
Monopoly
16. The presence of large sunk costs often serves as a naturally imposed barrier to entry.
a.
True
b.
False
True
Moderate
Monopoly
17. The existence of a natural monopoly stems from the size of the firm relative to the total market demand for the product
of that firm.
a.
True
b.
False
True
Easy
Monopoly
18. Many public utilities are permitted to operate as monopolies because they enjoy economies of large-scale production.
a.
True
b.
False
True
Easy
Monopoly
19. Natural monopolies are of theoretical, but not practical interest.
a.
True
b.
False
False
Moderate
Monopoly
20. A natural monopoly is one that deliberately erects entry barriers.
a.
True
b.
False
False
Moderate
Monopoly
21. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than
could many firms.
a.
True
b.
False
True
Moderate
Monopoly
22. In cases of natural monopolies, society would be better off with many firms competing with each other.
a.
True
b.
False
False
Easy
Monopoly
23. The software industry has traits in common with monopoly markets.
a.
True
b.
False
True
Easy
Monopoly
24. A monopolist is a price maker.
a.
True
b.
False
True
Easy
Monopoly
25. A monopolist is a price maker who will lose some business if the price is increased.
a.
True
b.
False
True
Easy
Monopoly
26. A monopolist is a price taker, just like a perfect competitor.
a.
True
b.
False
False
Easy
Monopoly
27. A monopolist faces a horizontal demand schedule.
a.
True
b.
False
False
Easy
Monopoly
28. The marginal revenue curve for a monopolist is always below the demand curve.
a.
True
b.
False
True
Easy
Monopoly
29. The marginal revenue curve for a monopolist is the same as its demand curve.
a.
True
b.
False
False
Moderate
Monopoly
30. A monopolist will maximize profits by producing a quantity specified by setting marginal revenue equal to marginal
cost.
a.
True
b.
False
True
Easy
Monopoly
31. A monopolist’s profit per unit is shown by the difference between price and average cost per unit.
a.
True
b.
False
True
Moderate
Monopoly
32. A monopolist’s profit per unit is shown by the difference between price and marginal cost per unit.
a.
True
b.
False
False
Moderate
Monopoly
33. A monopolist’s total profit is shown by the difference between price and average cost per unit times the number of
units sold.
a.
True
b.
False
True
Moderate
Monopoly
34. The rule of MC = MR does not apply to a monopolist.
a.
True
b.
False
False
Moderate
Monopoly
35. A monopolist maximizes profit by producing the quantity at which MC = MR, just like a perfect competitor.
a.
True
b.
False
True
Easy
Monopoly
36. Perfect Competition is an industry in which there is only one supplier of a product that has no close substitutes.
a.
True
b.
False
False
Easy
37. Although monopoly has lower output than competition, the level of output is efficient.
a.
True
b.
False
False
Moderate
Monopoly
38. Adam Smith believed that monopoly is the most efficient market structure.
a.
True
b.
False
False
Easy
Monopoly
39. A monopolist can earn a positive economic profit, even in the long run.
a.
True
b.
False
True
Easy
Monopoly
40. A major difference between a monopoly and perfect competition is that monopolies can earn an economic profit in the
long run and a perfectly competitive firm cannot.
a.
True
b.
False
True
Moderate
Monopoly
41. Entry barriers can lead to long-run economic profits.
a.
True
b.
False
True
Moderate
Monopoly
42. Since a monopolist firm will lose some customers when the price is increased, it will make every effort to keep the
price as low as possible.
a.
True
b.
False
False
Moderate
Monopoly
43. Compared to a perfectly competitive industry, a monopoly produces a smaller output and charges a higher price.
a.
True
b.
False
True
Easy
Monopoly
44. A monopoly may breed inefficiency by reducing competition and restricting production.
a.
True
b.
False
True
Moderate
Monopoly
45. A monopoly restricts output and charges a higher price than other types of firms.
a.
True
b.
False
True
Moderate
Monopoly
46. In the long-run, a monopolist charges the same price as a perfectly competitive firm.
a.
True
b.
False
False
Easy
47. A profit-maximizing monopolist will stop production while MR is still greater than MC.
a.
True
b.
False
False
Easy
Monopoly
48. A monopolist will stop production when MR equals MC.
a.
True
b.
False
True
Easy
Monopoly
49. Inefficient resource allocation is a major problem with monopolies.
a.
True
b.
False
True
Moderate
Monopoly
50. For a monopoly, MC = MR < P so that MC < MU.
a.
True
b.
False
True
Moderate
Monopoly
51. Too much of society’s scarce resources are used to produce goods in monopoly markets.
a.
True
b.
False
False
Easy
Monopoly
52. Since a monopolist has a unique product, it makes no sense for the firm to advertise.
a.
True
b.
False
False
Moderate
Monopoly
53. A monopoly firm always devotes some of its profits to research.
a.
True
b.
False
False
Moderate
Monopoly
54. A monopolist firm may be more innovative than a competitive firm.
a.
True
b.
False
True
Easy
Monopoly
55. A positive aspect of monopolies is that they may aid innovation in the marketplace.
a.
True
b.
False
True
Difficult
Monopoly
56. It is possible that if a monopoly is broken up, the cost of production for that product could increase.
a.
True
b.
False
True
Difficult
Monopoly
57. Monopoly firms may lead to higher costs than perfectly competitive firms.
a.
True
b.
False
True
Difficult
Monopoly
58. In cases of natural monopoly, it is best to have only one firm producing all of the output in a market.
a.
True
b.
False
True
Easy
Monopoly
59. The U.S. Postal Service engages in price discrimination.
a.
True
b.
False
True
Easy
60. The difference in prices for first-class and coach airline tickets exemplifies price discrimination.
a.
True
b.
False
False
Moderate
Monopoly
61. Price discrimination only occurs under monopoly.
a.
True
b.
False
False
Moderate
Monopoly
62. Price discrimination allows a monopolist to make higher profits.
a.
True
b.
False
True
Easy
Monopoly
63. Economists consider price discrimination to always be undesirable.
a.
True
b.
False
False
Easy
Monopoly
64. Price discrimination is always illegal.
a.
True
b.
False
False
Moderate
Monopoly
65. Price discrimination leads to higher prices for all consumers.
a.
True
b.
False
False
Difficult
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Price Discrimination Under Monopoly
66. A natural monopoly is characterized by the fact that its average costs increase rather than decrease when its output
expands.
a.
True
b.
False
67. A natural monopoly would benefit by being broken into many smaller firms.
a.
True
b.
False
68. Price discrimination occurs only in monopolies.
a.
True
b.
False
False
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Price Discrimination under Monopoly
Multiple Choice
69. Pure monopoly is defined as a
a.
one–firm industry.
b.
market structure in which there are many substitute products.
c.
market structure maintained by entry of many rival firms.
d.
market structure created by special government sanctions.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
70. Pure monopoly
a.
is defined as having only one supplier.
b.
has no close substitutes for its product.
c.
exists when entry and survival of potential competitors is extremely unlikely.
d.
All of the above are correct.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
71. The product supplied by a monopoly firm has
a.
a few substitutes.
b.
no close substitutes.
c.
a large number of substitutes.
d.
two or three close substitutes.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
72. A market is not a pure monopoly if firms
a.
can enter it freely.
b.
sell unique products.
c.
can exit the market freely.
d.
require government permission to sell in the market.
a
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
73. Which of the following is not potentially a barrier to entry into the widget market?
a.
patent protection on the design of widgets
b.
high prices for widgets
c.
government licensing of widget producers
d.
massive advertising by existing widget producers
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
74. The U.S. government
a.
intervenes to prevent the monopolization of any market.
b.
forbids the creation of legal impediments to entry into any market.
c.
intervenes to prevent the monopolization of some markets and actively encourages the monopolization of
others.
d.
encourages the permanent monopolization of all markets in which the monopolist has technical superiority
over potential competitors.
c
Difficult
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
75. Which of the following is not a barrier to entry?
a.
Legal restrictions
b.
Patents
c.
Large sunk costs
d.
Survivor rights