Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
76. Which of these contributes to the existence of monopoly power?
a.
a continuously decreasing long-run average cost curve
b.
possession of a patent
c.
control over essential output
d.
All of the above are correct.
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
77. Which of the following can serve as an entry barrier?
a.
legal restrictions
b.
patents
c.
control of scarce resources or inputs
d.
All of the above are correct.
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
78. A patent
a.
is given only to government owned companies.
b.
is not a legal impediment to entry.
c.
is a privilege granted by a state to an inventor over his invention.
d.
does not give the holder a monopoly during the period it is in effect.
c
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
79. ____ mean that the costs involved cannot be recouped for a considerable period of time.
a.
Sunk costs
b.
Opportunity costs
c.
Overheads
d.
Restructuring costs
a
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
80. The key element in preserving a monopoly is
a.
b.
c.
d.
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
81. The South African diamond production monopoly is an example of monopoly through
a.
“patent power.”
b.
legal restriction.
c.
control of scarce resources.
d.
large sunk costs.
c
Moderate
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monopoly
Monopoly Defined
82. A natural monopoly is defined as an industry in which one firm
a.
can produce the entire industry output at a lower average cost than a larger number of firms could.
b.
can produce the entire industry output at a lower marginal cost than a larger number of firms could.
c.
is very large relative to other firms that could enter the industry.
d.
can earn higher profits if it is the only firm in the industry rather than if other firms also enter the industry.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
83. As the demand for a product falls, it is not uncommon for the industry to become a monopoly. This is most likely due
to
a.
an increase in the number of barriers.
b.
legal restrictions being imposed.
c.
the surviving firm operating on the declining part of its average cost curve.
d.
patent protection causing high prices.
DISC: Monopoly
United States – BPRPOG: Analysis
Monopoly Defined
84. Which of the following will occur if a natural monopoly is broken into two smaller firms?
a.
The price will drop.
b.
Industry output will increase.
c.
Production costs will increase.
d.
Industry output will decrease.
DISC: Monopoly
United States – BPRPOG: Analysis
Monopoly Defined
85. To be a natural monopoly, a firm must
a.
control an essential natural resource input.
b.
be very large.
c.
have a continuously falling average cost curve as output rises.
d.
have falling average costs over a substantial range of total market demand.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
86. What is a key criterion involved in deciding a natural monopoly?
a.
Size of the firm relative to its competitors.
b.
Size of the firm relative to the total market demand for a product.
c.
Magnitude of profits generated by the company.
d.
A firm’s ability to adapt to market changes.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
87. A market structure in which only one firm has survived because of its economies of scale is called a
a.
natural monopoly.
b.
planned monopoly.
c.
structural monopoly.
d.
free monopoly.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly Defined
88. In order for a natural monopoly to develop, it
a.
is important that the firm be very large.
b.
is important that the firm prices its product below cost.
c.
is not the absolute size of the firm but its size relative to the total market demand that is important.
d.
must be in the presence of government intervention.
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopoly Defined
89. The marginal revenue curve for a monopolist is
a.
always above the demand curve.
b.
generally below the average cost curve.
c.
always above the average revenue curve.
d.
always below the demand curve.
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
The Monopolist’s Supply Decision
90. An increase in fixed cost will, in the long run, alter the industry output of
a.
both a monopolist and a competitive industry.
b.
only a monopolist.
c.
only a competitive industry.
d.
neither a monopolist nor a competitive industry.
c
Difficult
DISC: Monopoly
United States – BPRPOG: Analysis
Perfect competition
The Monopolist’s Supply Decision
91. Wendy retails motor homes, which she buys for a sum that does not vary with the number she purchases from the
manufacturer. She can sell eleven per week at $40,000. If she limits sales to ten, she can charge $41,000 each. She will
sell eleven per week if the cost of each vehicle is no more than
a.
$20,000.
b.
$30,000.
c.
$40,000.
d.
$41,000.
Difficult
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
Figure 11-1
92. The Red Cross is virtually the only operator of blood banks in the United States. In Figure 11-1 are the demand and
cost curves facing the Red Cross blood bank. If the Red Cross were to set price and quantity at the level that it would
obtain in the long run in a competitive industry, how much blood would it sell?
a.
OA
b.
OB
c.
OD
d.
OC
93. The Red Cross is virtually the only operator of blood banks in the United States. In Figure 11-1 are the demand and
supply curves facing the Red Cross blood bank. If it were to operate like a profit-maximizing business, how many units of
blood would it sell?
a.
OA
b.
OB
c.
OC
d.
OD
The Monopolist’s Supply Decision
94. Is the monopolist supply decision more complicated than that of competitive supply?
a.
Yes, because the monopolist can choose its price, and the perfect competitor cannot.
b.
No, because they are both price takers.
c.
No, because the market determines the quantity for the monopolist.
d.
No, because the market determines the price for both firms.
a
Moderate
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
The Monopolist’s Supply Decision
95. A monopolist is best described as a price
a.
taker.
b.
searcher.
c.
maker.
d.
follower.
c
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
The Monopolist’s Supply Decision
96. A monopolist’s demand curve implies that
a.
the monopolist is a price taker.
b.
the monopolist is a price maker.
c.
it has nothing to do with the amount a monopolist can sell.
d.
it can be downward sloping or horizontal depending on the price.
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
The Monopolist’s Supply Decision
97. The demand curve facing a monopolist is
a.
horizontal at the market price.
b.
identical to the market demand curve for the good.
c.
exactly twice as steep as the market demand curve for the good.
d.
vertical because there are no competitors.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
98. Unlike a perfectly competitive firm, a monopolist
a.
can choose how much output to produce.
b.
cannot increase production without affecting the price she receives for her good.
c.
usually sells in a market with a downward-sloping demand curve.
d.
has an MR from increasing output by one unit equal to the price of his product.
DISC: Monopoly
United States – BPROG: Analytic
99. The marginal revenue curve for a monopolist
a.
is identical to its demand curve.
b.
is always below its demand curve if the demand curve is downward sloping.
c.
is always below its demand curve if the demand curve is horizontal.
d.
typically crosses the average revenue curve.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
Figure 11-2
100. In Figure 11–2, at what quantity would the monopolist maximize profit?
a.
A
b.
B
c.
C
d.
D
a
Difficult
DISC: Monopoly
Monopoly
The Monopolist’s Supply Decision
101. In Figure 11–2, at what quantity would the monopolist maximize profit?
a.
E
b.
F
c.
G
d.
H
Moderate
DISC: Monopoly
United States – BPRPOG: Analysis
Monopoly
The Monopolist’s Supply Decision
102. Since a monopoly faces a downward-sloping demand curve,
a.
then, as Adam Smith wrote, “the price of monopoly is upon every occasion the highest which can be got.”
b.
price always exceeds average revenue.
c.
marginal revenue increases as output increases.
d.
the monopolist is a price maker.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
103. A monopolist in the radio industry has two radio-making plants. The marginal cost of radio production by Plant A is
$4Q (where Q is the number of radios produced) and the marginal cost of radio production by Plant B is always $16. If
the demand curve for radios is downward sloping, the monopolist will
a.
never produce radios at Plant A.
b.
always produce four times as many radios at Plant B as at A.
c.
never produce more than four radios at Plant A.
d.
produce radios at Plant A only as a last resort.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
104. A monopolist can sell 10 wangdoodles if he charges $10 per wangdoodle and 11 wangdoodles if he charges $9. The
MR from selling the 11th wangdoodle is
a.
−$1.
b.
$1.
c.
$9.
d.
$99.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
105. A monopoly firm
a.
has a short-run supply curve that slopes upward.
b.
is a price taker.
c.
does not have a supply curve.
d.
is at the mercy of the market-determined price.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
106. It is true in monopoly pricing that the
a.
sky is not the limit.
b.
market cannot impose a price on a monopolist.
c.
monopolist is a price maker.
d.
All of the above are correct.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
107. Being a monopolist in the market
a.
guarantees a positive short-run profit.
b.
guarantees a positive long-run profit.
c.
does not contradict with the rule that profit is maximized where MR = MC.
d.
All of the above are correct.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
108. The demand curve of the monopoly firm is always the
a.
average revenue curve.
b.
marginal revenue curve.
c.
total revenue curve.
d.
marginal cost curve above average variable cost.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
109. A profit-maximizing monopolist sets
a.
her price where MC = MR.
b.
her output where MC = MR.
c.
Both a and b are correct.
d.
Neither a nor b is correct.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
110. At a given output level, a monopolist earns a profit only if the
a.
slope of its TR curve exceeds the slope of his TC curve.
b.
height of its MR curve exceeds the height of his MC curve.
c.
height of its demand curve exceeds the height of his MR curve.
d.
height of its demand curve exceeds the height of his ATC curve.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
111. A profit-maximizing monopolist
a.
is just as socially efficient as a perfectly competitive firm in allocating resources to production since she, too,
seeks the largest return on his investment.
b.
produces an output level at which marginal utility exceeds marginal cost.
c.
produces more output than a perfectly competitive industry.
d.
always produces in the inelastic region of his demand curve.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
Table 11-1
Quantity (units)
18
16
14
12
10
4
Price per unit (dollars)
1
2
3
4
5
6
Total cost (dollars)
44
38
32
26
20
14
112. Table 11-1 shows demand and total cost schedules for the monopolist Monopoliteria. Monopoliteria’s profit-
maximizing price per unit in dollars is
a.
1.
b.
3.
c.
5.
d.
4.
e.
6.
1
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
113. Table 11-1 shows demand and total cost schedules for Monopoliteria. At its profit-maximizing level of output,
Monopoliteria’s profit is
a.
$10.
b.
$15.
c.
$22.
d.
$30.
d
1
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
114. Table 11-1 shows demand and total cost schedules for Monopoliteria. At the profit-maximizing output, what quantity
is Monopoliteria producing?
a.
10
b.
12
c.
14
d.
16
1
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
115. At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the
market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist
a.
is producing his profit-maximizing level of output.
b.
could increase his profit by increasing his output.
c.
could increase his profit by increasing his price.
d.
should exit the market if he has positive fixed cost.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
116. At his profit-maximizing level of output, a monopolist’s average total cost curve is tangent to his demand curve. The
monopolist
a.
is earning a negative economic profit.
b.
may or may not be earning a negative economic profit.
c.
is earning zero economic profit.
d.
is earning a positive economic profit.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
117. If a monopoly firm reduced the price of its product, which of following must have been true?
a.
MR > MC
b.
MR < MC
c.
MR > AR
d.
MC > AR
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
118. A monopolist will operate where
a.
MR = MC and charge a price equal to marginal revenue.
b.
MR = MC and charge a price equal to marginal cost.
c.
MR = MC and charge a price corresponding to demand at that level.
d.
MC = MR and charge a price corresponding to average cost.
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
119. Which of the following is true for a profit-maximizing competitive firm in the long run but not a monopolist?
a.
MC = MR
b.
MC = P
c.
AR = P
d.
Q > 0
DISC: Perfect competition
United States – BPROG: Reflective Thinking – BPROG: Analysis
Perfect competition
The Monopolist’s Supply Decision
120. A monopolist maximizes profits by producing where which of the following occur?
a.
MC = P
b.
AC = P
c.
MC = MR
d.
AC = AR
DISC: Monopoly
United States – BPROG: Analytic
The Monopolist’s Supply Decision
Figure 11-3
121. Using the graph in Figure 11–3, the profit-maximizing monopolist will charge a price
a.
of more than $3.
b.
of $3.
c.
between $2 and $3.
d.
of $2.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
122. In Figure 11–3, one can tell from the graph that the monopolist will earn a positive profit only if
a.
the price exceeds $3.
b.
the price exceeds $2.
c.
output is less than 60 units.
d.
One cannot tell from the information given.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
123. In Figure 11–3, which of the following is true, whether or not the monopolist is maximizing profits?
a.
MR < P
b.
MC = P
c.
MC < AC
d.
MR = P
a
1
Moderate
Monopoly
Table 11-2
Q
TR
TC
8
95
90
9
102
93
10
110
100
11
112
105
12
115
110
124. In Table 11–2, marginal revenue at the profit-maximizing output is how much?
a.
$5
b.
$7
c.
$8
d.
$110
c
1
Difficult
Monopoly
125. In Table 11–2, average cost at the profit-maximizing output is how much?
a.
$5
b.
$8
c.
$10
d.
$11
c
1
Difficult
Monopoly
126. In Table 11–2, MC of the last unit produced at the profit-maximizing output is
a.
$5.
b.
$7.
c.
$8.
d.
$10.
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision
BLOOMS: Application
127. In Table 11–2, the price at the profit-maximizing output is how much?
a.
$15
b.
$7
c.
$10
d.
$11
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
BLOOMS: Application
128. An increase in fixed cost will, in the short run, alter the industry’s output of
a.
both a monopolist and a competitive industry.
b.
only a monopolist.
c.
only a competitive industry.
d.
neither a monopolist nor a competitive industry.
DISC: Perfect competition
United States – BPRPOG: Analysis
Perfect competition
The Monopolist’s Supply Decision
Figure 11-4
129. Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients
whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add
unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 11–4. Units of
medical service (say, number of patients × number of visits) are measured on the horizontal axis. How many units of
medical service will Dr. Casey deliver?
a.
OA
b.
OB
c.
OC
d.
OD
130. Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients
whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add
unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 11–4. Units of
medical service (say, number of patients x number of visits) are measured on the horizontal axis. How many units of
medical service will Dr. Casey deliver to Medicaid patients?
a.
OA
b.
AC
c.
OC
d.
OD
131. Since the Red Cross supplies 95 percent of the blood in the United States, it can be considered a monopolist. Assume
that it, in fact, operates like a monopolist. The Red Cross currently charges hospitals and other users $21 for a pint of
blood. In order to increase the supply of blood, the government offers the Red Cross a $10 million, lump-sum subsidy.
How much more blood supply will the subsidy generate?
a.
about 500,000 pints
b.
somewhere between 100,000 and 500,000, depending on demand elasticity
c.
somewhere between 100,000 and 500,000, depending on the elasticity of supply
d.
zero
Easy
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monopoly
The Monopolist’s Supply Decision
Figure 11-5
132. Crown Theater is the only movie theater in the city. Its cost and revenue curves are shown in Figure 11–5.
Monopolist Crown Theater would set the price of its tickets at
a.
$7.50.
b.
$6.00.
c.
$4.50.
d.
$3.00.
a
Easy
DISC: Monopoly
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Monopolist’s Supply Decision