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Test Canvas : TestBanks Chapter 13: Monopoly

Microeconom ics, 3e

Test Canvas: TestBanks Chapter 13: Monopoly

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1. True/False: Of the four market structures, the on...

Question Of the four market structures, the only one that is characterized by product

differentiation is oligopoly.

2. True/False: A producer is a monopoly if it is the…

Question A producer is a monopoly if it is the sole supplier of a good that has no close

substitutes.

3. True/False: A monopoly increases price by limitin...

Question A monopoly increases price by limiting the quantity supplied to a market.

4. True/False: To maintain profits in the long run, ...

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To maintain profits in the long run, a monopoly must be protected by barriers to the

entry of other firms into the industry.

5. True/False: A monopoly may continue to make econo...

Question A monopoly may continue to make economic profits in the long run due to barriers

to entry.

6. True/False: The government can reduce the ineffic…

Question The government can reduce the inefficiency associated with a monopoly through a

system of patents and copyrights.

7. True/False: A natural monopoly has small fixed co...

Question A natural monopoly has small fixed costs, which allows it to produce at lower cost

than potential competitors.

8. True/False: Suppose a monopolist reduces its pric…

Question Suppose a monopolist reduces its price in an effort to expand output. If the price

effect equals the quantity effect, then the marginal revenue will be zero.

9. True/False: The marginal revenue curve for a mono…

Question The marginal revenue curve for a monopolist is always less than the price because

of the price effect.

10. True/False: If a firm has market power, the margi…

Question If a firm has market power, the marginal revenue curve always lies below the

demand curve.

Points: 0

11. True/False: A monopoly can choose the price or it…

Question A monopoly can choose the price or it can choose the quantity, but it cannot

choose price and quantity independent of each other.

12. True/False: A monopoly‘s short-run supply curve i...

Question A monopoly‘s short-run supply curve is upward sloping because of diminishing

marginal returns.

13. True/False: A monopoly‘s short-run supply curve i...

Question A monopoly‘s short-run supply curve is its marginal cost curve above the minimum

average variable cost.

14. True/False: A monopoly‘s short-run marginal cost ...

Question A monopoly‘s short-run marginal cost is constant at $10. This implies that its

average variable cost is also constant and equal to $10.

15. True/False: A profit-maximizing monopoly will nev…

Question A profit-maximizing monopoly will never set price in the inelastic region of the

demand curve.

16. True/False: Monopoly is inefficient because some …

Question Monopoly is inefficient because some consumer surplus is transferred to producer

surplus.

17. True/False: When regulating a natural monopoly, t...

Question When regulating a natural monopoly, the government always sets a price ceiling

where marginal cost intersects the demand curve.

Points: 0

18. True/False: Consumer surplus is higher under a si...

Question Consumer surplus is higher under a single-price monopoly than under a perfectly

price-discriminating monopoly.

19. True/False: If the local phone company, a monopol…

Question If the local phone company, a monopolist, were to perfectly price-discriminate, it

would reduce total surplus.

20. True/False: If a monopoly can engage in perfect p...

Question If a monopoly can engage in perfect price discrimination, then its marginal revenue

is equal to price, in contrast to the usual situation for a monopoly, in which price is

higher than marginal revenue.

21. Multiple Choice: Market structures are categorized by ...

Question Market structures are categorized by the following two criteria:

Answer the number of firms and the size of the firms

22. Multiple Choice: Which of the following statements abo...

Question Which of the following statements about the differences between monopoly and

perfect competition is incorrect?

Answer A monopolist has market power, while a perfect competitor does not.

Points: 0

23. Multiple Choice: Which of the following statements con...

Question Which of the following statements concerning monopoly is true?

Answer Monopoly firms are automatically larger than perfectly competitive firms.

24. Multiple Choice: Firms in which of the following marke…

Question Firms in which of the following market structures have the most market power?

25. Multiple Choice: An industry with a single producer th...

Question An industry with a single producer that sells a single product with no substitutes is

a:

Answer perfect competition.

26. Multiple Choice: An industry with a firm that is the o...

Points: 0

Question An industry with a firm that is the only producer of a good or service for which there

are no close substitutes and for which entry by potential rivals is prohibitively

difficult is:

Answer a duopoly.

27. Multiple Choice: A monopoly is a market characterized by:

Question A monopoly is a market characterized by:

28. Multiple Choice: Which of the following statements bes...

Question Which of the following statements best characterizes a monopoly? A monopoly:

29. Multiple Choice: Diamond rings are relatively scarce b...

Question Diamond rings are relatively scarce because:

Answer according to geologists, diamonds are less common than any other gem–

quality colored stone.

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30. Multiple Choice: De Beers became a monopoly by:

Question De Beers became a monopoly by:

31. Multiple Choice: A monopolist is likely to ________ an…

Question A monopolist is likely to ________ and ________ than a comparable perfectly

competitive firm.

32. Multiple Choice: In contrast with perfect competition,...

Question In contrast with perfect competition, a monopolist:

33. Multiple Choice: Because of monopoly, consumers experi...

Question Because of monopoly, consumers experience ________ than with perfect

competition.

Answer more choices

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34. Multiple Choice: The ability of a monopolist to raise ...

Question The ability of a monopolist to raise the price of a product above the competitive

level by reducing the output is known as:

Answer product differentiation.

35. Multiple Choice: Compared to a perfectly competitive m…

Question Compared to a perfectly competitive market, a monopolist will produce ________

and charge a ________ price.

36. Multiple Choice: Most electric, gas, and water compani…

Question Most electric, gas, and water companies are examples of:

Answer unregulated monopolies.

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37. Multiple Choice: Suppose that you build a high-speed, ...

Question Suppose that you build a high-speed, magnetically powered transportation system

from New York to Los Angeles. High fixed costs resulting from the enormous

quantity of capital used in this system enable decreasing average cost for any

conceivable level of demand. Your monopoly would result from:

Answer control of a scarce resource or input.

38. Multiple Choice: If your farm had the only known sourc...

Question If your farm had the only known source of a rare cocoa bean needed to make

chocolate-covered peanuts, your monopoly would result from:

39. Multiple Choice: If your local government gave you the...

Question If your local government gave you the exclusive right to sell breakfast bagels in your

community, your monopoly would result from:

Answer control of a scarce resource or input.

40. Multiple Choice: The De Beers company is described as ...

Question The De Beers company is described as a monopolist in the production of:

Points: 0

41. Multiple Choice: You own a lemonade stand in a competi...

Question You own a lemonade stand in a competitive lemonade market, and as such, you

are a price-taking firm. Which of the following events would most likely increase

your market power?

Answer The government abolishes the system of patents and copyrights.

42. Multiple Choice: Conditions that prevent the entry of ...

Question Conditions that prevent the entry of new firms in a monopoly market are:

43. Multiple Choice: A natural monopoly exists whenever a …

Question A natural monopoly exists whenever a single firm:

Answer is owned and operated by the federal or local government.

Points: 0

44. Multiple Choice: Natural monopolies include all of the…

Question Natural monopolies include all of the following except:

45. Multiple Choice: Suppose that you build a new jumbo je…

Question Suppose that you build a new jumbo jet that can carry five times more passengers

than any other competitor. You have high fixed costs due to the quantity of capital

used to build the jets. There’s decreasing average cost for all levels of demand. In

this case, your monopoly would result from which of the following?

Answer sunk costs

46. Multiple Choice: A firm that has economies of scale:

Question A firm that has economies of scale:

47. Multiple Choice: The land you own has the only known s...

Question The land you own has the only known source of aloe needed to make anti–itch

lotion. In this case, your monopoly results from which of the following?

Points: 0

48. Multiple Choice: If the state government gave you the …

Question If the state government gave you the exclusive right to sell cement to

municipalities, your monopoly would result from:

49. Multiple Choice: A monopoly can be temporary because of:

Question A monopoly can be temporary because of:

Answer high barriers to entry.

50. Multiple Choice: Situations in which the more users of…

Question Situations in which the more users of a product there are, the more useful the

product becomes are:

51. Multiple Choice: Which of the following is a barrier t...

Points: 0

Question Which of the following is a barrier to entry?

Answer control of scarce resources

52. Multiple Choice: Critics of the National Collegiate At…

Question Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA

monopolizes college athletics and prevents student–athletes from earning money

while in college. If this is true, what type of entry barrier does the NCAA have?

Answer a patent

53. Multiple Choice: Lenoia runs a natural monopoly produc...

Question Lenoia runs a natural monopoly producing electricity for a small mountain village.

The barrier preventing other firms from competing with her is:

Answer her control of scarce natural resources.

54. Multiple Choice: Which of the following is not a barri...

Question Which of the following is not a barrier to entry?

Answer control of an input essential for production

Points: 0

55. Multiple Choice: Microsoft and its operating system ar...

Question Microsoft and its operating system are often cited as an example of a company

that grew into a monopolist through:

Answer ownership of a resource.

56. Multiple Choice: Network externalities exist when a go...

Question Network externalities exist when a good’s value to the consumer rises as:

57. Multiple Choice: A monopoly is an industry structure c…

Question A monopoly is an industry structure characterized by:

Answer a single buyer and several sellers.

58. Multiple Choice: The large barriers to entry are a rea...

Question The large barriers to entry are a reason a monopoly:

Points: 0

59. Multiple Choice: The demand curve facing a monopolist is:

Question The demand curve facing a monopolist is:

Answer horizontal, the same as that facing a perfectly competitive firm.

60. Multiple Choice: Which of the following is true?

Question Which of the following is true?

Answer A monopoly firm is a price-taker.

61. Multiple Choice: The demand curve for a monopoly is:

Question The demand curve for a monopoly is:

Answer the sum of the supply curves of all of the firms in the monopoly‘s industry.

62. Multiple Choice: A firm that faces a downward-sloping ...

Points: 0

Question A firm that faces a downward-sloping demand curve is a:

63. Multiple Choice: Because monopoly firms are price-sett…

Question Because monopoly firms are price-setters:

64. Multiple Choice: Wendy has a monopoly in the retailing…

Question Wendy has a monopoly in the retailing of motor homes. She can sell five per week

at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The

quantity effect of selling the sixth motor home is:

$21,000.

65. Multiple Choice: Wendy has a monopoly in the retailing…

Question Wendy has a monopoly in the retailing of motor homes. She can sell five per week

at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The

price effect of selling the sixth motor home is:

Answer $20,000.

Points: 0

66. Multiple Choice: After the first unit sold, the margin…

Question After the first unit sold, the marginal revenue a monopolist receives from selling one

more unit of a good is less than the price at which that unit is sold because of:

Answer diminishing marginal returns.

67. Multiple Choice: Mr. Porter sells 10 bottles of champa…

Question Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He

can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity

and the price effects on total revenue would be, respectively:

Answer an increase of $450 and a decrease of $500.

68. Multiple Choice: One of the major differences between ...

Question One of the major differences between a monopolist and a purely competitive firm is

that the monopolist has a ________ demand curve, while the purely competitive

firm has a ________ demand curve.

perfectly elastic; downward-sloping

Points: 0

69. Multiple Choice: The demand curve for a monopoly is:

Question The demand curve for a monopoly is:

Answer the MR curve above the AVC curve.

70. Multiple Choice: Suppose that a monopoly computer chip…

Question Suppose that a monopoly computer chip maker increases production from 10

microchips to 11 microchips. If the market price declines from $30 per unit to $29

per unit, marginal revenue for the eleventh unit is:

Answer $1.

71. Multiple Choice: Marginal revenue for a monopolist is:

Question Marginal revenue for a monopolist is:

Answer equal to price.

72. Multiple Choice: A downward-sloping demand curve will ...

Question A downward-sloping demand curve will ensure that:

Answer P = MR.

Points: 0

73. Multiple Choice: Which of the following is true?

Question Which of the following is true?

Answer Instead of applying the marginal decision rule, monopoly firms just set the

price as high as possible.

74. Multiple Choice: The demand curve for a monopoly is:

Question The demand curve for a monopoly is:

infinitely elastic.

75. Multiple Choice: The demand curve facing a monopolist is:

Question The demand curve facing a monopolist is:

upward sloping.

76. Multiple Choice: The demand curve facing a monopolist …

Question The demand curve facing a monopolist is always:

Points: 0

77. Multiple Choice: The demand curve facing a monopolist is:

Question The demand curve facing a monopolist is:

Answer vertical, the same as that facing a perfectly competitive firm.

78. Multiple Choice: The demand curve for a monopoly is:

Question The demand curve for a monopoly is:

Answer the MC curve above the AVC curve.

79. Multiple Choice: Marginal revenue for a monopolist is:

Question Marginal revenue for a monopolist is:

Answer equal to price.

80. Multiple Choice: A downward-sloping demand curve will ...

Question A downward-sloping demand curve will ensure that:

Points: 0