1. All monopolies exist because of:
a.
firms’ desire to maximize profits.
b.
failure of antitrust laws.
c.
barriers to entry.
d.
natural selection.
2. Which of the following is not a technical barrier to entry in a monopolized market?
a.
b.
c.
d.
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3. A natural monopoly:
a.
is a monopoly in the production of raw materials.
b.
occurs when one firm can supply the entire market more cheaply than can a number of firms.
c.
is one result of a patent.
d.
necessarily involves inefficient pricing.
b
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4. A profit maximizing monopoly will produce that output for which:
a.
marginal revenue equals price.
b.
average cost is minimized.
c.
marginal cost is minimized.
d.
marginal cost equals marginal revenue.
d
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5. The supply curve for a monopoly is given by:
a.
the firm’s marginal cost curve above the average variable cost curve.
b.
the one point on the demand curve that corresponds to the quantity for which price is equal to MC.
c.
the one point on the demand curve that corresponds to the quantity for which MR equals MC.
d.
the entire demand curve above the point where price is equal to average cost.
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6. A monopoly’s economic profits are represented by:
a.
(price minus marginal cost) times number of units sold.
b.
(price minus average cost) times number of units sold.
c.
(marginal revenue minus price) times number of units sold.
d.
(marginal cost minus price) times number of units sold.
b
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7. The principal difference between economic profits for a monopolist and for a competitive firm is that:
a.
monopoly profits create major problems of equity whereas competitive profits do not.
b.
competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
c.
monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
d.
monopoly profits are usually larger than competitive profits.
b
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8. If a monopoly is maximizing profits:
a.
price will always be greater than average cost.
b.
price will always equal marginal cost.
c.
price will always be greater than marginal cost.
d.
price will always equal marginal revenue.
c
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9. The “deadweight loss” from a monopoly refers to:
a.
the portion of a monopolist’s profits that are above the competitive profit level.
b.
the increase in price due to the monopolization of a market.
c.
the inefficient use of factors of production by a monopoly.
d.
the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic
actor.
d
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10. For the practice of price discrimination to be successful, the monopoly must:
a.
be able to prevent resale of its product.
b.
face similar demand curves for various markets.
c.
have similar costs among markets.
d.
have a downward sloping marginal cost curve.
a
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11. A price discriminating monopolist having identical costs in two separated markets should charge a higher price in that
market:
a.
which has a higher demand.
b.
which has a more elastic demand.
c.
which has a less elastic demand.
d.
which has a higher marginal revenue.
c
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12. Perfect (first degree) price discrimination:
a.
is a common occurrence in situations with many buyers.
b.
occurs fairly often in situations with only a few buyers.
c.
is only observed in competitive markets.
d.
rarely occurs because firms do not have sufficient information to differentiate among specific buyers.
d
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13. All of the following might explain a firm offering quantity discounts except:
a.
the lower costs of handling large orders.
b.
an inelastic demand for the good.
c.
a monopoly power in this market.
d.
the adoption of a sales maximization strategy.
b
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14. Relative to uniform-price policy, price discrimination across segmented markets (sometimes called third-
degree price discrimination):
a.
always reduces welfare.
b.
always increases welfare.
c.
may increase welfare if total output falls.
d.
may increase welfare if total output rises.
d
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15. A monopoly producer of a durable good:
a.
can earn even greater profits than a producer of a non-durable.
b.
must consider competition from its own output decisions.
c.
will have higher marginal costs than most other monopolies.
d.
will not set marginal revenue equal to marginal cost.
b
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16. If the government requires a natural monopoly to price at marginal cost:
a.
monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that
good.
b.
monopoly firms will operate at a loss because P < AC.
c.
more firms will be able to enter the market.
d.
producer surplus will increase because quantity supplied is greater.
b
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Questions 17–19 refer to a monopoly that faces a demand curve given by and has a constant marginal cost as
0.2.
17. In this situation the monopoly’s profit maximizing output level is:
a.
0.2.
b.
0.4.
c.
0.5.
d.
0.7.
b
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18. In this situation, the monopoly’s profits are:
a.
0.40.
b.
0.16.
c.
0.12.
d.
0.08.
b
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19. In this situation, the deadweight loss from monopoly is:
a.
0.40.
b.
0.16.
c.
0.12.
d.
0.08.
d
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20. One possible benefit of a monopoly is:
a.
a more efficient allocation of resources; only one firm is needed to supply quantity demanded.
b.
greater incentives for research due to long-run positive economic profits.
c.
the government is better able to ensure that it follows laws and guidelines because there is only one firm to
monitor.
d.
goods and services are provided at a lower price than under perfect competition because of a monopoly’s
decreasing average cost curve.
b
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21. How does monopoly product quality compare to the quality a social planner would choose?
a.
The monopolist targets the marginal consumer’s valuation of quality, whereas the social planner
targets the average consumer’s. This leads the monopolist to make inefficiently low-quality products.
b.
The monopolist targets the marginal consumer’s valuation of quality, whereas the social planner
targets the average consumer’s. This leads the monopolist to make inefficiently high-quality
products.
c.
There is no difference due to a standard neutrality argument.
d.
None of the above.
d
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22. A monopolist has marginal revenue and marginal cost , where is some factor shifting
marginal costs up. Applying comparative-static analysis to the profit-maximization condition
what can be learned about the effect of on monopoly output, or in mathematical terms,
what can be learned about the derivative ?
I.
II.
III. , if the monopolist’s profit function is concave.
IV. , if the monopolist’s profit function is concave.
a.
I and III
b.
II and III
c.
I and IV
d.
II and IV