1. A competitive firm
a.
and a monopolist are price takers.
b.
and a monopolist are price makers.
c.
is a price taker, whereas a monopolist is a price maker.
d.
is a price maker, whereas a monopolist is a price taker.
2. A perfectly competitive firm produces where
a.
marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b.
marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c.
price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d.
marginal cost exceeds price, while a monopolist produces where marginal cost equals price.
3. A monopoly
a.
can set the price it charges for its output and earn unlimited profits.
b.
takes the market price as given and earns small but positive profits.
c.
can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn
unlimited profits.
d.
can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.
4. A monopoly can earn positive profits because it
a.
can sell unlimited quantities at any price it chooses.
b.
takes the market price as given and can sell unlimited quantities.
c.
can set the price it charges for its output but faces a horizontal demand curve.
d.
can maintain a price such that total revenues will exceed total costs.
5. A perfectly competitive market
a.
may not be in the best interests of society, whereas a monopoly market promotes general economic well-being
b.
promotes general economic well-being, whereas a monopoly market may not be in the best interests of society.
c.
and a monopoly market are equally likely to promote general economic well-being.
d.
is less likely to promote general economic well-being than a monopoly market.
6. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
a.
not in the best interest of society.
b.
one that fails to maximize total economic well-being.
c.
inefficient.
d.
All of the above are correct.
7. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly
a.
is often not in the best interest of society.
b.
maximizes total economic well-being.
c.
is efficient.
d.
benefits consumers more so than the producer.
8. Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly
a.
does not illustrate profit maximization.
b.
is often not in the best interest of society.
c.
is characterized by unlimited profits.
d.
would be improved if the government produced the product rather than a private firm.
9. Microsoft faces very little competition from other firms for its Windows software. Why isn’t the price of the software
$1,000 per copy?
a.
because the government would not allow such a high price
b.
because stockholders would not allow such a high price
c.
because the company would sell so few copies that they would earn higher profits by selling at a lower price
d.
All of the above are correct.
10. Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market.
Why isn’t the price of wholesale diamonds $10,000 per carat?
a.
because the government would not allow such a high price
b.
because stockholders would not allow such a high price
c.
because the company would sell so few diamonds that it would earn higher profits by selling at a lower price
d.
All of the above are correct.