1. Monopolists can achieve any level of profit they desire because they have unlimited market power.
a.
True
b.
False
2. Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower
quantities at higher prices.
a.
True
b.
False
3. The three main sources of barriers to entry are monopoly resources, government regulation, and the firm’s production
process.
a.
True
b.
False
4. One characteristic of a monopoly market is that the product is virtually identical to products produced by competing
firms.
a.
True
b.
False
5. The fundamental cause of monopolies is barriers to entry.
a.
True
b.
False
6. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is
evidence that it has a monopoly position to some degree.
a.
True
b.
False
7. The De Beers Diamond company is not worried about differentiating its product from all other gemstones.
a.
True
b.
False
8. The amount of power that a monopoly has depends on whether there are close substitutes for its product.
a.
True
b.
False
9. If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in
jewelry which is found only in Afghanistan, the company benefits from a barrier to entry.
a.
True
b.
False
10. Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.
a.
True
b.
False
11. If the government deems a newly-invented drug to be truly original, the pharmaceutical company is given the
exclusive right to manufacture and sell the drug for 50 years.
a.
True
b.
False
12. A patent gives a single person or firm the exclusive right to sell some good or service forever.
a.
True
b.
False
13. A patent gives a single person or firm the exclusive right to sell some good or service for a specific period of time.
a.
True
b.
False
14. A natural monopoly has economies of scale for most if not all of its range of output.
a.
True
b.
False
15. If a product can be produced by a natural monopoly, society will benefit in the form of lower prices if the monopolist
is broken up into several smaller firms.
a.
True
b.
False
16. Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.
a.
True
b.
False
17. Average revenue for a monopoly is the total revenue divided by the quantity produced.
a.
True
b.
False
18. For a monopoly, marginal revenue is often greater than the price it charges for its good.
a.
True
b.
False
19. When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output
effect.
a.
True
b.
False
20. When a monopolist increases the quantity that it sells, price decreases, which, all else equal, decreases total revenue;
this is called the price effect.
a.
True
b.
False
21. A monopolist maximizes profit by producing an output level where marginal cost equals price.
a.
True
b.
False
22. A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where
marginal cost equals average total cost.
a.
True
b.
False
23. Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.
a.
True
b.
False
24. Like competitive firms, monopolies charge a price equal to marginal cost.
a.
True
b.
False
25. A monopolist produces where P > MC = MR.
a.
True
b.
False
26. A monopolist produces where P = MC = MR.
a.
True
b.
False
27. During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at
which marginal revenue equals marginal cost.
a.
True
b.
False
28. At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all
equal.
a.
True
b.
False
29. A monopolist’s profit is equal to (Price – Marginal Cost) × Quantity.
a.
True
b.
False
30. A monopolist does not have a supply curve because the firm’s decision about how much to supply is impossible to
separate from the demand curve it faces.
a.
True
b.
False
31. A monopolist’s supply curve is vertical.
a.
True
b.
False
32. A monopolist’s supply curve is horizontal.
a.
True
b.
False
33. The socially efficient quantity is found where the demand curve intersects the marginal cost curve.
a.
True
b.
False
34. The profit that a monopolist earns represents a loss to society that is measured through deadweight loss.
a.
True
b.
False
35. Deadweight loss measures the loss in society’s welfare that occurs because a monopolist does not produce the socially
efficient level of output.
a.
True
b.
False
36. Deadweight loss measures the loss in society’s welfare that occurs because a monopolist can earn profits without the
concern of new firms entering its industry.
a.
True
b.
False
37. The deadweight loss for a monopolist equals one-half of its profits for any given level of output.
a.
True
b.
False
38. In a monopoly market, the socially efficient quantity of output is typically higher than the profit-maximizing quantity
of output for the monopolist.
a.
True
b.
False
39. A monopoly creates a deadweight loss to society because it earns both short-run and long-run positive economic
profits.
a.
True
b.
False
40. A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.
a.
True
b.
False
41. Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal
revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.
a.
True
b.
False
42. Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal
revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.
a.
True
b.
False
43. Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal
revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $1,500.
a.
True
b.
False
44. Goods that do not have close substitutes have downward-sloping demand curves.
a.
True
b.
False
45. Price discrimination can increase both the monopolist’s profits and society’s welfare.
a.
True
b.
False
46. In order for a firm to maximize profits through price discrimination, the firm must have some market power and be
able to prevent arbitrage.
a.
True
b.
False
47. Price discrimination is prohibited by antitrust laws.
a.
True
b.
False
48. A monopolist earns higher profits by charging one price than by practicing price discrimination.
a.
True
b.
False
49. By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to
price discriminate and raise its profits.
a.
True
b.
False
50. Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist
from group to group.
a.
True
b.
False
51. Airlines often separate their customers into business travelers and personal travelers by giving a discount to those
travelers who stay over a Saturday night.
a.
True
b.
False
52. University financial aid can be viewed as a type of price discrimination.
a.
True
b.
False
53. By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.
a.
True
b.
False
54. A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society.
a.
True
b.
False
55. Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort
to safeguard society from monopoly power.
a.
True
b.
False
56. Some companies merge in order to lower costs through efficient joint production.
a.
True
b.
False
57. If the government regulates the price a natural monopolist can charge to be equal to the firm’s average total cost, the
firm has no incentive to reduce costs.
a.
True
b.
False
58. If the government regulates the price a natural monopolist can charge to be equal to the firm’s marginal cost, the
government will likely need to subsidize the firm.
a.
True
b.
False
59. The proper level of government intervention is unclear when dealing with a monopoly.
a.
True
b.
False
60. A common solution to monopoly in European countries is public ownership.
a.
True
b.
False
61. The best solution to the problem of welfare loss from monopoly is public ownership.
a.
True
b.
False
62. The government may choose to do nothing to reduce monopoly inefficiency because the “fix” may be worse than the
problem.
a.
True
b.
False
63. Government intervention always reduces monopoly deadweight loss.
a.
True
b.
False
64. Government intervention is always preferable to doing nothing when reducing the social inefficiencies of monopoly.
a.
True
b.
False
65. Firms with substantial monopoly power are quite common because many goods are unique.
a.
True
b.
False
66. Barriers to entry only exist for monopoly markets.
a.
True
b.
False
67. A monopolist is able to choose whatever price that it wishes and is only constrained by its greed.
a.
True
b.
False
68. The supply curve for a monopolist, in the short run, is defined in the same way as that for a competitive firm: it is the
portion of the marginal cost curve above average variable cost.
a.
True
b.
False
69. Monopolists can practice price discrimination in all monopoly markets.
a.
True
b.
False
70. As long as as a monopolist is able to control the resale of its product, then it can successfully practice price
discrimination.
a.
True
b.
False
71. A key for a monopoly that wants to practice price discrimination is to be able to control the resale of its product.
a.
True
b.
False
72. Since monopolists that practice price discrimination generally increase market output, compared to a monopoly that
charges a single price, practicing price discrimination generally leads to a smaller deadweight loss.
a.
True
b.
False
73. It is difficult in a natural monopoly market for the firm to achieve both efficiency and zero economic profit
simultaneously, even with regulation.
a.
True
b.
False
74. A natural monopoly will always operate in the region of the long run average total cost curve where the cost per unit is
constant.
a.
True
b.
False
75. The best option to control the behavior of a natural monopoly is to use public ownership of the monopoly.
a.
True
b.
False