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1. Monopolies are inefficient because they
(i)
eliminate barriers to entry.
(ii)
price their product at a level where marginal revenue exceeds marginal cost.
(iii)
restrict output below the socially efficient level of production.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(iii) only
d.
(i), (ii), and (iii)
2. A monopolist produces
a.
more than the socially efficient quantity of output but at a higher price than in a competitive market.
b.
less than the socially efficient quantity of output but at a higher price than in a competitive market.
c.
the socially efficient quantity of output but at a higher price than in a competitive market.
d.
possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than
in a competitive market.
3. "Monopolists do not worry about efficient production and minimizing costs since they can just pass along any increase
in costs to their consumers." This statement is
a.
false; price increases will mean fewer sales, which may lower profits.
b.
true; this is the primary reason why economists believe that monopolies result in economic inefficiency.
c.
false; the monopolist is a price taker.
d.
true; consumers in a monopoly market have no substitutes to turn to when the monopolist raises prices.
4. Deadweight loss
a.
measures monopoly inefficiency.
b.
exceeds monopoly profits.
c.
equals monopoly profits.
d.
equals monopoly revenues minus profits.
5. A monopoly is an inefficient way to produce a product because
a.
it can earn both short-run and long-run profits.
b.
it faces a downward-sloping demand curve.
c.
the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers.
d.
it produces a smaller level of output than would be produced in a competitive market.
6. The deadweight loss associated with a monopoly occurs because the monopolist
a.
maximizes profits.
b.
produces an output level less than the socially optimal level.
c.
produces an output level greater than the socially optimal level.
d.
equates marginal revenue with marginal cost.
7. The economic inefficiency of a monopolist can be measured by the
a.
number of consumers who are unable to purchase the product because of its high price.
b.
excess profit generated by monopoly firms.
c.
poor quality of service offered by monopoly firms.
d.
deadweight loss.
8. The economic inefficiency of a monopolist can be measured by the
a.
deadweight loss.
b.
value of the unrealized trades that could be made if the monopolist produced the socially-efficient output.
c.
area above marginal cost but beneath demand from the monopoly output to the socially-efficient output.
d.
All of the above are correct.
9. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial
trades are
a.
of little concern to society.
b.
a deadweight loss to society.
c.
a sunk cost to society.
d.
also observed in competitive markets.
10. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial
trades are
a.
not a concern if a market is perfectly competitive.
b.
a deadweight loss to society.
c.
a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market.
d.
All of the above are correct.
11. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial
trades are
a.
less of a concern for a monopoly than competitive market.
b.
offset by the higher profits earned by a monopolist.
c.
a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market.
d.
All of the above are correct.
12. The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
a.
quantity is lower than the socially-optimal quantity.
b.
price equals marginal revenue.
c.
price is the same as average revenue.
d.
earns positive profits.
13. Which of the following statements is correct?
a.
The benefits that accrue to a monopoly’s owners are equal to the costs that are incurred by consumers of that
firm's product.
b.
The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm
produces a quantity of output that exceeds the socially-efficient quantity.
c.
The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product.
d.
The primary social problem caused by monopoly is monopoly profit.
14. The social cost of a monopoly is equal to its
a.
economic profit.
b.
fixed cost.
c.
deadweight loss.
d.
variable cost.
15. Which of the following statements is not correct?
a.
Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit.
b.
Marginal cost is always less than average total cost in a natural monopoly.
c.
Discount coupons available free to the public are a type of price discrimination.
d.
Anti-trust laws make it harder for firms to create synergies.
16. Monopolies are socially inefficient because the price they charge is
a.
equal to marginal revenue.
b.
above marginal cost.
c.
equal to demand.
d.
above demand.
17. Which of the following statements is correct? Monopolies are socially inefficient because they
(i)
charge a price above marginal cost.
(ii)
produce too little output.
(iii)
earn profits at the expense of consumers.
(iv)
maximize the market’s total surplus.
a.
(iii) only
b.
(iii) and (iv) only
c.
(i) and (ii) only
d.
(i), (ii), (iii), and (iv)
18. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing quantity is 40
units, the profit-maximizing price is $160, and the marginal cost of the 40th unit is $120. If the good were produced in a
perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $150. The
demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist?
a.
$40
b.
$100
c.
$200
d.
$400
19. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged
for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10
units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost
curves are linear. What is the value of the deadweight loss created by the monopolist?
a.
$4
b.
$6
c.
$12
d.
$16
20. When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the
monopolist represent
a.
a transfer of benefits from the consumer to the producer.
b.
a loss in total welfare.
c.
the higher marginal costs incurred by the monopolists in comparison to competitive firms.
d.
the higher marginal revenues gained by the monopolists in comparison to competitive firms.
21. When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the
monopolist represent
a.
a loss in total welfare.
b.
a transfer of benefits from the buyer to the seller.
c.
the higher marginal costs incurred by the monopolists in comparison to competitive firms.
d.
All of the above are correct.
22. Monopoly profit is not a social problem because
a.
the size of the economic pie grows when monopoly profits increase.
b.
producers are more efficient than consumers.
c.
the profit represents a transfer from the consumer to the producer with no loss in total surplus.
d.
None of the above are correct.
23. A monopoly market
a.
always maximizes total economic well-being.
b.
always minimizes consumer surplus.
c.
generally fails to maximize total economic well-being.
d.
generally fails to maximize producer surplus.
24. Suppose a monopolist chooses the price and production level that maximizes its profit. From that point, to increase
society’s economic welfare, output would need to be increased as long as
a.
average revenue exceeds marginal cost.
b.
average revenue exceeds average total cost.
c.
marginal revenue exceeds marginal cost.
d.
marginal revenue exceeds average total cost.
25. The socially efficient level of production occurs where the marginal cost curve intersects
a.
average variable cost.
b.
average total cost.
c.
demand.
d.
marginal revenue.
26. Many economists criticize monopolists because they
a.
charge a price that equals marginal cost rather than a price that equals average cost.
b.
do not innovate.
c.
produce a large quantity of waste.
d.
produce less than the socially efficient level of output.
27. Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent
with the
(i)
socially-optimal level of output.
(ii)
market solution for profit-maximizing competitive firms.
(iii)
market solution for a profit-maximizing monopoly.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
28. When the government creates a monopoly, the social loss may include
a.
declining marginal costs.
b.
the cost of lawyers and lobbyists hired to convince lawmakers to continue the monopoly.
c.
excessive monopoly profits.
d.
diminishing marginal revenue.
29. If a social planner were running a monopoly, that planner could achieve an efficient outcome by charging the price
that is determined by the
a.
minimum point on the average total cost curve.
b.
intersection of the average total cost curve and the demand curve.
c.
intersection of the marginal cost curve and the demand curve.
d.
intersection of the marginal cost curve and the marginal revenue curve.
30. For a monopoly, the socially efficient level of output occurs where
a.
marginal revenue equals marginal cost.
b.
average revenue equals marginal cost.
c.
marginal revenue equals average total cost.
d.
average revenue equals average total cost.
31. The difference in total surplus between the socially efficient level of production and the monopolist's level of
production is
a.
offset by regulatory revenues.
b.
called a deadweight loss.
c.
equal to the monopolist’s profit.
d.
Both b and c are correct.
32. Economic welfare is generally measured by
(i)
profit.
(ii)
total surplus.
(iii)
the price consumers pay for the product.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(ii) only
d.
(i), (ii), and (iii)
33. For a monopoly market, total surplus can be defined as the value of the good to
a.
producers minus the cost incurred by consumers.
b.
producers plus the cost incurred by consumers.
c.
consumers minus the costs of producing the good.
d.
consumers plus the cost of producing the good.
34. To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where
a.
MR = MC.
b.
MR intersects the demand curve.
c.
MC intersects the demand curve.
d.
MR exceeds MC by the greatest amount.
35. Consumers' willingness to pay for a good minus the amount they actually pay for it equals
a.
consumer surplus.
b.
consumer benefit.
c.
price discriminant.
d.
deadweight loss.
36. The amount that producers receive for a good minus their costs of producing it equals
a.
quantity supplied.
b.
supply price.
c.
deadweight loss.
d.
producer surplus.
37. A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of the
a.
marginal cost and demand curves.
b.
average total cost and demand curves.
c.
marginal revenue and average total cost curves.
Figure 15-8
38. Refer to Figure 15-8. What is the socially efficient price and quantity?
a.
price = A; quantity = X
b.
price = B; quantity = Y
c.
price = B; quantity = X
d.
price = C; quantity = X
39. Refer to Figure 15-8. What is the monopoly price and quantity?
a.
price = A; quantity = X
b.
price = B; quantity = Y
c.
price = B; quantity = X
d.
price = C; quantity = X
40. Refer to Figure 15-8. What is the area of deadweight loss?
a.
the rectangle (A-C)*X
b.
the triangle 1/2[(A-C)*(Y-X)]
c.
the triangle 1/2[(A-B)*(Y-X)]
d.
the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)]
41. Refer to Figure 15-8. What area represents the total surplus lost due to monopoly pricing?
a.
the rectangle (A-C)*X
b.
the triangle 1/2[(A-C)*(Y-X)]
c.
the triangle 1/2[(A-B)*(Y-X)]
d.
the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)]
Figure 15-9
42. Refer to Figure 15-9. To maximize total surplus, a benevolent social planner would choose which of the following
outcomes?
a.
100 units of output and a price of $20 per unit
b.
150 units of output and a price of $20 per unit
c.
150 units of output and a price of $30 per unit
d.
200 units of output and a price of $20 per unit
43. Refer to Figure 15-9. To maximize its profit, a monopolist would choose which of the following outcomes?
a.
100 units of output and a price of $20 per unit
b.
100 units of output and a price of $40 per unit
c.
150 units of output and a price of $30 per unit
d.
200 units of output and a price of $40 per unit
44. Refer to Figure 15-9. The monopolist's maximum profit
a.
is $1,600.
b.
is $2,000.
c.
is $2,500.
d.
cannot be determined from the diagram.
45. Refer to Figure 15-9. The deadweight loss caused by a profit-maximizing monopoly amounts to
a.
$250.
b.
$500.
c.
$750.
d.
$1,000.
Figure 15-10
46. Refer to Figure 15-10. What area measures the deadweight loss?
a.
(B-F)*K
b.
0.5[(P-O)*(L-O)]
c.
0.5[(A-H)*(L-J)]
d.
0.5[(B-F)*(L-K)]
Figure 15-11
47. Refer to Figure 15-11. Which area represents the deadweight loss from monopoly?
a.
J
b.
H
c.
A+B+C+D+F+I+J+H
d.
J+H
Figure 15-12
48. Refer to Figure 15-12. Which area represents the deadweight loss from monopoly?
a.
A+B
b.
C+F
c.
G
d.
A+B+C+F
Figure 15-13
49. Refer to Figure 15-13. A profit-maximizing monopolist would create a deadweight loss to society valued at
a.
$12.
b.
$24.
c.
$42.
d.
$84.
Figure 15-14
50. Refer to Figure 15-14. A benevolent social planner would have the monopoly operate at an output level
a.
less than Q0.
b.
greater than Q0.
c.
equal to Q0.
d.
equal to zero.
51. Refer to Figure 15-14. If the monopoly operates at an output level less than Q0, then an increase in output toward
(but not exceeding) Q0 would
a.
raise the price and raise total surplus.
b.
lower the price and raise total surplus.
c.
raise the price and lower total surplus.
d.
lower the price and lower total surplus.
Figure 15-15
52. Refer to Figure 15-15. To maximize total surplus, a benevolent social planner would choose which of the following
outcomes?
a.
Q = 30 and P = 30
b.
Q = 30 and P = 60
c.
Q = 45 and P = 45
d.
Q = 60 and P = 30
53. Refer to Figure 15-15. To maximize its profit, a monopolist would choose which of the following outcomes?
a.
Q = 30 and P = 30
b.
Q = 30 and P = 60
c.
Q = 45 and P = 45
d.
Q = 60 and P = 30
Figure 15-16
54. Refer to Figure 15-16. Which triangle represents the monopoly deadweight loss?
a.
the triangle with vertical lines that is bordered by ACT
b.
the triangle with vertical lines and light grey shading that is bordered by ABH
c.
the triangle with vertical lines and dark grey shading that is bordered by HIT
d.
the triangle with dark grey shading that is bordered by HKT
Scenario 15-4
Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist’s marginal revenue curve
can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10.
55. Refer to Scenario 15-4. The profit-maximizing monopolist will produce an output level of
a.
80 units.
b.
40 units.
c.
20 units.
d.
10 units.
56. Refer to Scenario 15-4. The profit-maximizing monopolist will charge a price of
a.
$50.
b.
$40.
c.
$20.
d.
$10.
57. Refer to Scenario 15-4. The profit-maximizing monopolist will earn profits of
a.
$6,400.
b.
$3,200.
c.
$1,600.
d.
$800.
58. Refer to Scenario 15-4. The profit-maximizing monopolist will have a deadweight loss of
a.
$6,400.
b.
$3,200.
c.
$1,600.
d.
$800.
59. When a monopolist chooses the output that maximizes profits, we know that MR = MC and also that P > MR. This is
inefficient because
a.
the monopolist is not minimizing costs.
b.
the monopolist is the only producer in the market.
c.
the monopolist fails to make transactions where the marginal benefit is greater than the marginal cost.
d.
there are entry barriers.
60. If a monopoly market were to be transformed into a competitive market, the result would be that
a.
market output would increase.
b.
the market would be efficient, once the market reached the competitive output.
c.
the deadweight loss from the monopoly would be eliminated.
d.
All of the above would be true.
