1. Which of the following statements is (are) true of a monopoly?
(i)
A monopoly has the ability to set the price of its product at whatever level it desires.
(ii)
A monopoly’s total revenue will always increase when it increases the price of its
product.
(iii)
The more a monopoly increases output, the higher the profits.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(ii) and (iii) only
2. Amanda inherited the only local cable TV/Internet company in town after her father passed away. The company has a
local monopoly on the delivery of high-speed Internet service. The company is completely unregulated by the government
and is therefore free to operate as it wishes. Assume that Amanda understands the true power of her new monopoly.
Which of the following statements is (are) correct?
(i)
She will be able to set the price of high-speed Internet service at whatever level she
wishes.
(ii)
The customers will be forced to purchase high-speed Internet service at whatever price
she wants to set.
(iii)
She will be able to achieve any profit level that she desires.
a.
(i) only
b.
(ii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
3. The market demand curve for a monopolist is typically
a.
unit price elastic.
b.
downward sloping.
c.
horizontal.
d.
vertical.
4. A monopolist faces a
a.
horizontal demand curve.
b.
vertical demand curve.
c.
downward-sloping demand curve.
d.
U-shaped demand curve.
5. When a firm operates under conditions of monopoly, its price is
a.
not constrained.
b.
constrained by marginal cost.
c.
constrained by demand.
d.
constrained only by its social agenda.
6. In order to sell more of its product, a monopolist must
a.
sell to the government.
b.
sell in international markets.
c.
lower its price.
d.
use its market power to force up the price of complementary products.
7. In order to sell more of its product, a monopolist must
a.
lobby the government for a subsidy.
b.
lower its price.
c.
advertise.
d.
enact barriers to entry in related markets.
8. Economists assume that monopolists behave as
a.
cost minimizers.
b.
profit maximizers.
c.
price maximizers.
d.
maximizers of social welfare.
9. Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good
(i)
without affecting the quantity sold.
(ii)
without affecting its average total cost.
(iii)
by adjusting the quantity it supplies to the market.
a.
(ii) only
b.
(iii) only
c.
(i) and (ii) only
d.
(ii) and (iii) only
10. When a monopolist decreases the price of its good, consumers
a.
continue to buy the same amount.
b.
buy more.
c.
buy less.
d.
may buy more or less, depending on the price elasticity of demand.
11. When a monopolist increases the amount of output that it produces and sells, the price of its output
a.
stays the same.
b.
increases.
c.
decreases.
d.
may increase or decrease depending on the price elasticity of demand.
12. A monopoly firm is a price
a.
taker and has no supply curve.
b.
maker and has no supply curve
c.
taker and has an upward-sloping supply curve.
d.
maker and has an upward-sloping supply curve.
13. Monopolies use their market power to
a.
charge prices that equal minimum average total cost.
b.
increase the quantity sold as they increase price.
c.
charge a price that is higher than marginal cost.
d.
dump excess supplies of their product on the market.
14. Monopoly firms have
a.
downward-sloping demand curves, so they can sell as much output as they desire at the market price.
b.
downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on
the demand curve.
c.
horizontal demand curves, so they can sell as much output as they desire at the market price.
d.
horizontal demand curves, so they can sell only a limited quantity of output at each price.
15. Which of the following is not correct?
a.
The demand curve facing a competitive firm is perfectly elastic.
b.
The demand curve facing a monopolist is the market demand curve.
c.
A monopolist can charge any price and sell any quantity that it chooses.
d.
A monopolist can alter the market price by adjusting the quantity that it produces.
16. Which of the following statements is correct?
a.
The demand curve facing a competitive firm is horizontal, as is the demand curve facing a monopolist.
b.
The demand curve facing a competitive firm is downward sloping, whereas the demand curve facing a
monopolist is horizontal.
c.
The demand curve facing a competitive firm is horizontal, whereas the demand curve facing a monopolist is
downward sloping.
d.
The demand curve facing a competitive firm is downward sloping, as is the demand curve facing a
monopolist.
17. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following
ways?
a.
A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist
maximizes profit at the point where marginal revenue exceeds marginal cost.
b.
A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist
maximizes profit at the point where average revenue exceeds marginal cost.
c.
For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue
at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is
smaller than it is for larger levels of output.
d.
For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-
maximizing monopolist.
18. Competitive firms differ from monopolies in which of the following ways?
(i)
Competitive firms do not have to worry about the price effect lowering their total
revenue.
(ii)
Marginal revenue for a competitive firm equals price, while marginal revenue for a
monopoly is less than the price it is able to charge.
(iii)
Monopolies must lower their price in order to sell more of their product, while
competitive firms do not.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
19. Which of the following is not a difference between monopolies and perfectly competitive markets?
a.
Monopolies can earn profits in the long run while perfectly competitive firms break even.
b.
Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to
marginal cost.
c.
Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly
competitive firms do not.
d.
Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand
curves.
20. Competitive firms have
a.
downward-sloping demand curves, and they can sell as much output as they desire at the market price.
b.
downward-sloping demand curves, and they can sell only a limited quantity of output at each price.
c.
horizontal demand curves, and they can sell as much output as they desire at the market price.
d.
horizontal demand curves, and they can sell only a limited quantity of output at each price.
21. Because many good substitutes exist for a competitive firm’s product, the demand curve that it faces is
a.
unit-elastic.
b.
perfectly inelastic.
c.
perfectly elastic.
d.
inelastic only over a certain region.
22. In a market characterized by monopoly, the market demand curve is
a.
upward sloping.
b.
horizontal.
c.
downward sloping.
d.
vertical.
23. As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good
a.
is unaffected.
b.
decreases.
c.
increases.
d.
There is not enough information given in answer the question.
24. When a monopolist reduces the quantity of output it produces and sells, the
a.
price of its output increases.
b.
price of its output remains constant.
c.
price of its output decreases.
d.
profits for the firm always decrease.
25. Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the
100th widget, the firm will always receive
a.
less marginal revenue on the 100th widget than it received on the 99th widget.
b.
more average revenue on the 100th widget than it received on the 99th widget.
c.
more total revenue on the 100 widgets than it received on the first 99 widgets.
d.
a lower average cost per unit at 100 units of output than at 99 units of output.
26. Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When
selling the 50th game, the firm will always receive
a.
less marginal revenue on the 50th game than it received on the 49th game.
b.
more average revenue on the 50th game than it received on the 49th game.
c.
more total revenue on the 50 games than it received on the first 49 games.
d.
Both b and c are correct.
27. For a monopoly firm, the shape and position of the demand curve play a role in determining the
(i)
profit-maximizing price.
(ii)
shape and position of the marginal-cost curve.
(iii)
shape and position of the marginal-revenue curve.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
28. For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which
a.
average revenue is zero.
b.
profit is maximized.
c.
total revenue is maximized.
d.
marginal cost is zero.
29. A monopolist’s average revenue is always
a.
equal to marginal revenue.
b.
greater than the price of its product.
c.
equal to the price of its product.
d.
less than the price of its product.
30. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
a.
average revenue is less than the price of the product.
b.
average revenue is less than marginal revenue.
c.
marginal revenue is less than the price of the product.
d.
marginal revenue is greater than the price of the product.
31. When a monopolist increases the amount of output that it produces and sells, average revenue
a.
increases, and marginal revenue increases.
b.
increases, and marginal revenue decreases.
c.
decreases, and marginal revenue increases.
d.
decreases, and marginal revenue decreases.
32. For a monopoly firm, which of the following equalities is always true?
a.
price = marginal revenue
b.
price = average revenue
c.
price = total revenue
d.
marginal revenue = marginal cost
33. For a monopoly firm,
a.
price always equals marginal revenue.
b.
price always exceeds average revenue.
c.
any price-quantity combination will maximize profits.
d.
None of the above is correct.
34. For a monopoly firm,
a.
price always exceeds average revenue.
b.
price always exceeds marginal revenue.
c.
any price-quantity combination will maximize profits.
d.
All of the above are correct.
35. Which of the following statements is correct for a monopolist?
(i)
The firm maximizes profits by equating marginal revenue with marginal cost.
(ii)
The firm maximizes profits by equating price with marginal cost.
(iii)
Demand equals marginal revenue.
(iv)
Average revenue equals price.
a.
(i), (iii), and (iv) only
b.
(i) and (iv) only
c.
(i), (ii), and (iv) only
d.
(i), (ii), (iii), and (iv)
36. Which of the following statements is correct for both a monopolist and a perfectly competitive firm?
(i)
The firm maximizes profits by equating marginal revenue with marginal cost.
(ii)
The firm maximizes profits by equating price with marginal cost.
(iii)
Demand equals marginal revenue.
(iv)
Average revenue equals price.
a.
(i), (iii), and (iv) only
b.
(i) and (iv) only
c.
(i), (ii), and (iv) only
d.
(i), (ii), (iii), and (iv)
37. Which of the following statements is true?
(i)
When a competitive firm sells an additional unit of output, its revenue increases by an
amount less than the price.
(ii)
When a monopoly firm sells an additional unit of output, its revenue increases by an
amount less than the price.
(iii)
Average revenue is the same as price for both competitive and monopoly firms.
a.
(ii) only
b.
(iii) only
c.
(i) and (ii) only
d.
(ii) and (iii) only
38. The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the
(i)
average revenue curve.
(ii)
marginal cost curve.
(iii)
demand curve.
a.
(i) only
b.
(i) and (ii) only
c.
(i) and (iii) only
d.
(iii) only
39. For a monopoly,
a.
average revenue exceeds marginal revenue.
b.
average revenue equals marginal revenue.
c.
average revenue is less than marginal revenue.
d.
price equals marginal revenue.
40. For a monopolist, when does marginal revenue exceed average revenue?
a.
never
b.
when output is less than the profit-maximizing level of output
c.
when output is greater than the profit-maximizing level of output
d.
for all levels of output greater than zero
41. Because a monopolist must lower its price in order to sell another unit of output,
a.
marginal revenue is less than price.
b.
long-term economic profits will be zero.
c.
total revenue increases as price increases.
d.
average revenue is less than price.
42. What is the shape of the monopolist’s marginal revenue curve?
a.
a downward-sloping line that is identical to the demand curve
b.
a downward-sloping line that lies below the demand curve
c.
a horizontal line that is identical to the demand curve
d.
a horizontal line that lies below the demand curve
43. For a monopolist, marginal revenue is
a.
equal to price, as it is for a perfectly competitive firm.
b.
less than price, as it is for a perfectly competitive firm.
c.
equal to price, whereas marginal revenue is less than price for a perfectly competitive firm.
d.
less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
44. When a monopolist increases the number of units it sells, there are two effects on revenue. They are the
a.
demand effect and the supply effect.
b.
competition effect and the cost effect.
c.
competitive effect and the monopoly effect.
d.
output effect and the price effect.
45. For a monopolist, marginal revenue is
a.
positive when the demand effect is greater than the supply effect.
b.
positive when the monopoly effect is greater than the competitive effect.
c.
negative when the price effect is greater than the output effect.
d.
negative when the output effect is greater than the price effect.
46. The price effect describes the situation when a monopolist lowers the price of output and, all else equal, total revenue
a.
increases.
b.
decreases.
c.
is unchanged.
d.
is maximized.
47. The output effect describes the situation when a monopolist sells more output and, all else equal, total revenue
a.
increases.
b.
decreases.
c.
is unchanged.
d.
is maximized.
48. For a monopolist, when the price effect is greater than the output effect, marginal revenue is
a.
positive.
b.
negative.
c.
zero.
d.
maximized.
49. For a monopolist, when the output effect is greater than the price effect, marginal revenue is
a.
positive.
b.
negative.
c.
zero.
d.
maximized.
50. When a monopoly increases its output and sales,
a.
both the output effect and the price effect work to increase total revenue.
b.
the output effect works to increase total revenue, and the price effect works to decrease total revenue.
c.
the output effect works to decrease total revenue, and the price effect works to increase total revenue.
d.
both the output effect and the price effect work to decrease total revenue.
51. Marginal revenue for a monopolist is computed as
a.
average revenue divided by quantity sold.
b.
average revenue times quantity divided by price.
c.
total revenue divided by quantity sold.
d.
change in total revenue per one unit increase in quantity sold.
52. Marginal revenue can become negative for
a.
both competitive and monopoly firms.
b.
competitive firms but not for monopoly firms.
c.
monopoly firms but not for competitive firms.
d.
neither competitive nor monopoly firms.
53. For a monopolist,
a.
average revenue is always greater than the price of the good.
b.
marginal revenue is always less than the price of the good.
c.
marginal cost is always greater than average total cost.
d.
marginal revenue equals marginal cost at the point where total revenue is maximized.
54. If a monopoly lowers its price, its
a.
total revenue must increase.
b.
total revenue must decrease.
c.
marginal revenue must increase.
d.
marginal revenue must decrease.
55. Without price discrimination, the monopolist sells every unit at the same price. As a consequence,
a.
marginal revenue is equal to price.
b.
marginal revenue is equal to average revenue.
c.
price is greater than marginal revenue.
d.
Both a and b are correct.
56. A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per
unit. The marginal revenue of the 301st unit of output is
a.
-$120.00.
b.
-$75.40.
c.
-$0.40.
d.
$75.40.
57. A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.90
per unit. The marginal revenue of the 151st unit of output is
a.
-$5.10.
b.
-$0.10.
c.
$2.45.
d.
$5.10.
58. A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.98
per unit. The marginal revenue of the 151st unit of output is
a.
-$6.98.
b.
-$0.02.
c.
$2.45.
d.
$6.98.
59. When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 60 units.
The marginal revenue for the firm over this range is
a.
$11.
b.
$22.
c.
$33.
d.
$44.
60. When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 62 units.
The marginal revenue for the firm over this range is
a.
$22.
b.
$27.
c.
$54.
d.
$108.
61. When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $9 it sells 62 units.
The marginal revenue for the firm over this range is
a.
$18.
b.
$23.
c.
$46.
d.
$92.
62. If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of
selling the eighth unit is equal to
a.
$3.
b.
$4.
c.
$24.
d.
–$4.
63. If the monopolist’s linear demand curve intersects the quantity axis at Q = 30, then the monopolist’s marginal revenue
will be equal to zero at
a.
Q = 10.
b.
Q = 15.
c.
Q = 20.
d.
Q = 30.
64. Bob’s Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is maximizing his
profit, which of the following statements is true?
a.
The price of Bob’s bison burgers will be less than Bob’s marginal cost.
b.
The price of Bob’s bison burgers will exceed Bob’s marginal cost.
c.
The price of Bob’s bison burgers will equal Bob’s marginal cost.
d.
Costs are irrelevant to Bob because he is a monopolist.
65. If a monopolist’s marginal costs increase by $1 for all levels of output, then the monopoly price will
a.
rise by $1.
b.
rise by more than $1.
c.
rise by less than $1.
d.
not change, but profits will decrease.
66. If a monopolist has zero marginal costs, it will produce
a.
the output at which total revenue is maximized.
b.
in the range in which marginal revenue is still increasing.
c.
at the point at which marginal revenue is at a maximum.
d.
in the range in which marginal revenue is negative.
67. Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product?
a.
The “price effect” causes total revenue to fall.
b.
The “output effect” causes total revenue to rise.
c.
The “revenue effect” causes total revenue to remain constant.
d.
Both a and b are correct.
Figure 15-3
68. Refer to Figure 15–3. Which of the following statements is correct?
a.
Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B represents the
typical demand curve for a monopoly.
b.
Panel B represents the typical demand curve for a perfectly competitive firm, and Panel A represents the
typical demand curve for a monopoly.
c.
Panel A represents the typical demand curve for a perfectly competitive firm, and Panel C represents the
typical demand curve for a monopoly.
d.
Panel C represents the typical demand curve for a perfectly competitive firm, and Panel D represents the
typical demand curve for a monopoly.
69. Refer to Figure 15–3. Which of the following statements is correct?
a.
Panel B represents the typical demand curve for a perfectly competitive firm.
b.
Panel A represents the typical demand curve for a monopoly.
c.
Panel A represents the typical demand curve for a perfectly competitive industry.
d.
All of the above are correct.
70. Refer to Figure 15–3. Which of the following statements is correct?
a.
Panel B represents the typical demand curve for a perfectly competitive industry.
b.
Panel A represents the typical demand curve for a monopoly.
c.
Panel C represents the typical demand curve for a perfectly competitive firm.
d.
All of the above are correct.