530 Miller Economics Today, 16th Edition
10) A major difference between a monopolist and a perfectly competitive firm is that
A) the monopolist is certain to earn economic profits.
B) the monopolist s marginal revenue curve lies below its demand curve.
C) the monopolist engages in marginal cost pricing.
D) the monopolist charges the highest possible price that he can.
11) A monopolist faces a demand curve that
A) is perfectly horizontal at the market price.
B) is below the marginal revenue curve.
C) is downward sloping.
D) coincides with the industry supply.
12) The demand curve a monopolist faces is
A) horizontal. B) the industry demand curve.
C) vertical. D) inelastic at all points.
13) An important difference between a perfectly competitive firm and a monopolist is
A) the size of the firms.
B) the shape of the demand curve each faces.
C) the goals of the owners of the firms.
D) a monopolist normally produces a service, while a perfect competitor normally produces a
good.
14) An important difference between a perfectly competitive firm and a monopolist is
A) the size of the industry.
B) the primary objective of the firms.
C) a monopolist only produces in the long run, while a perfect competitor only produces in
the short run.
D) the price it charges to sell additional units of a good.
15) To sell more units, a monopolist must
A) merely produce more units.
B) advertise more.
C) produce the profit maximizing rate of production.
D) lower price.
16) To sell more units, a monopolist
A) simply moves across its horizontal demand curve to a larger quantity.
B) moves down its demand curve to a lower price that will increase quantity demand.
C) can continue to receive the same price it always has as long as it has its customers
goodwill.
D) must be willing to lower the barriers to entry that have protected it.
17) A monopolist s marginal revenue curve is
A) the same as a perfectly competitive firm s marginal revenue curve.
B) higher than the monopolist s demand curve.
C)
b
elow the firm s demand curve.
D) a horizontal line at the market price.
18) For a monopolist, the marginal revenue gained when one more unit of output is sold is
A) the price at which the extra unit is sold minus the loss in revenue that results from cutting
the price on units sold previously.
B) equal to the price of the product.
C) negative if price is above the midpoint of the demand curve.
D) the average revenue created by the increased sales.
19) If a firm sells 10 units of output at $100 per unit and 11 units of output when price is reduced to
$99, its marginal revenue for the last unit sold is
A) $11. B) $99. C) $109. D) $89.
20) If a firm sells 5 units of output at $10 per unit and 6 units of output when price is reduced to $9,
its marginal revenue from selling the sixth unit is
A) $9. B) $40. C) $540. D) $4.
21) If a firm sells 20 units of output at $15 per unit and 21 units of output when price is reduced to
$14, its marginal revenue from selling the last unit is
A) $6. B) $21. C) $294. D) $14.
22) For a firm facing a downward sloping demand curve, marginal revenue
A) is at a minimum at the midpoint of the demand curve.
B) is greater at higher prices than at lower prices.
C) increases each time prices are lowered.
D) falls each time prices are raised.
23) For the monopolist, marginal revenue is
A) equal to price.
B) less than average revenue since price must be lowered to sell additional units.
C) greater than price.
D) not a consideration in the firm s pricing.
24) The monopolist s marginal revenue is less than price since
A) additional units can only be sold if the price is lowered on all units sold.
B) the demand function is horizontal.
C) average revenue is also less than price.
D) average total cost is declining.
25) A monopolist faces
A) a perfectly elastic demand curve. B) a perfectly inelastic demand curve.
C) the market demand curve. D) a two tiered demand curve.
26) The demand curve facing a monopolist is
A) downward sloping. B) upward sloping.
C) horizontal. D) vertical.
27) Which of the following is not true about the demand curve faced by a monopolist?
A) The demand curve is downward sloping.
B) The firm s demand curve is the same as the market demand curve.
C) The marginal revenue curve is below the market demand curve.
D) The demand curve is perfectly elastic.
28) An important difference between perfect competition and monopoly is
A) a monopoly is profitable and a perfect competitor is not.
B) the monopoly faces a downward sloping demand curve and the perfect competitor faces a
horizontal demand curve.
C) the monopoly faces an inelastic demand curve and the perfect competitor faces an elastic
demand curve.
D) a monopoly is not regulated by the market, while a perfect competitor is regulated by the
market.
29) Refer to the above figure. Which of the following statements is true about the demand curves for
an individual firm in a perfectly competitive industry and a monopoly?
A) Panel A is the demand curve for a perfectly competitive firm and panel B is the demand
curve for a monopoly.
B) Panel C is the demand curve for a perfectly competitive firm and panel A is the demand
curve for a monopoly.
C) Panel C is the demand curve for a perfectly competitive firm and panel B is the demand
curve for a monopoly.
D) Panel B is the demand curve for a perfectly competitive firm and panel A is the demand
curve for a monopoly.
30) Which of the following statements is TRUE about the relationship between a firm s demand
curve under perfect competition and monopoly?
A) Under perfect competition, the demand curve is perfectly elastic; under monopoly, the
demand curve has elastic, unit elastic and inelastic portions.
B) Under monopoly, the demand curve is perfectly elastic; under perfect competition, the
demand curve has elastic, unit elastic and inelastic portions.
C) The demand curves for a monopoly and perfect competition are always inelastic.
D) We can define a demand curve under perfect competition but not under monopoly.
31) If a monopolist raises its price,
A) it raises the barriers to entry.
B) the quantity demanded increases.
C) the quantity demanded remains the same.
D) the quantity demanded decreases.
32) If a monopolist lowers its price,
A) it lowers the barriers to entry.
B) the quantity demanded increases.
C) the quantity demanded remains the same.
D) the quantity demanded decreases.
33) If a monopolist wants to increase the amount it sells, it
A) will keep the price the same. B) must lower the price on all units.
C) must accept lower profits. D) must lower the cost of production.
34) To induce an increase in the quantity demanded of its product, a monopolist must reduce the
A) quality of its product and thereby generate a downward shift its ATC curve.
B) price of its product and thereby generate a rightward shift in its demand curve.
C) price of its product and thereby generate a rightward movement along its demand curve.
D) quality of its product and thereby generate a downward movement along its ATC curve.
35) Successive downward movements along the demand curve for the product of a monopolist
always generate successive
A) increases in the monopolist s marginal revenue.
B) increases in the monopolist s average total costs.
C) decreases in the additional per unit costs incurred by the monopolist.
D) decreases in the additional per unit revenues earned by the monopolist.
36) A monopolist wishing to increase its profit has just discovered that lowering its price and selling
more output yielded the desired result. Profit increased. Based on this, we can conclude that
the cost of the additional production is
A) greater than the revenue from the additional production.
B) precisely equal to the revenue from the additional production.
C) less than the revenue from the additional production.
D) there is no way to answer this because you have not given us the marginal revenue and
marginal cost data.
37) For a monopolist,
A) marginal revenue is less than price.
B) marginal revenue equals price.
C) marginal revenue is greater than price.
D) marginal revenue equals average revenue.
38) For a monopolist, the reason that marginal revenue is less than price is
A)
b
ecause of the perfectly elastic demand curve that the monopolist faces.
B)
b
ecause the monopolist must lower the price of the good in order to sell an additional unit.
C)
b
ecause of the U shaped average revenue curve.
D)
b
ecause of the lack of competition in the market.
39) Which of the following would best describe the demand curve faced by a monopoly firm?
A) horizontal line at the market price
B) vertical line at the output level
C) same as the market demand curve
D) same as the perfect competitor s demand curve
40) The demand curve faced by the monopolist
A) has a constant price elasticity. B) is the industry demand curve.
C) is identical to the firm s MR curve. D) is identical to the firm s TR curve.
41) The demand curve for a monopolist is
A) the industry demand curve.
B) the same as the demand curve for a perfectly competitive firm.
C) a perfectly inelastic demand curve.
D) a unitary elastic demand curve.
42) Which of the following statements about a monopolist is FALSE?
A) A pure monopolist is the sole supplier of one product, good, or service.
B) The monopolist faces a demand curve for the entire market for that good.
C) A pure monopolist is not the same as a perfect competitor.
D) The monopolist faces the industry demand curve, which is upward sloping.
43) When considering marginal revenue for the monopolist, which of the following is FALSE?
A) To sell more of a particular product, given the industry demand curve, the monopoly firm
must lower the price.
B) An essential point for the monopolist, marginal revenue is always less than price.
C) Marginal revenue is always less than price because price must be reduced on all units to
sell more.
D) The more the monopolist wants to sell, the higher the price it has to charge in order to
make more profits.
44) For a monopolist,
A) marginal revenue is equal to price for all units being sold.
B) marginal revenue is less than price for all units being sold except the first unit.
C) marginal revenue is greater than price for all units being sold except for the first unit.
D) there is no relationship between marginal revenue and price.
45) A firm that faces a downward sloping demand curve is
A) a price taker. B) a price provider.
C) a price searcher. D) a price creator.
46) A firm that faces a downward sloping demand curve is known as a
A) price taker. B) utility maximizer.
C) price searcher. D) perfect competitor.
47) In order to sell more goods and/or services, what must a monopoly do?
A) Reduce price and increase output B) Increase output
C) Increase price D) Nothing, since it is the market
48) For a monopolist, marginal revenue is always
A) greater than price. B) equal to price.
C) equal to zero. D) less than price.
49) Unlike a perfectly competitive firm, a monopolist faces a demand curve that is
A) upward sloping. B) horizontal.
C) vertical. D) downward sloping.
Price Quantity
$19 11
18 12
17 13
16 14
15 15
14 16
50) Given the data in the above table, what is the marginal revenue when the 15th unit is sold?
A) $7.00 B) $5.00 C) $3.00 D) $1.00
51) Given the data in the above table, what is the marginal revenue when the 12th unit is sold?
A) $7.00 B) $5.00 C) $3.00 D) $1.00
52) Given the data in the above table, what is the marginal revenue when the 13th unit is sold?
A) $7.00 B) $5.00 C) $3.00 D) $1.00
53) Given the data in the above table, what is the marginal revenue when the 14th unit is sold?
A) $7.00 B) $5.00 C) $3.00 D) $1.00
54) Given the data in the above table, the marginal revenue curve
A) lies below the demand curve. B) lies above the demand curve.
C) intersects the demand curve. D) is equal to the demand curve.
55) The MR curve of a monopolist is
A) downward sloping and below the demand curve.
B) downsloping and identical to the demand curve.
C) downsloping and above the demand curve.
D) horizontal and same as the market demand curve.
56) When TR is increasing as a monopolist s output increases,
A) MR is negative. B) MR is positive.
C) MR 0. D) MR may be positive or negative.
57) If a monopolist can sell 2 units at price of $200 per unit and 3 units at a price of $180 per unit, its
marginal revenue at an output of 3 is
A) $ 20.00. B) $80.00. C) $140.00. D) $180.00.
58) If a monopolist can sell 3 units at price of $150 per unit and 4 units at a price of $140 per unit, its
marginal revenue at an output of 4 is
A) $ 10.00. B) $10.00. C) $560.00. D) $110.00.
59) Discuss and explain the relationships between the monopolist s demand curve, average revenue
curve, and marginal revenue curve.
60) Why is price less than marginal revenue for a monopolist?
61) What does the demand curve facing a monopoly look like? Why?
62) Using a graph, show why marginal revenue is always less than price.
63) What is the main difference between the demand curves for the perfect competitor and the
monopolist?
Chapter 24 Monopoly 543
24.4 Elasticity and Monopoly
1) The demand curve facing a monopolist will be more elastic
A) the greater is the number of substitute products.
B) as the consumers need for the good increases.
C) the greater is the amount of fixed costs to cover.
D) as the number of consumers increases.
2) The price elasticity of demand for a good produced by a monopolist
A) equals zero as long as the good has no close substitutes.
B) is always inelastic since the demand curve slopes down.
C) does not equal zero because there will always be some substitutes, however imperfect they
may be.
D) does not equal zero because every good has at least one good substitute for it.
3) The profit maximizing monopolist will never operate in a price range over which
A) the demand curve slopes downward. B) demand is inelastic.
C) P MR. D) P MC.
4) The profit maximizing monopolist will operate in a price range over which
A) demand is elastic.
B) demand is inelastic.
C) the price elasticity of demand is less than 1.
D) supply is elastic.
5) The price elasticity of demand for a monopolist s product depends on
A) the number and similarity of substitutes.
B) the ATC of the item it produces.
C) the AVC of the item it produces.
D) the MC of the item it produces.
6) What is true of the price elasticity of demand faced by a monopoly firm?
A) Demand is inelastic.
B) Demand is more elastic at lower prices and more inelastic at higher prices.
C) Demand is perfectly elastic because the monopolist has no competition.
D) Demand becomes more elastic as the range of imperfect substitutes expands.
7) Which of the following statements about the elasticity of demand for a monopolist is TRUE?
A) Since a monopolist produces a good with no close substitutes, the price elasticity of
demand for the good is zero.
B) A monopolist produces a good with demand that is perfectly inelastic because people can
not do without the good.
C) Since every good has some substitute, even if imperfect, the demand for a good produced
by a monopolist will not have zero price elasticity.
D) Since the demand curve of a monopolist is downward sloping, the demand for the good
must be inelastic.
8) A monopolist
A) can charge whatever price it wants because it is the only firm producing the good.
B) can usually keep price equal to marginal revenue by lowering the price on the last unit
sold only.
C) faces a demand curve that is more elastic than the demand curve for the industry.
D) is constrained in its pricing decisions by the demand curve it faces.
9) The price elasticity of demand for a monopolist
A) is infinite since the monopolist is the only firm in the market.
B) decreases as more competition occurs in the market.
C) increases as similar products enter the market.
D) is undefined due to the lack of competition.
10) The more substitutes there are for a monopolist s product
A) the less elastic is the demand curve.
B) the more elastic is the demand curve.
C) the steeper is the demand curve.
D) the more positively sloped the demand curve becomes.
11) When the number of substitutes increase, the demand curve for a monopolist will
A) not change. B)
b
ecome more elastic.
C)
b
ecome more inelastic. D)
b
ecome steeper.
12) A privately owned monopoly will NEVER produce along a range of output for which
A) the demand curve is elastic.
B) the demand curve is inelastic.
C) the price elasticity of demand is greater than 1.
D) the price elasticity of supply is greater than 1.
13) The monopolist should NEVER produce in the
A) elastic segment of its demand curve because it can increase total revenue and reduce total
cost by lowering price.
B) inelastic segment of its demand curve because further lowering of the price reduces total
revenue.
C) range of output for which the price elasticity of demand is infinity.
D) range of output for which there is a price elasticity exceeding one.
14) If a monopolist were to produce in the inelastic segment of its demand curve,
A) total revenue would be at a maximum.
B) total revenue would be at a minimum.
C) the firm would maximize profits.
D) a further drop in the price will change quantity demanded less than proportionately.
15) A monopolist produces in the elastic segment of its demand curve because when it lowers the
price,
A) the percentage change increase in quantity demanded is greater than the percentage
change decrease in price and total revenue increases.
B) the percentage change increase in quantity demanded is less than the percentage change
decrease in price and total revenue increases.
C) the percentage change increase in quantity demanded is greater than the percentage
change decrease in price and total revenue decreases.
D) the percentage change decrease in quantity demanded is less than the percentage change
decrease in price and total revenue increases.
16) What affects the price elasticity of demand for a monopolist s product?
17) A monopolist can charge whatever price it wants. Do you agree or disagree? Why?
Chapter 24 Monopoly 547
24.5 Costs and Monopoly Profit Maximization
1) For a monopolist that is maximizing profits,
A) price exceeds marginal cost. B) price equals marginal revenue.
C) price equals average total cost. D) marginal revenue exceeds price.
2) A monopoly will maximize profits at the level of output at which
A) MR MC. B) MR AFC. C) MC ATC. D) MC P.
3) The monopolist will choose the price and output combination at which
A) MC equals AR. B) MC equals MR.
C) MC equals price. D) MR equals AR.
4) Suppose a monopolist s costs and revenues are as follows: ATC $45.00; MC $35.00; MR
$35.00; P $45.00. The firm should
A) increase output and decrease price. B) decrease output and increase price.
C) not change output or price. D) shut down.
5) Suppose a monopolist s costs and revenues are as follows: ATC $50.00; MC $35.00; MR
$45.00; P $55.00. The firm should
A) increase output and decrease price. B) decrease output and increase price.
C) not change output or price. D) shut down.
6) Suppose a monopolist s costs and revenues are as follows: ATC $50.00; MC $45.00; MR
$40.00; P $55.00. The firm should
A) increase output and decrease price. B) decrease output and increase price.
C) not change output or price. D) shut down.
7) The profit maximizing behavior of a monopoly is different from that of a perfectly competitive
firm in that a monopoly can
A) only choose the desired output, while a competitive firm can control only price.
B) only choose the desired price, while a competitive firm can control only output.
C) control the position of its demand schedule, but a competitive firm cannot.
D) control the desired price and output to maximize profits, but a perfectly competitive firm
can only choose the desired output.
8) The profit maximizing price and quantity established by the unregulated monopolist in the
above figure are
A) Q1units of output and a price of P5. B) Q3units of output and a price of P3.
C) Q1units of output and a price of P1. D) Q4units of output and a price of P4.
9) In the above figure, at the firm s profit maximizing output, total revenue is rectangle
A) 0P1AQ1. B) 0P3FQ3. C) 0P5EQ5. D) 0P2BQ1.
10) In the above figure, marginal cost and marginal revenue are equal at output
A) Q5. B) Q1. C) Q3. D) Q2.