Page 1
1.
Most electric, gas, and water companies are examples of _____ monopolies.
A)
unregulated
B)
natural
C)
restricted-input
D)
sunk-cost
2.
Suppose that you build a high-speed, magnetically powered transportation system from
New York to Los Angeles, and you are the only firm providing this service. High fixed
costs resulting from the enormous quantity of capital used in this system enable
decreasing average cost for any conceivable level of demand. Your monopoly is the
result of your:
A)
control of a scarce resource or input.
B)
technological superiority.
C)
increasing returns to scale.
D)
use of government-set barriers.
3.
If your farm had the only known source of a rare cocoa bean needed to make
chocolate-covered peanuts, your monopoly would result from:
A)
control of a scarce resource or input.
B)
technological superiority.
C)
increasing returns to scale.
D)
government-set barriers.
4.
If you had an official license for the exclusive right to sell breakfast bagels in your
community, your monopoly would result from:
A)
control of a scarce resource or input.
B)
technological superiority.
C)
increasing returns to scale.
D)
government-set barriers.
5.
The De Beers company is described as a monopolist in the production of:
A)
diamonds.
B)
software.
C)
oil.
D)
beer.
Page 2
6.
You own a lemonade stand in a competitive market, and as such, you are a price-taking
firm. Which event would most likely increase your market power?
A)
The government abolishes the system of patents and copyrights.
B)
A booming economy increases the demand for lemonade and attracts entry into the
market.
C)
The average total cost curve for firms in the industry becomes horizontal.
D)
You acquire exclusive rights to harvest lemons from all domestic citrus orchards.
7.
Conditions that keep new firms out of a monopoly market are:
A)
barriers to entry.
B)
terms of sale.
C)
labor market stipulations.
D)
production controls.
8.
A natural monopoly exists whenever a single firm:
A)
is owned and operated by the government.
B)
is investor owned but has been granted the exclusive right by the government to
operate in a market.
C)
has economies of scale over the entire range of production that is relevant to its
market.
D)
has gained control over a strategic input of an important production process.
9.
Natural monopolies are not likely to include:
A)
a diamond-mining company.
B)
a gas company.
C)
an electricity company.
D)
railways.
10.
Suppose that you build a new jumbo jet that can carry five times more passengers than
can any other competitor. You have high fixed costs due to the quantity of capital used
to build the jets, and average cost is decreasing for all levels of demand. In this case,
your monopoly would result from:
A)
sunk costs.
B)
location.
C)
economies of scale.
D)
government restrictions.
Page 3
11.
A firm that has economies of scale:
A)
at low output and diseconomies of scale at high output is a natural monopoly.
B)
over the entire range of output demanded is a natural monopoly.
C)
at any particular level of output is a natural monopoly.
D)
has a continually rising long-run average cost curve.
12.
The land you own has the only known source of aloe needed to make anti-itch lotion. In
this case, your monopoly results from:
A)
government restrictions.
B)
location.
C)
sunk costs.
D)
ownership of scarce inputs.
13.
If the state government gave you the exclusive right to sell cement to municipalities,
your monopoly would result from:
A)
sunk costs.
B)
government restrictions to entry.
C)
economies of scale.
D)
location.
14.
A monopoly is most likely to be temporary if the monopoly power is derived from:
A)
high barriers to entry.
B)
a fundamental lack of substitutes for the monopolist’s product.
C)
economies of scale.
D)
technological change.
15.
If a product’s usefulness increases with the number of users, it:
A)
has network externalities.
B)
is a monopoly.
C)
is a conglomerate.
D)
has an exclusive franchise.
16.
Which factor is not a barrier to entry?
A)
control of scarce resources
B)
economies of scale
C)
patents and copyrights
D)
diseconomies of scale
Page 4
17.
Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA
monopolizes college athletics and prevents student athletes from earning money while
in college. If this is true, what type of entry barrier does the NCAA have?
A)
a patent
B)
a copyright
C)
control of a scarce resource or input
D)
economies of scale
18.
Lenoia runs a natural monopoly producing electricity for a small mountain village. The
barrier preventing other firms from competing with her is:
A)
her control of scarce natural resources.
B)
the existence of economies of scale.
C)
her technological superiority.
D)
a government-set barrier.
19.
Which factor is not a barrier to entry?
A)
control of an input essential for production
B)
government-set barriers such as patents
C)
a ban on certain kinds of advertising
D)
the existence of significant economies of scale
20.
Microsoft and its operating system are often cited as an example of a company that grew
into a monopolist through:
A)
ownership of a resource.
B)
patents.
C)
network externalities.
D)
large economies of scale.
21.
Network externalities exist when a good’s value to the consumer rises as:
A)
the number of people who use the good increases.
B)
the number of people who use the good decreases.
C)
the number of people who use the good remains constant.
D)
technology improves.
22.
A monopoly is an industry structure characterized by:
A)
a single buyer and several sellers.
B)
a product with many close substitutes.
C)
a large number of small firms.
D)
barriers to entry and exit.
Page 5
23.
Large barriers to entry are one reason that a monopoly:
A)
earns an economic profit in the long run.
B)
produces at the minimum average total cost in the long run.
C)
produces with no fixed costs in the long run.
D)
maximizes its profits by producing where P = MC.
24.
The demand curve facing a monopolist is:
A)
horizontal, the same as that facing a perfectly competitive firm.
B)
downward sloping, the same as that facing a perfectly competitive firm.
C)
upward sloping, the same as that facing a perfectly competitive firm.
D)
downward sloping, unlike the horizontal demand curve facing a perfectly
competitive firm.
25.
Which statement is true?
A)
A monopoly firm is a price taker.
B)
MR > P if the demand curve is downward sloping.
C)
MR = MC is a profit-maximizing rule for any firm.
D)
In monopoly, P = MC when profits are maximized.
26.
The demand curve for a monopoly is:
A)
the sum of the supply curves of all of the firms in the monopoly’s industry.
B)
the industry demand curve.
C)
horizontal because no one can enter.
D)
perfectly elastic.
27.
A firm that faces a downward-sloping demand curve is a:
A)
price setter.
B)
quantity minimizer.
C)
quantity taker.
D)
price taker.
28.
Because monopoly firms are price setters, they:
A)
can sell more only by lowering the price.
B)
sell more at higher prices than at lower prices.
C)
take the market-determined price as given and sell all they can at that price.
D)
charge the highest possible price.
Page 6
29.
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity
effect of selling the sixth motor home is:
A)
$20,000.
B)
$10,000.
C)
$15,000.
D)
$21,000.
30.
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can only charge $20,000 each. The price
effect of selling the sixth motor home is:
A)
$20,000.
B)
-$15,000.
C)
-$5,000.
D)
$25,000.
31.
After the first unit sold, the marginal revenue a monopolist receives from selling one
more unit of a good is less than the price of that unit because of:
A)
diminishing marginal returns.
B)
increasing marginal cost.
C)
a downward-sloping demand curve.
D)
declining average fixed cost.
32.
Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11
bottles per week if he lowers the price to $45 per bottle. The quantity and the price
effects on total revenue would be, respectively, an increase of _____ and a decrease of
_____.
A)
$450; $500
B)
$495; $550
C)
$45; $5
D)
$45; $50
33.
One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a _____ demand curve, while the purely competitive firm has a
_____ demand curve.
A)
downward-sloping; perfectly elastic
B)
perfectly inelastic; perfectly elastic
C)
downward-sloping; perfectly inelastic
D)
perfectly elastic; downward-sloping
Page 7
34.
The demand curve for a monopoly is:
A)
the MR curve above the AVC curve.
B)
the MR curve above the horizontal axis.
C)
the entire MR curve.
D)
above the MR curve.
35.
Suppose that a monopoly computer chip maker increases production from 10
microchips to 11 microchips. If the market price declines from $30 per unit to $29 per
unit, marginal revenue for the eleventh unit is:
A)
$1.
B)
$9.
C)
$19.
D)
$29.
36.
Marginal revenue for a monopolist is:
A)
equal to price.
B)
greater than price.
C)
less than price.
D)
equal to average revenue.
37.
A downward-sloping demand curve will ensure that _____ is true for a monopoly.
A)
P = MR
B)
P > MR
C)
P < MR
D)
P = MC
38.
Which statement is true?
A)
Instead of applying the marginal decision rule, monopoly firms just set the price as
high as possible.
B)
If demand is downward sloping, P = MR.
C)
If demand is downward sloping, P = ATC.
D)
If demand is downward sloping, P > MR.
39.
The demand curve for a monopoly is:
A)
above the marginal revenue curve.
B)
below the marginal revenue curve.
C)
horizontal because of economies of scale.
D)
infinitely elastic.
Page 8
40.
The demand curve facing a monopolist is:
A)
downward sloping.
B)
vertical.
C)
horizontal.
D)
upward sloping.
41.
The demand curve facing a monopolist is always:
A)
the same as the industry’s demand curve.
B)
perfectly elastic.
C)
unit-elastic.
D)
perfectly inelastic.
42.
The demand curve facing a monopolist is:
A)
vertical, the same as that facing a perfectly competitive firm.
B)
perfectly inelastic, the same as that facing a perfectly competitive firm.
C)
upward sloping, the same as that facing a perfectly competitive firm.
D)
downward sloping, like the industry demand curve in perfect competition.
43.
The demand curve for a monopoly is:
A)
the MC curve above the AVC curve.
B)
the MR curve above the horizontal axis.
C)
identical to the MR curve.
D)
also the industry demand curve.
44.
Marginal revenue for a monopolist is:
A)
equal to price.
B)
greater than price.
C)
less than price.
D)
the change in total revenue plus the change in output.
45.
If a firm faces a downward-sloping demand curve, it will ensure that:
A)
P = ATC.
B)
P > MR.
C)
P < MC.
D)
P = MC.
Page 9
46.
A monopolist’s marginal cost curve shifts up, but the firm’s demand curve remains the
same and the firm does not shut down. Compared with the condition before the increase
in marginal costs, the monopolist will _____ its price and _____ its level of production.
A)
raise; decrease
B)
not change; decrease
C)
raise; increase
D)
lower; increase
47.
Suppose a monopoly is producing output so that marginal revenue equals marginal cost.
If the monopolist reduces output, it:
A)
can charge a higher price.
B)
will increase profits.
C)
will decrease marginal revenue.
D)
can’t change the price because it is a price taker.
48.
At a monopoly’s profit-maximizing level of output:
A)
marginal revenue equals marginal cost.
B)
marginal revenue is greater than marginal cost.
C)
marginal revenue is less than marginal cost.
D)
price is less than marginal cost.
49.
A monopoly is producing output so that average total cost is $30, marginal revenue is
$40, and the price is $50. If ATC is at its minimum level and the ATC curve is U-shaped,
to maximize profits, this firm should:
A)
increase output.
B)
reduce output.
C)
do nothing; it is already maximizing profits.
D)
shut down.
50.
If a monopolist is producing a quantity where MC = P, then profit:
A)
is maximized.
B)
is maximized only if MR = P.
C)
can be increased by increasing production.
D)
can be increased by decreasing production.
51.
If a monopolist is producing a quantity where MC > MR, then profit:
A)
is maximized.
B)
is maximized only if MC = P.
C)
can be increased by increasing production.
D)
can be increased by decreasing production.
Page 10
52.
Which statement is TRUE?
A)
Profit-maximizing behavior occurs only in perfectly competitive markets.
B)
Additional units of a good should be produced as long as MR < MC.
C)
The profit-maximizing solution occurs where MR = MC.
D)
The profit-maximizing solution occurs where MR > MC.
53.
A monopolist responds to an increase in demand by _____ price and _____ output.
A)
increasing; decreasing
B)
increasing; increasing
C)
decreasing; increasing
D)
decreasing; decreasing
54.
A monopolist responds to a decrease in demand by _____ price and _____ output.
A)
increasing; decreasing
B)
increasing; increasing
C)
decreasing, increasing
D)
decreasing; decreasing
55.
A monopolist responds to an increase in marginal cost by _____ price and _____ output.
A)
increasing; decreasing
B)
increasing; increasing
C)
decreasing; increasing
D)
decreasing; decreasing
56.
A monopoly responds to a decrease in marginal cost by _____ price and _____ output.
A)
increasing; decreasing
B)
increasing; increasing
C)
decreasing; increasing
D)
decreasing; decreasing
57.
The GoSports Company is a profit-maximizing firm with a monopoly in the production
of school team pennants. The firm sells its pennants for $10 each. We can conclude that
GoSports is producing a level of output at which:
A)
average total cost equals $10.
B)
average total cost is greater than $10.
C)
marginal revenue equals $10.
D)
marginal cost equals marginal revenue.
Page 11
58.
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological
change that reduces its marginal and average total costs by $40. If in response to its
reduction in cost the firm changes its price in a profit-maximizing way, then we can
predict that its total economic profit will:
A)
fall.
B)
remain unchanged.
C)
rise.
D)
It is not possible to make a determination from the information given.
59.
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological
change that reduces its marginal and average total costs by $40. If in response to its
reduction in cost the firm changes its price in a profit-maximizing way, then we can
predict that its total output will:
A)
rise.
B)
fall.
C)
remain unchanged.
D)
It is not possible to make a determination from the information given.
60.
Suppose that a monopoly firm is required to pay a new annual license fee to do business
in its city and that the fee is somewhat less than the economic profit the firm is now
earning. In response to the increase in fees, the firm will:
A)
raise its price by less than the amount of the license fee.
B)
raise its price by the amount of the license fee.
C)
raise its price by somewhat more than amount of the license fee.
D)
not change its price.
61.
An increase in the fixed costs of a monopoly firm would _____ price and _____
quantity in the short run.
A)
increase; decrease
B)
increase; increase
C)
not change; not change
D)
decrease; decrease
62.
If a monopolist is producing a quantity that generates MC > MR, then profit:
A)
is maximized.
B)
is maximized only if MC = P.
C)
can be increased by increasing price.
D)
can be increased by decreasing price.
Page 12
63.
If a monopolist is producing a quantity that generates MC < MR, then profit:
A)
is maximized.
B)
is maximized only if MC = P.
C)
can be increased by increasing production.
D)
can be increased by decreasing production.
64.
If a monopolist is producing a quantity that generates MC = MR, then profit:
A)
is maximized.
B)
is maximized only if MC = P.
C)
can be increased by increasing production.
D)
can be increased by decreasing production.
65.
Suppose that the Yankee Cap Company is a profit-maximizing firm with a monopoly in
the production of baseball caps. The firm sells its baseball caps for $25 each. From this
information, we can assume that the Yankee Cap Company is producing a level of
output at which:
A)
marginal revenue equals $25.
B)
marginal cost is less than $25.
C)
average total cost equals $25.
D)
average total cost is greater than $25.
Use the following to answer questions 66-69:
Figure: Short-Run Monopoly
Page 13
66.
(Ref 27-1 Figure: Short-Run Monopoly) Use Figure 27-1: Short-Run Monopoly. The
profit-maximizing rule is satisfied by the intersection at point:
A)
G.
B)
H.
C)
J.
D)
L.
67.
(Ref 27-1 Figure: Short-Run Monopoly) Use Figure 27-1: Short-Run Monopoly. The
profit-maximizing quantity of output is quantity:
A)
Q.
B)
R.
C)
S.
D)
T.
68.
(Ref 27-1 Figure: Short-Run Monopoly) Use Figure 27-1: Short-Run Monopoly. The
profit-maximizing price is price:
A)
N.
B)
O.
C)
P.
D)
Q.
69.
(Ref 27-1 Figure: Short-Run Monopoly) Use Figure 27-1: Short-Run Monopoly. The
marginal cost of producing the profit-maximizing quantity is cost:
A)
N.
B)
O.
C)
P.
D)
Q.
70.
The monopoly firm’s profit-maximizing price is:
A)
given by the point on the ATC curve for the profit-maximizing quantity.
B)
given by the point on the demand curve for the profit-maximizing quantity.
C)
determined for the quantity of output at which MR > MC by the greatest amount.
D)
found where MR > MC at the monopolist’s profit-maximizing quantity of output.
Page 14
71.
A monopolist generally _____ than does a perfectly competitive industry with the same
market demand.
A)
produces a larger quantity
B)
charges a higher price
C)
charges a lower price
D)
earns less profit in the long run
72.
Bob owns a trout farm with monopoly power in North Carolina. Bob’s optimal output
occurs where marginal revenue _____ marginal cost. Because of monopoly power,
Bob’s supply curve _____.
A)
equals; does not exist
B)
exceeds; does not exist
C)
equals; is upward sloping
D)
exceeds; is perfectly inelastic
73.
Which statement about monopoly equilibrium and perfectly competitive equilibrium is
incorrect?
A)
Price is greater than marginal cost in monopoly, and price equals marginal cost in
perfect competition.
B)
When a monopoly exists, the consumer surplus from the market is less than it
would be if the same market were perfectly competitive.
C)
Monopoly output will be less than will the output of a comparable perfectly
competitive industry.
D)
In the long run, economic profits are driven to zero in both a monopoly and a
perfectly competitive market.
74.
Which statement best reflects an evaluation of monopoly firms?
A)
They are economically inefficient.
B)
They have little or no market power.
C)
Consumers are given more choices, lower costs, and higher quality.
D)
Competition should replace all monopolies.
75.
In perfect competition, the firm produces the output such that _____, and in monopoly,
the firm produces the output such that _____.
A)
P > MR = MC; P = MR = MC
B)
P = MR = MC; P < MR = MC
C)
P = MR = MC; P > MR = MC
D)
P = MR = MC; P = MR = MC
Page 15
76.
Which statement is true?
A)
A monopoly firm is a price maker.
B)
MR = P if the demand curve is downward sloping.
C)
MR = MC is a profit-maximizing rule for firms in perfect competition only.
D)
Monopolies tend to charge lower prices than do perfectly competitive firms.
77.
The profit-maximizing rule MR = MC is:
A)
followed by a monopoly but not by a perfectly competitive firm.
B)
followed by a perfectly competitive firm but not by a monopoly.
C)
followed by all types of firms.
D)
not followed by a monopoly because it would reduce economic profit to zero.
78.
Assume that a monopoly is currently earning economic profits. If a permanent change in
fixed cost raises average total cost above the demand curve:
A)
price and output will increase.
B)
more monopolies will enter.
C)
the monopoly will go out of business.
D)
marginal cost will be greater than marginal revenue.
Use the following to answer questions 79-82:
Figure: A Profit-Maximizing Monopoly Firm
Page 16
79.
(Ref 27-2 Figure: A Profit-Maximizing Monopoly Firm) Use Figure 27-2: A
Profit-Maximizing Monopoly Firm. The firm in this figure will produce _____ units of
output per week.
A)
150
B)
200
C)
250
D)
300
80.
(Ref 27-2 Figure: A Profit-Maximizing Monopoly Firm) Use Figure 27-2: A
Profit-Maximizing Monopoly Firm. This firm’s cost per unit at its profit-maximizing
quantity is:
A)
$8.
B)
$15.
C)
$18.
D)
$20.
81.
(Ref 27-2 Figure: A Profit-Maximizing Monopoly Firm) Use Figure 27-2: A
Profit-Maximizing Monopoly Firm. This firm’s price per unit is:
A)
$20.
B)
$25.
C)
$30.
D)
$35.
82.
(Ref 27-2 Figure: A Profit-Maximizing Monopoly Firm) Use Figure 27-2: A
Profit-Maximizing Monopoly Firm. This firm’s profit per unit is:
A)
$5.
B)
$12.
C)
$15.
D)
$20.
83.
In the short run, a monopoly will stop producing if:
A)
P < ATC.
B)
P < AVC.
C)
P > MR.
D)
P > ATC.
Page 17
84.
In a monopoly in the long run:
A)
economic profits will be eliminated by the entry of rival firms.
B)
economic profits will be reduced but not eliminated by the entry of rival firms.
C)
entry by other firms will not occur.
D)
the price will be the same as if the market were perfectly competitive.
Use the following to answer questions 85-89:
85.
(Ref 27-3 Table: Demand and Total Cost) Use Table 27-3: Demand and Total Cost.
Lenoia runs a natural monopoly firm producing electricity for a small mountain village.
The table shows Lenoia’s demand and total cost of producing electricity. The price
effect of increasing production from 3 megawatts to 4 megawatts is:
A)
-$150.
B)
$500.
C)
$450.
D)
-$50.
86.
(Ref 27-3 Table: Demand and Total Cost) Use Table 27-3: Demand and Total Cost.
Lenoia runs a natural monopoly firm producing electricity for a small mountain village.
The table shows Lenoia’s demand and total cost of producing electricity. To maximize
profits, Lenoia should charge a price of:
A)
$350.
B)
$400.
C)
$450.
D)
$500.
Page 18
87.
(Ref 27-3 Table: Demand and Total Cost) Use Table 27-3: Demand and Total Cost.
Lenoia runs a natural monopoly firm producing electricity for a small mountain village.
The table shows Lenoia’s demand and total cost of producing electricity. The marginal
revenue of the fourth unit of production is:
A)
$200.
B)
$250.
C)
$450.
D)
$500.
88.
(Ref 27-3 Table: Demand and Total Cost) Use Table 27-3: Demand and Total Cost.
Lenoia runs a natural monopoly firm producing electricity for a small mountain village.
The table shows Lenoia’s demand and total cost of producing electricity. The
profit-maximizing quantity of electricity for her to produce is _____ megawatts.
A)
2
B)
3
C)
4
D)
5
89.
(Ref 27-3 Table: Demand and Total Cost) Use Table 27-3: Demand and Total Cost.
Lenoia runs a natural monopoly firm producing electricity for a small mountain village.
The table shows Lenoia’s demand and total cost of producing electricity. The maximum
profit Lenoia can make is:
A)
$225.
B)
$425.
C)
$400.
D)
$1,800.
90.
If a monopoly has a linear demand curve and is producing at the profit-maximizing level
of output, at that level of output, demand is:
A)
price-elastic.
B)
price-inelastic.
C)
perfectly price-inelastic.
D)
price unit-elastic.
91.
In 1999, a judge declared that Microsoft was a monopolist. Assuming that Microsoft has
a linear demand curve and that it is maximizing its profits at its current level of output,
we may conclude that, if Microsoft were to increase its price, its total revenue would:
A)
rise.
B)
fall.
C)
remain unchanged.
D)
There is insufficient information to make a determination.
Page 19
Use the following to answer questions 92-95:
Figure: Computing Monopoly Profit
92.
(Ref 27-4 Figure: Computing Monopoly Profit) Use Figure 27-4: Computing Monopoly
Profit. The profit-maximizing price is _____ and will generate total economic profit of
_____.
A)
P2; EF
B)
P3; the rectangle P1P2FG
C)
P3; the rectangle P2P3EF
D)
P3; EF
93.
(Ref 27-4 Figure: Computing Monopoly Profit) Use Figure 27-4: Computing Monopoly
Profit. Producing at point N would:
A)
result in MR = MC.
B)
result in positive economic profits.
C)
never be profit-maximizing since, at this output, MR < 0 and MC > 0.
D)
result in the firm breaking even.
94.
(Ref 27-4 Figure: Computing Monopoly Profit) Use Figure 27-4: Computing Monopoly
Profit. At the profit-maximizing output, total cost is:
A)
P10QG.
B)
P30QE.
C)
P20QF.
D)
FQ2.
Page 20
95.
(Ref 27-4 Figure: Computing Monopoly Profit) Use Figure 27-4: Computing Monopoly
Profit. To obtain maximum profits, the monopoly should produce the output determined
by point:
A)
G.
B)
N.
C)
H.
D)
K.
Use the following to answer questions 96-101:
Figure: Monopoly Model
96.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. The
profit-maximizing quantity is at point:
A)
W.
B)
J.
C)
K.
D)
L.
97.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. The
profit-maximizing price is:
A)
Z.
B)
P.
C)
S.
D)
I.
Page 21
98.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. When the firm
is in equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle:
A)
0PDJ.
B)
0IHJ.
C)
IPDH.
D)
0SBJ.
99.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. When the firm
is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of
rectangle:
A)
SPDB.
B)
IPDH.
C)
0SBJ.
D)
0PDJ.
100.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. When the firm
is in equilibrium (that is, maximizing its economic profit), its profit is the area of
rectangle:
A)
SPDB.
B)
IPDH.
C)
ISBH.
D)
0PDJ.
101.
(Ref 27-5 Figure: Monopoly Model) Use Figure 27-5: Monopoly Model. When the firm
is in equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle _____ and its total revenue is the area of rectangle _____.
A)
0PDJ; SPDB
B)
0IHJ; IPDH
C)
IPDH; 0SBJ
D)
0SBJ; 0PDJ
Page 22
Use the following to answer questions 102-104:
Figure: A Rock Climbing Shoe Monopoly
102.
(Ref 27-6 Figure: A Rock Climbing Shoe Monopoly) Use Figure Ref 27-6: A Rock
Climbing Shoe Monopoly. If the firm acts to maximize profit, the firm will sell _____
pairs of shoes at _____ per pair.
A)
Q2; P1
B)
Q2; P5
C)
Q3; P2
D)
Q4; P3
103.
(Ref 27-6 Figure: A Rock Climbing Shoe Monopoly) Use Figure 27-6: A Rock
Climbing Shoe Monopoly. If the firm acts to maximize profit, the firm will earn profit
equal to:
A)
(P1– P5) * Q2.
B)
(P1– P4) * Q2.
C)
(P4– P5) * Q2.
D)
(P2– P3) * Q3.
104.
(Ref 27-6 Figure: A Rock Climbing Shoe Monopoly) Use Figure 27-6: A Rock
Climbing Shoe Monopoly. If the firm is regulated such that it earns zero economic
profit, the firm will sell _____ pairs of shoes at a price of _____ per pair.
A)
Q1; P1
B)
Q2; P1
C)
Q4; P3
D)
Q3; P2
Page 23
Use the following to answer questions 105-108:
105.
(Ref 27-7 Table: Demand for Lenny’s Coffee) Use Table 27-7: Demand for Lenny’s
Coffee. Lenny’s Cafe is the only source of coffee for hundreds of miles in any direction.
If Lenny increases the quantity sold from 5 cups to 6, his marginal revenue will be:
A)
$4.
B)
$24.
C)
-$1.
D)
$5.
106.
(Ref 27-7 Table: Demand for Lenny’s Coffee) Use Table 27-7: Demand for Lenny’s
Coffee. Lenny’s Cafe is the only source of coffee for hundreds of miles in any direction.
Lenny is selling 2 cups of coffee. If he lowers the price and sells 3 cups of coffee, the
_____ effect will dominate the _____ effect, and total revenue will _____.
A)
quantity; price; decrease
B)
price; quantity; increase
C)
price; quantity; decrease
D)
quantity; price; increase
Page 24
107.
(Ref 27-7 Table: Demand for Lenny’s Coffee) Use Table 27-7: Demand for Lenny’s
Coffee. Lenny’s Cafe is the only source of coffee for hundreds of miles in any direction.
If Lenny’s marginal cost of selling coffee is a constant $2, his profit-maximizing level of
output is _____ cups at _____ per cup.
A)
4; $6
B)
8; $3
C)
5; $5
D)
3; $7
108.
(Ref 27-7 Table: Demand for Lenny’s Coffee) Use Table 27-7: Demand for Lenny’s
Coffee. Lenny’s Cafe is the only source of coffee for hundreds of miles in any direction.
If Lenny’s marginal cost of selling coffee is a constant $2 and he has no fixed costs, and
the government forces Lenny to charge a price that eliminates deadweight loss, Lenny
will charge _____ per cup and sell _____ cups.
A)
$0; 10
B)
$2; 8
C)
$4; 6
D)
$5; 5
Use the following to answer questions 109-117:
Page 25
109.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. The Saints should produce _____ hats and charge _____ to maximize its
profits.
A)
1; $28
B)
2; $26
C)
3; $24
D)
4; $22
110.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. If the Saints increase the number of hats they sell from 4 to 5, their total
revenue changes from _____ to _____.
A)
$88; $100
B)
$22; $20
C)
$88; $80
D)
$110; $100
111.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. If the Saints increase the number of hats they sell from 4 to 5, the quantity
effect is a(n) _____ in total revenue of _____.
A)
decrease; $20
B)
increase; $20
C)
decrease; $8
D)
increase; $8
112.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. If the Saints increase the number of hats they sell from 4 to 5, the price effect
is a(n) _____ in total revenue of _____.
A)
decrease; $20
B)
increase; $20
C)
decrease; $8
D)
increase; $8
Page 26
113.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. If the Saints increase the number of hats they sell from 4 to 5, marginal
revenue is:
A)
$20.
B)
$22.
C)
$8.
D)
$12.
114.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo baseball hats. The Saints sell at most 1
hat to each customer, and the table shows each customer’s willingness to pay. The
marginal cost of producing a hat is $18, and there are no fixed costs. How much is the
Saints’ profit at the profit-maximizing output?
A)
$24
B)
$18
C)
$12
D)
$30
115.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. How much is consumer surplus at the Saint’s profit-maximizing output?
A)
$24
B)
$18
C)
$12
D)
$9
116.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. How much is producer surplus at the Saint’s profit-maximizing output?
A)
$24
B)
$18
C)
$12
D)
$9
Page 27
117.
(Ref 27-8 Table: Prices and Demand) Use Table 27-8: Prices and Demand. The New
Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a
hat is $18. How much is deadweight loss at the Saint’s profit-maximizing output?
A)
$24
B)
$18
C)
$12
D)
$9
Use the following to answer questions 118-123:
Figure: The Profit-Maximizing Output and Price
118.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Assume there are no fixed costs and AC = MC. At
the profit-maximizing quantity of production for the monopolist, total revenue is _____,
total cost is _____, and profit is _____.
A)
$600; $200; $400
B)
$1,600; $3,200; $1,600
C)
$4,800; $3,200; $1,600
D)
$4,800; $1,600; $3,200
119.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Under perfect competition, the price of the good
would be _____ and _____ units would be produced.
A)
$600; 8
B)
$200; 8
C)
$200; 16
D)
$600; 16
Page 28
120.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. The profit-maximizing output for a monopolist is:
A)
0.
B)
8.
C)
16.
D)
20.
121.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. The profit-maximizing price for a monopolist is:
A)
$800.
B)
$200.
C)
$600.
D)
$1,000.
122.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. At the profit-maximizing output and price for a monopolist, total surplus is:
A)
$3,200.
B)
$4,800
C)
$1,000.
D)
$1,600.
123.
(Ref 27-9 Figure: The Profit-Maximizing Output and Price) Use Figure 27-9: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. At the profit-maximizing output and price for a perfectly competitive industry,
economic profit for the firms in the industry is:
A)
$0.
B)
$200.
C)
$1,600.
D)
$3,200.
124.
Suppose a monopolist reduces its price in an effort to expand output. If the price effect
equals the quantity effect, then the marginal revenue will be zero.
A)
True
B)
False
Page 29
125.
The marginal revenue curve for a monopolist is always less than the price because of the
price effect.
A)
True
B)
False
126.
If a firm has market power, the marginal revenue curve always lies below the demand
curve.
A)
True
B)
False
127.
A monopoly can choose the price or it can choose the quantity, but it cannot choose
price and quantity independent of each other.
A)
True
B)
False
128.
A monopoly’s short-run supply curve is upward sloping because of diminishing
marginal returns.
A)
True
B)
False
129.
A monopoly’s short-run supply curve is its marginal cost curve above the minimum
average variable cost.
A)
True
B)
False
130.
A monopoly’s short-run marginal cost is constant at $10. This implies that its average
variable cost is also constant and equal to $10.
A)
True
B)
False
131.
A profit-maximizing monopoly will never set price in the inelastic region of the demand
curve.
A)
True
B)
False
132.
Why is the demand curve for a monopolist downward sloping, while the demand curve
for the perfectly competitive firm is horizontal?
Page 30
133.
Explain why the marginal revenue curve lies below the monopolist’s demand curve.
134.
It is often said that the monopolist will never set the price in the inelastic range of the
demand curve. Why?
Use the following to answer questions 135-136:
135.
(Ref 27-10 Table: Demand for Economics Tutoring) Use Table 27-10: Demand for
Economics Tutoring. Suppose Eric is the only economics tutor in town and therefore
holds a monopoly. Eric can offer additional hours of tutoring at a constant marginal cost
of $2 per hour, and he has no fixed costs.
A) If Eric acts as a monopolist, how many hours will he offer and what price will he
charge?
B) Calculate Eric’s monopoly profit.
136.
(Ref 27-10 Table: Demand for Economics Tutoring) Use Table 27-10: Demand for
Economics Tutoring. Suppose Eric is the only economics tutor in town. Eric can offer
additional hours of tutoring at a constant marginal cost of $2 per hour, and he has no
fixed costs. Suppose Eric can perfectly price-discriminate by charging his customers
exactly their willingness to pay. How many hours will he offer, and how much profit
will he earn by price-discriminating?
137.
For a monopolist, the market demand curve:
A)
is also the demand for the monopolist’s product.
B)
is equal to the monopolist’s MR curve.
C)
must be horizontal.
D)
is not important since the monopolist is the only producer.
Page 31
138.
For a monopolist with a downward-sloping demand curve, the quantity effect is MOST
likely to dominate the price effect at:
A)
low levels of production.
B)
all levels of production.
C)
high levels of production.
D)
levels at which elasticity is unit-elastic.
139.
At the profit-maximizing level of production, a perfectly competitive industry will
produce an _____ amount of output, and a monopolist produces an _____ amount of
output.
A)
efficient; efficient
B)
inefficient; efficient
C)
inefficient; inefficient
D)
efficient; inefficient
Use the following to answer questions 140-142:
Figure: The Monopolist
140.
(Ref 27-11 Figure: The Monopolist) Use Figure 27-11: The Monopolist. If this
monopolist profit-maximizes, it will produce _____ units and sell them at _____.
A)
Q1; P1
B)
Q2; P4
C)
Q2; P2
D)
Q3; P3
Page 32
141.
(Ref 27-11 Figure: The Monopolist) Use Figure 27-11: The Monopolist. At the
profit-maximizing level, this monopolist will:
A)
incur a loss equal to the area (P1– P4) Q1.
B)
earn a profit equal to the area (P2– P4) Q2.
C)
earn a profit equal to the area (P2– P3) Q2.
D)
break even.
142.
(Ref 27-11 Figure: The Monopolist) Use Figure 27-11: The Monopolist. If this market
became perfectly competitive, total market production in the long run would be _____
units and the market price would be _____.
A)
Q1; P1
B)
Q2; P2
C)
Q3; P3
D)
Q2; P4
143.
A monopolist with a linear demand curve will:
A)
not produce in the inelastic portion of its demand curve.
B)
produce regardless of elasticity, since it is a monopolist.
C)
not produce in the elastic portion of its demand curve.
D)
produce only at the unit price-elastic portion of its demand curve.
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