Page 1
1.
Suppose the GoSports pennant monopoly is broken up and the pennant industry
becomes perfectly competitive. We would expect the _____ surplus to increase and
_____ surplus to decrease after the breakup.
A)
producer; consumer and total
B)
consumer; producer and total
C)
consumer and total; producer
D)
producer and total; consumer
2.
If the government allowed only one airline to serve the entire U.S. market, there would
be a _____ loss associated with _____ output in the airline industry.
A)
marginal; reduced
B)
deadweight; reduced
C)
total; increased
D)
deadweight; increased
3.
In contrast with perfect competition, a monopoly:
A)
produces more at a lower price.
B)
produces where MR > MC.
C)
may have lower economic profits in the long run.
D)
produces less at a higher price.
4.
In monopoly:
A)
a basic condition for efficiency is violated because P > MC.
B)
consumers are confronted with a price that is lower than marginal cost.
C)
consumers will buy more of the good than is economically efficient.
D)
consumers are confronted with a price that is lower than average total cost.
5.
The pricing in monopoly prevents some mutually beneficial trades. The value of these
unrealized mutually beneficial trades is called:
A)
sunk costs.
B)
opportunity costs.
C)
deadweight loss.
D)
inequity.
Page 2
6.
Which statement is true?
A)
Monopolies produce too much and charge too much from the standpoint of
efficiency.
B)
Monopolies usually are economically efficient because they have economic profits
with which to work.
C)
Monopolies produce too little and charge too much from the standpoint of
efficiency.
D)
Monopolies cause an efficiency problem but are not associated with a deadweight
loss.
7.
Suppose a perfectly competitive market is suddenly transformed into one that operates
as a monopoly market. We would expect price to _____, output to _____, consumer
surplus to _____, producer surplus to _____, and deadweight loss to _____.
A)
rise; fall; rise; rise; fall
B)
rise; fall; fall; fall; rise
C)
rise; fall; fall; rise; rise
D)
fall; rise; rise; fall; fall
8.
Suppose a perfectly competitive industry is suddenly transformed into a monopoly
industry. We can assume that monopoly output will be _____ than will the competitive
output and that _____.
A)
higher; deadweight loss will emerge
B)
lower; consumer surplus will increase
C)
lower; deadweight loss will emerge
D)
higher; consumer surplus will decrease
9.
When a monopoly maximizes profit, the loss of surplus by consumers is _____ the
monopolist’s gain in profit.
A)
less than
B)
equal to
C)
more than
D)
sometimes more than and sometimes less than
Page 3
Use the following to answer questions 10-15:
Figure: PPV
10.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
how much will it produce?
A)
2
B)
4
C)
6
D)
8
11.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
what price will it charge?
A)
$20
B)
$40
C)
$60
D)
$100
Page 4
12.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
how much consumer surplus is there when the monopolist maximizes profit?
A)
$20
B)
$40
C)
$80
D)
$160
13.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
how much producer surplus is there when the monopolist maximizes profit?
A)
$0
B)
$20
C)
$80
D)
$160
14.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
how much deadweight loss is there when the monopolist maximizes profit?
A)
$0
B)
$20
C)
$80
D)
$160
15.
(Ref 28-1 Figure: PPV) Use Figure 28-1: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $20. If the cable company is a monopoly,
how much total surplus is there when the monopolist maximizes profit?
A)
$240
B)
$160
C)
$100
D)
$320
Page 5
Use the following to answer questions 16-25:
16.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is one of many firms in a competitive industry, how many lunches
will the market produce in the long run?
A)
0
B)
20
C)
40
D)
60
17.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Suppose that the
marginal cost and average cost of each lunch are a constant $4 for all firms in the
market. If Joe owns one of many firms in a competitive industry, what price will he
charge for a lunch in the long run?
A)
$10
B)
$8
C)
$6
D)
$4
18.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Suppose that the
marginal cost and average cost of each lunch are a constant $4 for all firms in the
market. What is consumer surplus in this market in the long run?
A)
$4
B)
$10
C)
$180
D)
$360
Page 6
19.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Suppose that the
marginal cost and average cost of each lunch are a constant $4 for all firms in the
market. What is producer surplus in this market in the long run?
A)
$0
B)
$4
C)
$180
D)
$360
20.
(Ref 28-2 Table: Lunch) Use Table:Lunch. This table shows market demand for picnic
lunches for people taking all-day rafting trips on the river. Suppose that the marginal
cost and average cost of each lunch are a constant $4 for all firms in the market. What is
deadweight loss in this market in the long run?
A)
$0
B)
$4
C)
$180
D)
$360
21.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is a monopolist, how many lunches will he produce in the long run?
A)
0
B)
10
C)
20
D)
30
22.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is a monopolist, what price will he charge for a lunch in the long run?
A)
$9
B)
$7
C)
$5
D)
$3
Page 7
23.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is a monopolist, what is consumer surplus in the long run?
A)
$45
B)
$90
C)
$180
D)
$360
24.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is a monopolist, what is producer surplus in the long run?
A)
$45
B)
$90
C)
$180
D)
$360
25.
(Ref 28-2 Table: Lunch) Use Table 28-2: Lunch. This table shows market demand for
picnic lunches for people taking all-day rafting trips on the river. Joe has a firm
providing this service, and his marginal cost and average cost for each lunch are a
constant $4. If Joe is a monopolist, what is deadweight loss in the long run?
A)
$45
B)
$90
C)
$180
D)
$360
26.
In general, economists are critical of monopoly where there is/are:
A)
no natural monopoly.
B)
a natural monopoly.
C)
only a few firms.
D)
persistent economies of scale.
27.
Public policies toward monopoly in the United States often consist of:
A)
laws outlawing all of them.
B)
the regulation of natural monopolies.
C)
government takeover if monopoly profit exceeds a certain level.
D)
forcing monopoly industries to become perfectly competitive.
Page 8
28.
Amtrak is a publicly owned company that provides rail service. This means that
Amtrak’s prices tend to be _____ than if it were a private company, and the quality of
service tends to be _____ than if it were a private company.
A)
higher; worse
B)
higher; better
C)
lower; worse
D)
lower; better
29.
In an industry characterized by extensive economies of scale:
A)
small companies are more profitable than are large companies.
B)
large companies are more profitable than are small companies.
C)
small and large companies are equally profitable.
D)
small companies will drive out large companies.
30.
A natural monopoly is one that:
A)
monopolizes a natural resource such as a mineral spring.
B)
is based on control of something occurring in nature (such as diamonds).
C)
has increasing returns to scale over the entire relevant range of output.
D)
typically has low fixed costs, making it easy and “natural” for it to shut out
competitors.
31.
One government policy for dealing with natural monopoly is to:
A)
impose a price floor to eliminate the deadweight loss.
B)
impose a price ceiling to reduce economic profit.
C)
break it up into smaller firms.
D)
impose fines on the monopolist.
32.
The natural monopoly:
A)
would incur an economic profit if regulated to produce where price is less than
marginal cost.
B)
would incur an economic profit if regulated to charge a price equal to average total
cost.
C)
generates more consumer surplus than would an unregulated monopolist if
regulated to produce where price equals average total cost.
D)
generates more consumer surplus than would an unregulated monopolist if
regulated to produce where marginal cost equals marginal revenue.
Page 9
33.
If the regulation of a monopoly results in a price equal to marginal cost but the price is
below average total cost:
A)
the firm can still make an economic profit.
B)
the firm will earn only a zero economic profit.
C)
efficiency in allocation will be less.
D)
the firm will need subsidies to stay in business.
34.
In the short run, if a monopoly is forced to charge a price equal to marginal cost:
A)
output will fall.
B)
the deadweight loss will decrease.
C)
consumer surplus will decrease.
D)
other firms will enter the industry.
Use the following to answer questions 35-37:
Figure: Demand, Revenue, and Cost Curves
35.
(Ref 28-3 Figure: Demand, Revenue, and Cost Curves) Use Figure 28-3: Demand,
Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If
the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss
would be eliminated in the short run, it would impose a price ceiling of:
A)
$40.
B)
$46.
C)
$50.
D)
$65.
Page 10
36.
(Ref 28-3 Figure: Demand, Revenue, and Cost Curves) Use Figure 28-3: Demand,
Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If
the government wanted to regulate Figglenuts-R-Us such that it would minimize the
deadweight loss while allowing the firm to break even, it would impose a price ceiling
of:
A)
$40.
B)
$46.
C)
$50.
D)
$65.
37.
(Ref 28-3 Figure: Demand, Revenue, and Cost Curves) Use Figure 28-3: Demand,
Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If
the government regulated the figglenut market by setting a price ceiling of $40,
Figglenuts-R-Us might:
A)
produce 60 figglenuts to maximize profits.
B)
produce 120 figglenuts in the long run to maximize profits.
C)
exit in the long run.
D)
increase the price to $60.
Use the following to answer question 38:
Figure: A Rock Climbing Shoe Monopoly
38.
(Ref 28-4 Figure: A Rock Climbing Shoe Monopoly) Use Figure 28-4: 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 11
Use the following to answer question 39:
39.
(Ref 28-5 Table: Demand for Lenny’s Coffee) Use Table 28-5: 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
Page 12
Use the following to answer questions 40-42:
40.
(Ref 28-6 Table: Prices and Demand) Use Table 28-6: 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
41.
(Ref 28-6 Table: Prices and Demand) Use Table 28-6: 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
42.
(Ref 28-6 Table: Prices and Demand) Use Table 28-6: 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
Page 13
Use the following to answer questions 43-51:
Figure: The Profit-Maximizing Output and Price
43.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: 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, consumer surplus
is:
A)
$0.
B)
$600.
C)
$1,000.
D)
$1,600.
44.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: 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, producer surplus is:
A)
$3,200.
B)
$6,400.
C)
$1,000.
D)
$1,600.
45.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure: 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, deadweight loss is:
A)
$3,200.
B)
$6,400.
C)
$1,000.
D)
$1,600.
Page 14
46.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure Ref 28-7: 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.
47.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: 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.
48.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. If this were a perfectly competitive industry, consumer surplus would be:
A)
$0.
B)
$6,400.
C)
$1,600.
D)
$3,200.
49.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. If this were a perfectly competitive industry, producer surplus would be:
A)
$0.
B)
$200.
C)
$1,600.
D)
$3,200.
50.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. If this were a perfectly competitive industry, deadweight loss would be:
A)
$0.
B)
$200.
C)
$1,600.
D)
$3,200.
Page 15
51.
(Ref 28-7 Figure: The Profit-Maximizing Output and Price) Use Figure 28-7: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. If this were a perfectly competitive industry, total surplus would be:
A)
$6,400.
B)
$1,600.
C)
$3,200.
D)
$4,800.
52.
Monopoly is inefficient because some consumer surplus is transferred to producer
surplus.
A)
True
B)
False
53.
Compared with perfect competition, monopoly produces a net welfare gain for society.
A)
True
B)
False
54.
Consumer surplus in monopoly is smaller than it is in the same industry operating under
perfect competition.
A)
True
B)
False
55.
Producer surplus in monopoly is smaller than it is in the same industry operating under
perfect competition.
A)
True
B)
False
56.
Deadweight loss in monopoly is smaller than it is in the same industry operating under
perfect competition.
A)
True
B)
False
57.
When regulating a natural monopoly, the government always sets a price ceiling where
marginal cost intersects the demand curve.
A)
True
B)
False
Page 16
58.
When a natural monopoly is regulated to charge a price equal to average total cost,
consumer surplus increases, but total surplus decreases.
A)
True
B)
False
59.
When a natural monopoly is regulated to charge a price equal to average total cost,
producer surplus decreases, but total surplus increases.
A)
True
B)
False
60.
A natural monopoly has increasing returns to scale so that a large producer has a
relatively low average total cost.
A)
True
B)
False
61.
Usually when a monopoly that isn’t a natural monopoly is broken up, the losses to the
producer outweigh the gains to consumers.
A)
True
B)
False
62.
The advantage of public ownership of a monopoly is that prices can be based on
efficiency and total surplus, rather than profit maximization.
A)
True
B)
False
63.
A disadvantage of public ownership of a monopoly is that publicly owned firms have
relatively little incentive to keep costs low or offer high-quality products.
A)
True
B)
False
64.
Suppose a perfectly competitive industry is suddenly transformed to a monopoly
industry. What will happen to price, output, consumer and producer surplus, and
deadweight loss in this industry?
65.
Suppose the government is considering how to regulate a monopolist. An economist
argues that the price should be regulated to maximize total welfare. The monopolist
argues that the price should be regulated so that it can just cover all of its opportunity
costs. Are they basically arguing the same point? How do they differ?
Page 17
66.
If a monopoly market structure is transformed into a perfectly competitive one, holding
all else constant, price will _____ and output will _____.
A)
fall; fall
B)
fall; increase
C)
increase; increase
D)
increase; fall
67.
(Figure: The Monopolist II) Use Figure: The Monopolist II. The deadweight loss
associated with this monopoly can be measured as the area:
Figure: The Monopolist II
A)
0.5(P1– P2)(Q2– Q1).
B)
0.5 (P2– P4)(Q4– Q2).
C)
0.5 (P1– P3)Q3.
D)
0.5 (P1– P3)Q2.
68.
A firm that is a natural monopoly will:
A)
attempt to break even, not profit-maximize.
B)
maximize profit by producing where MR = MC.
C)
face increasing costs of production.
D)
face greater market instability than does a regular monopoly.
Page 18
69.
A natural monopolist that is price-regulated at the marginal cost output level will:
A)
produce the optimal level of output and earn a normal profit.
B)
eventually incur losses if MC is less than ATC.
C)
be producing at the same output and price that an unregulated natural monopolist
would choose.
D)
produce the optimal level of output and earn an economic profit greater than zero.
70.
(Figure: The Monopolist IV) Use Figure: The Monopolist IV. Assume this monopolist
has no fixed costs. If this monopolist profit-maximizes, it will produce _____ units and
charge a price equal to _____. Its profit will be _____, its consumer surplus will be
_____, and the deadweight loss is _____.
Figure: The Monopolist IV
A)
50; $30; $1,200; $600; $100
B)
35; $65; $1,225; $612.50; $612.50
C)
100; $65; $1,500; $615.50; $1,000
D)
70; $35; $1,225; $615.50; $615.50
Page 20