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Chapter 09: Monopoly
True / False
1. Anything that prevents new firms from competing on an equal basis with existing firms in an industry is called a barrier
to entry.
a.
True
b.
False
True
2. A natural monopoly emerges from legal restrictions imposed by a government.
a.
True
b.
False
False
3. DeBeers Consolidated Mines is a natural monopoly.
a.
True
b.
False
False
4. A profit-maximizing monopolist will always operate where demand is unit elastic.
a.
True
b.
False
False
5. Average revenue, demand, and price are all depicted by the same curve for a monopoly.
a.
True
b.
False
True
6. A monopolist’s marginal revenue curve is flatter than its demand curve.
a.
True
b.
False
False
7. Monopolists always earn positive short-run economic profit.
a.
True
b.
False
False
8. A profit-maximizing monopoly will always produce at the minimum point of its average total cost (ATC) curve.
a.
True
b.
False
False
9. A monopolist maximizes profit at the output rate where its total revenue equals total cost.
a.
True
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Chapter 09: Monopoly
b.
False
False
10. A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total
cost curve.
a.
True
b.
False
True
11. A monopolist that earns a profit in the short run will always earn a profit in the long run.
a.
True
b.
False
False
12. A monopolist that fails to recover a short-run loss in the long run generally leaves the market.
a.
True
b.
False
True
13. A monopolist’s supply curve is the portion of its marginal cost curve that lies above its average variable cost curve.
a.
True
b.
False
False
14. Assuming a constant cost industry, consumer surplus would be greater under monopoly than if the industry were
perfectly competitive.
a.
True
b.
False
False
15. Monopolists can earn positive economic profits in the long run because they are more productively efficient than
perfectly competitive firms.
a.
True
b.
False
False
16. Total deadweight loss in society is reduced through rent seeking by monopolists.
a.
True
b.
False
False
17. Rent-seeking activities are socially wasteful because they use scarce resources but do not add to society’s output.
a.
True
b.
False
True
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Chapter 09: Monopoly
18. Price discrimination will occur whenever a firm faces an upward-sloping demand curve.
a.
True
b.
False
False
19. Price-discriminating, profit-maximizing monopolists charge higher prices to buyers who have more elastic demand
curves.
a.
True
b.
False
False
Multiple Choice
20. Identify a distinguishing feature of monopoly.
a.
There are no barriers to entry in a monopolized market.
b.
A monopolist is a price taker.
c.
There are no close substitutes for a monopolist’s product.
d.
There are many firms in a monopolized industry.
e.
A monopolist faces a horizontal demand curve.
c
21. Which of these is likely to be true of perfect competition but not of monopoly?
a.
A firm can produce a good only if government licenses authorize it to produce the good.
b.
A firm can sell a good in the market only if the government grants a patent to the firm.
c.
A firm can earn economic profit in the long run.
d.
A firm can shut down in the short run only if the price charged by it exceeds the average variable cost of
production.
e.
A firm can face competition from new entrants into the market in the long run.
e
22. Which of the following is true of a patent?
a.
It reduces a firm’s incentive to develop new products.
b.
It is issued in recognition of new works of art or literature.
c.
It gives a firm a permanent exclusive right to produce a new good.
d.
It gives a firm a temporary exclusive right to produce a new good.
e.
It guarantees economic profits to a firm in the long run.
23. Patents stimulate investment:
a.
by giving inventors an incentive to incur up-front costs of developing new products.
b.
by giving tax breaks to inventors and researchers.
c.
by guaranteeing an economic profit to a firm from the sale of a new product.
d.
by lowering interest rates on loans taken for developing a new product.
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Chapter 09: Monopoly
e.
by covering the total cost of research and development incurred by a start-up firm.
24. Which of the following prevents potential competitors from entering a monopolized market?
a.
Legal restrictions
b.
Diseconomies of scale
c.
Product differentiation
d.
Stable market demand
e.
An abundant supply of resources
25. Which of the following describes a monopolized market structure?
a.
A market structure with a single buyer
b.
Many firms with no control over price producing identical products with no differentiation
c.
A few firms with some control over price producing similar products which are close substitutes
d.
A few firms with no control over price producing highly differentiated products
e.
A single firm producing a highly differentiated product and serving the entire market
26. A natural monopoly forms when:
a.
small firms merge to form larger firms.
b.
one firm has control over the entire supply of a basic input required to produce the product.
c.
one firm’s monopoly position is created and enforced by the government.
d.
one firm receives patent protection for certain basic production processes.
e.
the long-run average cost incurred by a firm declines as the firm expands output.
27. Which of the following is most likely to be considered a natural monopoly?
a.
A municipal water company
b.
The mobile telephone industry
c.
The baby care product industry
d.
The cotton textile industry
e.
The automobile industry
28. A natural monopoly forms when a firm has:
a.
a license.
b.
a patent.
c.
a U-shaped long-run average cost curve.
d.
a downward-sloping long-run average cost curve.
e.
a right to exclusively use a natural resource.
29. The demand curve a monopolist uses in making an output decision is:
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Chapter 09: Monopoly
a.
the same as the demand curve facing a perfectly competitive firm.
b.
positively sloped as it produces a highly differentiated product.
c.
vertical as there are no close substitutes for its product.
d.
the same as the market demand curve.
e.
perfectly price inelastic.
30. A monopolist’s demand curve is:
a.
its marginal cost curve.
b.
its marginal revenue curve.
c.
identical to its market demand curve.
d.
the same as the demand curve faced by a firm in perfect competition.
e.
the same as its average cost curve.
c
31. Which of the following is true of marginal revenue earned by a non price-discriminating monopolist that charges a
single price?
a.
Marginal revenue earned by a monopolist is equal to the average cost incurred by it.
b.
Marginal revenue earned by a monopolist is more than the price of its product.
c.
Marginal revenue earned by a monopolist is less than the price of its product.
d.
Marginal revenue earned by a monopolist is equal to the average revenue earned by it.
e.
Marginal revenue earned by a monopolist is equal to price of its product.
c
32. For a monopolist, average revenue is:
a.
equal to marginal revenue at all output levels.
b.
greater than price at all output levels.
c.
less than price at all output levels.
d.
represented by a horizontal curve at all output levels.
e.
more than marginal revenue at all output levels.
e
33. According to the information provided in the table below, total revenue from selling 5 units is:
Table 9.1
Price ($)
Quantity Demanded
50
2
40
3
30
4
20
5
10
6
a.
$20.
b.
$140.
c.
$100.
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Chapter 09: Monopoly
d.
$10.
e.
$5.
c
34. According to the information provided in the table below, marginal revenue from the third unit of output is:
Table 9.1
Price ($)
Quantity Demanded
50
2
40
3
30
4
20
5
10
6
a.
$20.
b.
$120.
c.
$100.
d.
$40.
e.
$0.
a
35. According to the information provided in the table below, marginal revenue from the sixth unit of output is:
Table 9.1
Price ($)
Quantity Demanded
50
2
40
3
30
4
20
5
10
a.
$10.
b.
$60.
c.
$100.
d.
$40.
e.
‒$40.
e
36. Based on the information given in the table below, identify the range of output for which demand is unit elastic.
Table 9.2
Quantity
Price ($)
0
7
1
6
2
5
3
4
4
3
5
2
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Chapter 09: Monopoly
6
1
a.
1 unit to 2 units
b.
2 units to 3 units
c.
3units to 4 units
d.
4 units to 5 units
e.
5 units to 6 units
37. $0.Given the information in the table below, the average revenue earned by the firm from four units of output is:
Table 9.2
Quantity
Price ($)
0
7
1
6
2
5
3
4
4
3
5
2
6
1
a.
$12.
b.
$3.
c.
$4.
d.
−$4.
e.
$0.
38. Given the information in the table below, marginal revenue from the fourth unit of output is:
Table 9.2
Quantity
Price ($)
0
7
1
6
2
5
3
4
4
3
5
2
6
1
a.
$12.
b.
$3.
c.
$4.
d.
−$4.
e.
$0.
39. The table below shows the demand schedule for a monopolist. Marginal revenue associated with the sale of the fourth
unit of output is _____.
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Chapter 09: Monopoly
Table 9.3
Price ($) Quantity
90 1
80 2
70 3
60 4
50 5
a.
$10
b.
$30
c.
$60
d.
$240
e.
$210
40. As a monopolist increases the quantity of output produced, _____.
a.
both price and marginal revenue remain constant
b.
price remains constant, but marginal revenue decreases
c.
price decreases, but marginal revenue remains constant
d.
both price and marginal revenue decrease, but price falls faster than marginal revenue
e.
both price and marginal revenue decrease, but marginal revenue falls faster than price
e
41. The demand curve facing a non-discriminating monopolist:
a.
is the same as its average revenue curve.
b.
is perfectly price elastic.
c.
is perfectly price inelastic.
d.
lies above its average revenue curve.
e.
lies below its marginal revenue curve.
a
42. A monopolist can either sell 100 units for $3 each or sell 160 units for $2 each. This implies that, for the given range
of output, elasticity of demand for the monopolist’s product is:
a.
greater than one but not infinite.
b.
one.
c.
zero.
d.
less than zero.
e.
infinite.
a
43. Suppose a monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each or
sell 140 units for $2 each. Which of the following is true?
a.
The demand for the monopolist’s product is price elastic for the given range of output.
b.
The demand for the monopolist’s product is unit elastic for the given range of output.
c.
The demand for the monopolist’s product is price inelastic for the given range of output.
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Chapter 09: Monopoly
d.
The monopolist is facing a horizontal supply curve.
e.
The monopolist is facing an upward-rising demand curve.
c
44. A monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each, or sell 150
units for $2 each. This implies that, for the given range of output, elasticity of demand for the monopolist’s product is:
a.
zero.
b.
one.
c.
more than one but less than two.
d.
infinite.
e.
between zero and one.
45. Suppose the marginal revenue for a particular level of a monopolist’s output is $40. This implies that:
a.
total revenue is increasing for this output range.
b.
total revenue is decreasing, but positive, for this output range.
c.
total revenue is zero for this output range.
d.
total revenue remains constant for this output range.
e.
total revenue is negative for this output range.
a
46. Which of the following is true for a monopolist?
a.
Marginal revenue is maximized where demand is unit elastic.
b.
Total revenue is maximized where demand is inelastic.
c.
Marginal revenue is negative where demand is inelastic.
d.
Total revenue is negative where demand is elastic.
e.
Marginal revenue is lowest where demand is unit elastic.
c
47. A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm’s average revenue is:
a.
$500.
b.
more than $10 but less than $500.
c.
$10.
d.
less than $10 but more than zero.
e.
zero.
c
48. A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be
concluded about the firm’s marginal revenue for this output level?
a.
Marginal revenue is equal to $500.
b.
Marginal revenue is more than $10.
c.
Marginal revenue is equal to $10.
d.
Marginal revenue is less than $10 but more than zero.
e.
Marginal revenue is zero.
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Chapter 09: Monopoly
49. Which of the following can be concluded about a monopolist whose marginal revenue is zero for a particular output
level?
a.
The economic profit earned by the monopolist by producing that output level is zero.
b.
Total revenue earned by the monopolist is maximum at that output level.
c.
Total revenue earned by the monopolist increases at an increasing rate as output increases beyond that output
level.
d.
Total revenue earned by the monopolist increases at a decreasing rate as output increases beyond that output
level.
e.
Average revenue earned by the firm for that output level is less than marginal revenue for that output level.
50. For a monopolist producing a level of output at which market demand is inelastic, _____.
a.
short-run profit is maximum.
b.
a decrease in price increases total revenue.
c.
a decrease in price decreases total cost.
d.
a decrease in price decreases total revenue.
e.
an increase in output increases short-run economic profit.
51. Which of the following equations describes the relationship between market price (P), average revenue (AR), and
marginal revenue (MR) for a non-discriminating monopolist?
a.
P = AR = MR
b.
P > AR = MR
c.
P = AR > MR
d.
P > AR > MR
e.
P = AR < MR
52. Suppose a single firm supplies all the ceramic windlasses in the U.S. The demand curve that the firm faces is:
a.
elastic everywhere.
b.
unit elastic everywhere.
c.
inelastic only at the profit-maximizing output.
d.
perfectly inelastic everywhere.
e.
elastic only at the profit-maximizing output.
53. The figure below shows the cost and revenue curves faced by a monopolist. The demand curve faced by the
monopolist at the profit-maximizing output is:
Figure 9.1
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Chapter 09: Monopoly
a.
perfectly price elastic.
b.
price elastic.
c.
price inelastic.
d.
unit price elastic.
e.
perfectly price inelastic.
54. The figure below shows the cost and revenue curves faced by a monopolist. At the profit-maximizing output level for
the monopolist, _____.
Figure 9.1
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Chapter 09: Monopoly
a.
marginal revenue is zero
b.
marginal revenue is equal to marginal cost
c.
marginal cost is less than marginal revenue
d.
marginal cost is equal to average total cost
e.
price is equal to marginal cost
55. The figure below shows the cost and revenue curves faced by a monopolist. The profit-maximizing output and price
for the monopolist are:
Figure 9.1
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Chapter 09: Monopoly
a.
117 units and $14, respectively.
b.
150 units and $22, respectively.
c.
150 units and $14, respectively.
d.
117 units and $22, respectively.
e.
117 units and $24, respectively.
56. Given the figure below, a non-discriminating, profit-maximizing monopolist will earn a profit of _____ per unit of
output.
Figure 9.1
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Chapter 09: Monopoly
a.
$10
b.
$5
c.
$4
d.
$0
e.
$15
57. The figure below shows a non-discriminating monopolist. The total revenue earned by the monopolist at the profit-
maximizing output is _____.
Figure 9.1
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Chapter 09: Monopoly
a.
$2,574
b.
$2,808
c.
$2,100
d.
$1,638
e.
$3,300
58. The figure below shows the cost and revenue curves for a non-discriminating monopolist. The total cost incurred by
the monopolist at the profit-maximizing output is _____.
Figure 9.1
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Chapter 09: Monopoly
a.
$3,300
b.
$3,400
c.
$2,808
d.
$2,340
e.
$1,638
59. The revenue-maximizing output for a non-discriminating monopolist represented in the table given below is _____.
Table 9.4
Quantity Price ($) Total cost ($)
0 10 10
1 9 12
2 8 19
3 7 23
4 6 31
5 5 46
6 4 69
7 3 99
a.
0 units
b.
2 units
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Chapter 09: Monopoly
c.
3 units
d.
4 units
e.
5 units
60. The loss-minimizing output for a non-discriminating monopolist represented on the table given below is _____.
Table 9.4
Quantity Price ($) Total cost ($)
0 10 10
1 9 12
2 8 19
3 7 23
4 6 31
5 5 46
6 4 69
7 3 99
a.
0 units
b.
2 units
c.
3 units
d.
4 units
e.
5 units
61. A profit-maximizing monopolist supplies the quantity at which:
a.
average revenue exceeds average cost by the greatest amount.
b.
marginal revenue exceeds marginal cost by the smallest amount.
c.
marginal revenue exceeds marginal cost by the greatest amount.
d.
total revenue exceeds total cost by the greatest amount.
e.
total revenue exceeds total cost by the smallest amount.
62. A non-price discriminating monopolist’s demand curve:
a.
is horizontal at the market price.
b.
lies to the right of its marginal revenue curve.
c.
is the same as its marginal cost curve.
d.
indicates that the firm must raise price to sell additional units.
e.
lies above the marginal cost curve at all levels of output.
63. A profit-maximizing monopolist never produces along the:
a.
elastic portion of the demand curve because marginal revenue is positive there.
b.
elastic portion of the demand curve because marginal revenue is negative there.
c.
inelastic portion of the demand curve because marginal revenue is negative there.
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Chapter 09: Monopoly
d.
inelastic portion of the demand curve because marginal revenue is positive there.
e.
inelastic portion of the demand curve because marginal revenue is zero there.
c
64. Which of the following does a monopoly control that a perfectly competitive firm does not control?
a.
Total production
b.
Production technology
c.
Price
d.
Input usage
e.
Plant size
c
65. Which of the following conditions is true at the profit-maximizing output for both a perfectly competitive firm and a
monopoly?
a.
Price equals marginal cost
b.
Price is greater than marginal cost
c.
Marginal revenue equals marginal cost
d.
Marginal revenue is less than marginal cost
e.
Marginal revenue is greater than average revenue
c
66. Which of the following is true of a monopolist in the short run?
a.
It can charge whatever price it wants.
b.
It charges more than what consumers are willing to pay.
c.
It is constrained by marginal cost in setting price.
d.
It is constrained by consumer demand in setting price.
e.
It always earns an economic profit.
67. The figure below shows the cost and revenue curves for a non-discriminating monopolist. The profit-maximizing
output and price for a monopolist are:
Figure 9.2
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Chapter 09: Monopoly
a.
90 units and $18, respectively.
b.
1,500 units and $24, respectively.
c.
1,700 units and $22, respectively.
d.
1,100 units and $28, respectively.
e.
1,500 units and $22, respectively.
68. The figure below shows the cost and revenue curves for a non-discriminating monopolist. The total revenue earned by
the profit-maximizing monopolist at the profit-maximizing output is:
Figure 9.2
a.
$16,200.
b.
$36,000.
c.
$39,600.
d.
$30,800.
e.
$31,000.
69. The figure below shows the cost and revenue curves for a non-discriminating monopolist. The total cost incurred by
the monopolist for producing the profit-maximizing output is:
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Chapter 09: Monopoly
Figure 9.2
a.
$16,500.
b.
$24,200.
c.
$16,200.
d.
$19,800.
e.
$30,800.
70. The figure below shows the cost and revenue curves for a non price-discriminating monopolist. At the profit-
maximizing output, the non price-discriminating monopolist is earning a profit of _____.
Figure 9.2
a.
$6,200
b.
$13,320
c.
$11,000
d.
$15,200
e.
$0
c
71. A non-discriminating monopolist observes that marginal revenue is $23 and marginal cost is $30 at its present output