Deck 11: Monopoly

Question 1

The two basic reasons why a monopoly exists are barriers to entry and cost advantages.

Answer 1

True

Question 2

Technical superiority can be a source of entry barriers.

Answer 2

True

Question 3

The existence of a natural monopoly stems from the size of the firm relative to the total market demand for the product of that firm.

Answer 3

True

Question 4

There exist only two causes of monopoly: barriers to entry and government restrictions.

Question 5

A pure monopoly is defined as having only one seller.

Question 6

Under monopoly, resources are allocated as efficiently as in perfect competition.

Question 7

The U.S.Postal Service enjoys a monopoly position because of patent rights.

Question 8

Pure monopoly is not studied because of its descriptive realism, but because it is a stepping stone toward more realistic models.

Question 9

Many public utilities are permitted to operate as monopolies because they enjoy economies of large-scale production.

Question 10

Control of a scarce resource or input can serve as an entry barrier.

Question 11

Only government restrictions serve as entry barriers.

Question 12

Pure monopoly markets are very common in the real world.

Question 13

Natural monopolies are of theoretical, but not practical interest.

Question 14

A natural monopoly is one that deliberately erects entry barriers.

Question 15

The presence of large sunk costs often serves as a naturally imposed barrier to entry.

Question 16

Owning a patent can provide a firm with monopolistic power.

Question 17

The key element in preserving a monopoly is keeping rivals out of the market.

Question 18

The drug maker Roche enjoyed a monopoly of the antibiotic Rocephin because of patent rights.

Question 19

Pure monopoly is able to exist because the firm's product is better than the substitutes that are available in the market.

Question 20

Monopolies are always large firms with great economies of scale.

Question 21

A monopolist's profit per unit is shown by the difference between price and average cost per unit.

Question 22

A monopolist will maximize profits by producing a quantity specified by setting marginal revenue equal to marginal cost.

Question 23

Adam Smith believed that monopoly is the most efficient market structure.

Question 24

A monopolist can earn a positive economic profit, even in the long run.

Question 25

The rule of MC = MR does not apply to a monopolist.

Question 26

A monopolist is a price maker who will lose some business if the price is increased.

Question 27

A monopolist's profit per unit is shown by the difference between price and marginal cost per unit.

Question 28

A major difference between a monopoly and perfect competition is that monopolies can earn an economic profit in the long run and a perfectly competitive firm cannot.

Question 29

A monopolist faces a horizontal demand schedule.

Question 30

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms.

Question 31

A monopolist's total profit is shown by the difference between price and average cost per unit times the number of units sold.

Question 32

A monopolist is a price maker.

Question 33

Although monopoly has lower output than competition, the level of output is efficient.

Question 34

The software industry has traits in common with monopoly markets.

Question 35

The marginal revenue curve for a monopolist is the same as its demand curve.

Question 36

Perfect Competition is an industry in which there is only one supplier of a product that has no close substitutes.

Question 37

A monopolist is a price taker, just like a perfect competitor.

Question 38

In cases of natural monopolies, society would be better off with many firms competing with each other.

Question 39

A monopolist maximizes profit by producing the quantity at which MC = MR, just like a perfect competitor.

Question 40

The marginal revenue curve for a monopolist is always below the demand curve.

Question 41

Compared to a perfectly competitive industry, a monopoly produces a smaller output and charges a higher price.

Question 42

For a monopoly, MC = MR < P so that MC < MU.

Question 43

The difference in prices for first-class and coach airline tickets exemplifies price discrimination.

Question 44

A monopolist will stop production when MR equals MC.

Question 45

A monopoly firm always devotes some of its profits to research.

Question 46

It is possible that if a monopoly is broken up, the cost of production for that product could increase.

Question 47

The U.S.Postal Service engages in price discrimination.

Question 48

A profit-maximizing monopolist will stop production while MR is still greater than MC.

Question 49

In cases of natural monopoly, it is best to have only one firm producing all of the output in a market.

Question 50

In the long-run, a monopolist charges the same price as a perfectly competitive firm.

Question 51

A monopoly restricts output and charges a higher price than other types of firms.

Question 52

Monopoly firms may lead to higher costs than perfectly competitive firms.

Question 53

Since a monopolist firm will lose some customers when the price is increased, it will make every effort to keep the price as low as possible.

Question 54

Since a monopolist has a unique product, it makes no sense for the firm to advertise.

Question 55

A monopoly may breed inefficiency by reducing competition and restricting production.

Question 56

A monopolist firm may be more innovative than a competitive firm.

Question 57

A positive aspect of monopolies is that they may aid innovation in the marketplace.

Question 58

Entry barriers can lead to long-run economic profits.

Question 59

Inefficient resource allocation is a major problem with monopolies.

Question 60

Too much of society's scarce resources are used to produce goods in monopoly markets.

Question 61

The product supplied by a monopoly firm has

A) a few substitutes.
B) no close substitutes.
C) a large number of substitutes.
D) two or three close substitutes.

Question 62

Pure monopoly is defined as a

A) one-firm industry.
B) market structure in which there are many substitute products.
C) market structure maintained by entry of many rival firms.
D) market structure created by special government sanctions.

Question 63

As the demand for a product falls, it is not uncommon for the industry to become a monopoly.This is most likely due to

A) an increase in the number of barriers.
B) legal restrictions being imposed.
C) the surviving firm operating on the declining part of its average cost curve.
D) patent protection causing high prices.

Question 64

Price discrimination allows a monopolist to make higher profits.

Question 65

The South African diamond production monopoly is an example of monopoly through

A) "patent power."
B) legal restriction.
C) control of scarce resources.
D) large sunk costs.

Question 66

Which of the following is not potentially a barrier to entry into the widget market?

A) patent protection on the design of widgets
B) high prices for widgets
C) government licensing of widget producers
D) massive advertising by existing widget producers

Question 67

A market is not a pure monopoly if firms

A) can enter it freely.
B) sell unique products.
C) can exit the market freely.
D) require government permission to sell in the market.

Question 68

Price discrimination leads to higher prices for all consumers.

Question 69

A patent

A) is given only to government owned companies.
B) is not a legal impediment to entry.
C) is a privilege granted by a state to an inventor over his invention.
D) does not give the holder a monopoly during the period it is in effect.

Question 70

Which of the following is not a barrier to entry?

A) Legal restrictions
B) Patents
C) Large sunk costs
D) Survivor rights

Question 71

The U.S.government

A) intervenes to prevent the monopolization of any market.
B) forbids the creation of legal impediments to entry into any market.
C) intervenes to prevent the monopolization of some markets and actively encourages the monopolization of others.
D) encourages the permanent monopolization of all markets in which the monopolist has technical superiority over potential competitors.

Question 72

Which of the following can serve as an entry barrier?

A) legal restrictions
B) patents
C) control of scarce resources or inputs
D) All of the above are correct.

Question 73

Pure monopoly

A) is defined as having only one supplier.
B) has no close substitutes for its product.
C) exists when entry and survival of potential competitors is extremely unlikely.
D) All of the above are correct.

Question 74

____ mean that the costs involved cannot be recouped for a considerable period of time.

A) Sunk costs
B) Opportunity costs
C) Overheads
D) Restructuring costs

Question 75

Which of these contributes to the existence of monopoly power?

A) a continuously decreasing long-run average cost curve
B) possession of a patent
C) control over essential output
D) All of the above are correct.

Question 76

Price discrimination is always illegal.

Question 77

The key element in preserving a monopoly is

A) government subsidy of critical enterprises.
B) keeping potential rivals out of the market.
C) guaranteeing availability of substitute products.
D) increased advertising expenditure.

Question 78

A natural monopoly is defined as an industry in which one firm

A) can produce the entire industry output at a lower average cost than a larger number of firms could.
B) can produce the entire industry output at a lower marginal cost than a larger number of firms could.
C) is very large relative to other firms that could enter the industry.
D) can earn higher profits if it is the only firm in the industry rather than if other firms also enter the industry.

Question 79

Economists consider price discrimination to always be undesirable.

Question 80

Price discrimination only occurs under monopoly.