Question 1

In a monopoly:&#10;A) Several firms dominate the industry.&#10;B) Many firms dominate the industry.&#10;C) One firm dominates the industry.&#10;D) Every firm is a price taker.

Accepted Answer

In a monopoly, one firm dominates the industry, meaning it has significant control over the market price of its product or service because there are no close substitutes.

Question 2

A monopolist faces:&#10;A) A downward sloping demand curve&#10;B) An upward sloping demand curve&#10;C) A horizontal demand curve&#10;D) A downward sloping supply curve

Accepted Answer

A monopolist faces a downward sloping demand curve because it is the sole supplier in the market, meaning it can set prices above marginal cost, unlike in perfect competition where the demand curve is horizontal at the market price.

Question 3

In monopoly:&#10;A) Average revenue and marginal revenue are equal.&#10;B) The marginal revenue curve is upward sloping.&#10;C) The marginal revenue is below the demand curve and diverging.&#10;D) Marginal revenue equals average cost.

Accepted Answer

In a monopoly, the marginal revenue is always below the demand curve because the monopolist faces a downward-sloping demand curve. To sell additional units, the monopolist must lower the price, which means the additional revenue gained from selling one more unit (marginal revenue) is less than the price at which the unit is sold (average revenue), leading to the divergence between the marginal revenue and the demand curve.

Question 4

In the long run in monopoly:&#10;A) Only normal profits are made.&#10;B) Abnormal profits can be made.&#10;C) Firms produce where price equals marginal cost.&#10;D) Firms produce where average cost equals average revenue.

Accepted Answer

In a monopoly, a single firm controls the entire market, allowing it to set prices above marginal costs, which can lead to abnormal (or supernormal) profits in the long run. Unlike competitive markets where firms can only make normal profits in the long run due to free entry and exit, monopolies face barriers to entry that protect their ability to earn these abnormal profits.

Question 5

A profit-maximizing monopolist produces where:&#10;A) Price equals marginal cost.&#10;B) Marginal revenue equals marginal cost.&#10;C) Marginal revenue equals average cost.&#10;D) Price equals average variable cost.

Accepted Answer

A profit-maximizing monopolist produces at the quantity where marginal revenue equals marginal cost. This is the rule for maximizing profit not only for monopolists but for all firms regardless of the market structure.

Question 6

The marginal revenue curve in monopoly:&#10;A) Is the same as the demand curve.&#10;B) Is below the demand curve.&#10;C) Is above the demand curve.&#10;D) Is horizontal.

Accepted Answer

The marginal revenue curve in monopoly is below the demand curve because a monopolist must lower the price on all units sold to sell an additional unit, which causes marginal revenue to be less than the price.

Question 7

If a lack of competition leads to costs rising this is called:&#10;A) Z efficiency&#10;B) X inefficiency&#10;C) W efficient scale&#10;D) Z deficiency

Accepted Answer

X inefficiency occurs when a lack of competition in a market leads to a situation where a firm is not producing at its minimum possible cost. This can happen because, without the pressure of competing against others, companies may not have the incentive to cut costs or improve productivity.

Question 8

The marginal revenue curve in monopoly is below the demand curve and converges.

Accepted Answer

The marginal revenue curve in monopoly is indeed below the demand curve, but it does not converge with it; instead, it diverges, meaning it gets farther away from the demand curve as quantity increases.

Question 9

Productive efficiency occurs at the output where average cost is minimized.

Accepted Answer

Productive efficiency is achieved when a firm operates at the lowest point on its average cost curve, meaning it produces goods or services at the minimum possible cost per unit.

Question 10

A monopolist can make abnormal profits in the long run due to the existence of ________ to entry.

Accepted Answer

The answer of A monopolist can make abnormal profits in...

Question 11

A profit-maximizing monopoly:&#10;A) Is a price taker.&#10;B) Can only earn normal profits in the long run.&#10;C) Is not able to benefit from barriers to entry.&#10;D) Is a price maker.

Accepted Answer

The answer of A profit-maximizing monopoly:&#10;A) Is a price taker.&#10;B)...

Question 12

Abnormal profit occurs when:&#10;A) Price is greater than average cost.&#10;B) Price is greater than average variable cost.&#10;C) Price is greater than marginal cost.&#10;D) Price is greater than average fixed cost.

Accepted Answer

The answer of Abnormal profit occurs when:&#10;A) Price is greater...

Question 13

A monopolist may be allocatively inefficient if:&#10;A) Price is greater than average cost.&#10;B) Price is greater than average revenue.&#10;C) Price is greater than fixed costs.&#10;D) Price is greater than marginal cost.

Accepted Answer

The answer of A monopolist may be allocatively inefficient if:&#10;A)...

Question 14

In a monopoly the firm:&#10;A) Is a price taker.&#10;B) Is a price maker.&#10;C) Sets prices in collusion with other firms.&#10;D) None of the above.

Accepted Answer

The answer of In a monopoly the firm:&#10;A) Is a...

Question 15

The Theory of Contestable Markets considers:&#10;A) The likelihood of technology improving&#10;B) The possibility of economies of scale&#10;C) The likelihood of other firms entering the market&#10;D) The likelihood of higher profits

Accepted Answer

The answer of The Theory of Contestable Markets considers:&#10;A) The...

Deck 13: Monopoly