Deck 12: Monopoly

Question 1

Scenario: The following excerpt is from "Throwing the Book at Apple" (Wall Street Journal, Review and Outlook, June 12, 2013):
At the time, prior to the existence of the tablet device market that Jobs created with the iPad, Apple did not sell e-books. Amazon sold nine of every 10. Justice claims Jobs then forced Amazon and every other e-book distributor to adopt a new e-book pricing model that harmed consumers.
Yet the average retail price for "trade" e-books has since dropped to $7.34 from $7.97, and Amazon's Kindle is still the industry leader with Apple trailing in third. Over the same period readers bought 447% more e-books, and they can choose from dozens of tablets for titles and other media content.
Refer to the scenario above.What market structure best describes the e-book market?

A) A monopoly
B) A competitive market with a few dominant firms producing substitutes
C) A competitive market with a few dominant firms producing identical goods
D) A perfectly competitive market

Answer 1

A competitive market with a few dominant firms producing substitutes

Question 2

Which of the following market structures provides socially efficient outcomes?

A) An oligopoly
B) A monopoly
C) Perfect competition
D) Monopolistic competition

Answer 2

Perfect competition

Question 3

U)S.Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets,or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law,or from any city,town,or place to any other city,town,or place,between which the mail is regularly carried,shall be fined not more than $500 or imprisoned not more than six months,or both….
The Code of Federal Regulation (CFR)Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity.Violation may result in injunction,fine or imprisonment or both and payment of postage lost as a result of the illegal activity…
Under these laws,the U.S.Postal Service ________.

A) has a monopoly power over private express mail
B) has a comparative advantage over private express mail
C) competes in an oligopoly market for private express mail
D) competes in a monopolistic competition against other private express mail carriers

Answer 3

has a monopoly power over private express mail

Question 4

Compared to a perfectly competitive industry,________ in a monopoly.

A) both consumer surplus and social surplus are larger
B) consumer surplus is lower but social surplus is larger
C) both consumer surplus and social surplus are smaller
D) consumer surplus is higher but social surplus is smaller

Question 5

Diet Coke ________ considered a product in a monopoly market,because ________.

A) is; it has only one producer: CocaCola company
B) is not; it has many substitutes
C) is; the CocaCola company has market power
D) is not; because it is produced in factories around the world

Question 6

Firms with market power ________.

A) are price takers
B) have constant marginal costs
C) always earn positive economic profits
D) have the ability to affect price

Question 7

________ refers to the ability of sellers to affect market prices.

A) Goodwill
B) Market hold
C) Market power
D) Capital adequacy

Question 8

Compared to a firm under perfect competition,a monopolist ________.

A) charges less and produces less
B) charges less and produces more
C) charges more and produces less
D) charges more and produces more

Question 9

A market structure in which there is no competition is referred to as a(n)________.

A) monopoly
B) oligopoly
C) monopsony
D) monopolistically competitive market

Question 10

The price chosen by a monopolist ________.

A) maximizes social surplus
B) maximizes consumer surplus
C) is dependent on the production of other firms
D) is independent of the production of other firms

Question 11

Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand.As a result,the firm's market share is almost 100 percent.Meanwhile,other firms are trying to regain their market shares through research and development.Is this firm a monopolist?

A) Yes, because it has a power to dictate the price consumers must pay.
B) Yes, because it is virtually the only firm in the market.
C) No, because it does not have a power to dictate the price consumers must pay.
D) No, because it faces potential competition from other companies.

Question 12

A market structure in which identical goods are produced by several different firms and sold at the market-determined price is referred to as ________.

A) an oligopoly
B) a monopoly
C) perfect competition
D) monopolistic competition

Question 13

A monopoly is characterized by ________.

A) taking price as given
B) producing where Price = Marginal cost
C) selling a good for which there are no close substitutes
D) selling identical goods

Question 14

A firm with market power ________.

A) faces a horizontal demand curve
B) faces a downward-sloping demand curve
C) has no ability to affect price
D) has long-run economic profits of zero

Question 15

Scenario: The following excerpt is from "Throwing the Book at Apple" (Wall Street Journal, Review and Outlook, June 12, 2013):
At the time, prior to the existence of the tablet device market that Jobs created with the iPad, Apple did not sell e-books. Amazon sold nine of every 10. Justice claims Jobs then forced Amazon and every other e-book distributor to adopt a new e-book pricing model that harmed consumers.
Yet the average retail price for "trade" e-books has since dropped to $7.34 from $7.97, and Amazon's Kindle is still the industry leader with Apple trailing in third. Over the same period readers bought 447% more e-books, and they can choose from dozens of tablets for titles and other media content.
Refer to the scenario above.Is Apple Inc.a monopolist in the e-book market?

A) Yes, because it is the only seller of e-books without actual or potential competitors.
B) Yes, because it has the power to affect the prices of e-books.
C) No, because it is not the only seller of e-books without actual or potential competitors.
D) No, because it does not have the power to affect the prices of e-books.

Question 16

A price-maker is a firm that ________.

A) has the power to affect the price of the product it sells
B) earns economic profits in both the short run and the long run
C) can sell any quantity of its product at the prevailing market price
D) sells its products at a price equal to the marginal cost of production

Question 17

________ is a market structure where only one firm provides a good or service that has no close substitutes.

A) An oligopoly
B) A monopoly
C) Perfect competition
D) Monopolistic competition

Question 18

Sellers in ________ are likely to have the highest market power.

A) a monopoly
B) an oligopoly
C) perfect competition
D) monopolistic competition

Question 19

The effect of the invisible hand is likely to be the strongest in ________.

A) an oligopoly
B) a monopoly
C) perfect competition
D) monopolistic competition

Question 20

In which of the following market structures does a seller have NO market power?

A) Monopoly
B) Oligopoly
C) Perfect competition
D) Monopolistic competition

Question 21

Greenaqua Corp.was given the exclusive right to produce and sell its newly introduced water purifier for 20 years.The right granted to Greenaqua is an example of a ________.

A) patent
B) blueprint
C) copyright
D) trademark

Question 22

A ________ is an exclusive right granted by the government to an author's intellectual property.

A) patent
B) blueprint
C) copyright
D) trademark

Question 23

Which of the following is not a barrier to entry?

A) Economies of scale
B) Patent laws
C) Decreasing marginal costs
D) Licensing

Question 24

Which of the following statements is true?

A) A monopoly is characterized by no entry barriers.
B) Perfect competition is characterized by high entry barriers.
C) Firms in a market with entry barriers are likely to have more market power than firms in a market with no entry barriers.
D) Firms in a market with no entry barriers are likely to have more market power than firms in a market with entry barriers.

Question 25

Which of the following is an example of a good produced under monopoly?

A) DVDs
B) Books
C) Aerated drinks
D) Patented software

Question 26

A ________ is the privilege granted to an individual or company by the government that gives them the sole right to produce and sell a good.

A) brand
B) patent
C) copyright
D) trademark

Question 27

In the long run,a monopolist ________.

A) will earn zero economic profits
B) always earns positive economic profits
C) may earn positive economic profits
D) will produce where Price = Marginal cost

Question 28

The monopoly market structure is characterized by ________.

A) low barriers to entry
B) free entry and exit
C) high barriers to entry
D) government regulation of price

Question 29

A copyright is a source of ________ market power.

A) legal
B) natural
C) regulated
D) competitive

Question 30

Which of the following is an example of a good produced under monopoly?

A) Steak at a streakhouse
B) A Mac laptop
C) Diet Coke
D) A patented drug

Question 31

A fundamental feature of a monopolistic market is that the firm ________.

A) can sell any quantity it desires at the current market price
B) can obtain any price for any quantity of output
C) faces a perfectly inelastic demand curve
D) faces the price and quantity trade-off dictated by market demand

Question 32

Compared to other market structures,monopolists ________.

A) maximize social surplus
B) encourage the entry and exit of new firms
C) set price lower than marginal revenue
D) produce goods that do not have close substitutes

Question 33

Which of the following statements is true?

A) A monopolist's product often has close substitutes.
B) Firms under perfect competition produce differentiated products.
C) Firms under monopolistic competition produce identical products.
D) Firms under oligopoly produce either identical or differentiated products.

Question 34

Which of the following is an example of legal market power?

A) A patent
B) The presence of a network externality
C) Control of a key resource
D) Economies of scale

Question 35

Differentiate between a patent and a copyright.

Question 36

A musician was guaranteed by the government that no one else could replicate or sell her music CDs.This is an example of a ________.

A) brand
B) patent
C) copyright
D) trademark

Question 37

Which of the following is an example of a good produced under perfect competition?

A) Cars
B) Corn
C) Bottled water
D) Patented software

Question 38

Suppose there are two market structures: Market A and Market B.Market A is characterized by the free entry and exit of firms,and the firms in the market face a horizontal demand curve.Market B has only one seller.
a)Identify the market structures.
b)Comment on the pricing mechanism,long-run profitability,and social surplus under both market structures.

Question 39

When a firm obtains market power through barriers to entry created not by the firm,but by the government,it is referred to as ________.

A) legal market power
B) regulated market power
C) natural market power
D) differentiated market power

Question 40

Natural barriers to entry ________.

A) include patent laws and exclusive franchises
B) most commonly arise through economies of scale
C) result from an increasing long-run average cost curve
D) must be sustained by government regulation

Question 41

Economies of scale in production act as a source of ________ market power.

A) legal
B) natural
C) competitive
D) regulated

Question 42

As a firm increases its output,its average total cost decreases.This is an outcome of ________.

A) the law of demand
B) economies of scale
C) diseconomies of scale
D) the law of diminishing returns

Question 43

Average total cost decreases with an increase in output because ________.

A) total variable cost decreases with an increase in output
B) average fixed cost decreases with an increase in output
C) the marginal cost of production increases with an increase in output
D) diminishing marginal returns set in after a particular level of production

Question 44

The main source of natural market power for a monopoly firm is ________.

A) the existence of economies of scale in production
B) patents and copyrights
C) government-regulated pricing policy
D) the price elasticity of demand for the product produced by the firm

Question 45

John uses WhatsApp Messenger to communicate with his friends.When he initially started using it,the messenger was not very popular among his friends,and John did not spend much time on it.As more and more of John's friends started using the messenger,the messenger's value to John increased substantially.What kind of externality is reflected in this example?

Question 46

A network externality occurs when ________.

A) the value of a product increases as more consumers start to use it
B) firms collude to sell products at a price higher than the equilibrium market price
C) a firm that has control over key resources auctions the resources off to other firms
D) the government interferes to prevent the concentration of market power in the hands of a few firms

Question 47

You are good at creating Web sites.You make a social media Web site similar to Facebook,but after a while your Web site does not get enough attention and your business fails.This is because ________.

A) Facebook has a patent on social media and it challenges you in court
B) of the increasing average costs of running the Web site
C) of the network externality already established for Facebook
D) of the high costs of entering this market

Question 48

Natural monopolies are characterized by facing a(n)________.

A) horizontal demand curve
B) constant average cost curve
C) declining average cost curve
D) increasing average cost curve

Question 49

Which of the following is a current example of a monopoly granted by legal market power? (You need to do some information gathering for this problem.)

A) Diamond mining
B) Alcohol sales in Sweden
C) Telecommunication in the United States
D) Oil market

Question 50

U.S.Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets,or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law,or from any city,town,or place to any other city,town,or place,between which the mail is regularly carried,shall be fined not more than $500 or imprisoned not more than six months,or both….
The Code of Federal Regulation (CFR)Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity.Violation may result in injunction,fine or imprisonment or both and payment of postage lost as a result of the illegal activity…
Under these laws,the U.S.Postal Service has ________.

A) a legal market power in the private express mail market
B) a natural market power in the private express mail market
C) no market power in the private express mail market
D) no market power in the non-private express mail market

Question 51

Which of the following graphs correctly represents a natural monopoly market?

A) Market 1
B) Market 2
C) Market 3
D) Both market 1 and market 3

Question 52

During the early twentieth century,Alcoa bought up several bauxite (a source of aluminum ore)mines in the Caribbean.This is an example of ________.

A) natural market power
B) low barriers to entry
C) legal market power
D) a patent

Question 53

Which of the following statements is true?

A) Network effects arise because of economies of scale.
B) Economies of scale arise because of network effects.
C) Economies of scale act as barriers to entry into a market.
D) Network effects provide incentives for new sellers to enter the market.

Question 54

If a monopolist owns or controls a key resource necessary for production,the ownership of the resource is a source of ________ market power.

A) legal
B) natural
C) regulated
D) restricted

Question 55

A key resource is a material that is ________.

A) unlimited in supply
B) rationed by the government
C) available only to monopolies
D) essential for the production of a good

Question 56

Suppose that a fire-fighting service is offered by private firms and property owners can purchase the service for a fee (or not purchase the service).Does fire-fighting service have network externalities?

Question 57

Which of the following is NOT an example of natural market power?

A) Economies of scale
B) A copyright
C) Control of a key resource
D) Presence of a network externality

Question 58

Which of the following is an example of a monopolist granted a legal market power? (You need to do some information gathering for this problem.)

A) American Telephone and Telegraph Company until 1984
B) Major League Baseball in the United States
C) Salt Commission in China in the eighth and ninth centuries (Tang Dynasty).
D) All of the above

Question 59

In Barylia,Greenaqua Corp.is the sole controller of a resource required for the production of bottled drinking water.Therefore,Greenaqua Corp.enjoys ________ market power.

A) legal
B) natural
C) regulated
D) competitive

Question 60

Firm A is a monopoly because of network effects,whereas Firm B is a natural monopoly.Which of the following statements is likely to be true in this context?

A) The average total costs of both firms decrease as they increase their output.
B) The value of the product that both firms produce increases with an increase in the number of buyers.
C) Firm A enjoys a monopoly status because its marginal cost decreases with increase in output, whereas Firm B enjoys a monopoly status because the value of its product increases as more consumers buy it.
D) Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases as more consumers buy it.

Question 61

The following table shows the quantities of a good sold by a monopolist at different prices.

Refer to the table above.What is the total revenue of the monopolist when it charges a price of $6?

A) $1,550
B) $1,800
C) $2,150
D) $3,200

Question 62

Which of the following firms is most likely to have a constant marginal cost?

A) A firm that is a price-taker
B) A firm that has extremely high fixed costs
C) A firm that has extremely high variable costs
D) A firm that faces a horizontal demand curve

Question 63

A monopolist faces ________.

A) the market demand curve
B) a horizontal demand curve at the market price
C) a vertical demand curve
D) several close substitutes for its product or service

Question 64

Marginal revenue is less than the price for a monopolist because ________.

A) a monopolist must lower its price to sell another unit of output
B) the firm sets the price
C) there are no close substitutes for the firm's product
D) none of the above

Question 65

Which of the following statements is true?

A) A natural monopoly always arises from government intervention in the market.
B) An increase in consumer demand can change a natural monopoly into a multiseller market.
C) A natural monopoly earns higher profits than a monopolistically competitive firm because it faces an upward-sloping market demand curve.
D) A natural monopoly earns higher profits than a monopolistically competitive firm because it faces a horizontal market demand curve.

Question 66

The following table shows the quantities of a good sold by a monopolist at different prices.

Refer to the table above.What is the total revenue of the monopolist when it charges a price of $9?

A) $1,250
B) $1,350
C) $1,750
D) $2,250

Question 67

How is the demand curve faced by a perfectly competitive firm different from that faced by a monopoly? How does it affect its pricing policies?

Question 68

Why does the economy of scale lead to a monopoly situation in the market?

A) Because it provides legal barriers to entry into this market
B) Because a new firm in this market will face high average costs and cannot compete
C) Because it gives control of natural resources to only one firm
D) Because network effects provide incentives for new sellers to enter the market

Question 69

Which of the following statements is true?

A) A monopolist faces an upward-sloping demand curve.
B) A perfectly competitive firm faces an upward-sloping demand curve.
C) A monopolist can increase the price of its product and not lose all of its business.
D) A perfectly competitive firm can increase the price of its product without losing its business.

Question 70

Which of the following statements is true?

A) Network effects act as barriers to entry in a market.
B) Economies of scale act as incentives for new firms to enter a market.
C) If a firm is enjoying economies of scale, then its product must have network effects.
D) If a firm's product has network effects, then the firm must be enjoying economies of scale.

Question 71

Which of the following is not an example of economies of scale?

A) To produce tap water, the water companies had to invest in a huge network of water pipes.
B) Supermarkets can benefit from economies of scale, because they can buy food in bulk and get lower average costs.
C) Producing oil from tar sands in Alberta can generate profits only when the world price of a barrel of oil is high.
D) A bigger financial firm gets a lower rate of interest when borrowing.

Question 72

The following table shows the quantities of a good sold by a monopolist at different prices.

Refer to the table above.What is the total revenue of the monopolist when it charges a price of $3?

A) $1,050
B) $1,350
C) $1,750
D) $2,750

Question 73

What are the types of market power? How do they arise?

Question 74

If a new seller enters a market to compete with an existing natural monopoly,it will ________.

A) decrease costs for both sellers
B) increase the costs of production for both sellers
C) increase the production costs for the existing seller, and decrease the production costs for the new entrant
D) decrease the production costs for the existing seller, and increase the production costs for the new entrant

Question 75

Which of the following statements is true?

A) A monopoly is a price-taker because it faces a downward-sloping demand curve.
B) A monopoly is a price-maker because it faces a downward-sloping demand curve.
C) A perfectly competitive firm is a price-taker because it faces a downward-sloping demand curve.
D) A perfectly competitive firm is a price-maker because it faces a downward-sloping demand curve.

Question 76

Everything else remaining unchanged,if a new seller enters a market to compete with an existing monopoly that is enjoying economies of scale,it will lead to ________.

A) higher profits for both firms
B) higher profits for the existing firm
C) lower profits for the existing firm
D) greater market power for the existing firm

Question 77

If a monopolist decides to charge a higher price for its product,it will yield a ________ revenue per unit sold and ________ number of units sold.

A) lower; higher
B) lower; lower
C) higher; lower
D) higher; higher

Question 78

Which of the following is NOT an example of a natural monopoly?

A) Drinking water distribution
B) Electricity transmission
C) Interstate highway construction
D) Alcohol sales

Question 79

For a monopolist,________.

A) Marginal revenue > Price
B) Marginal revenue = Price
C) Marginal revenue < Price
D) Price = Marginal cost

Question 80

Which of the following statements correctly identifies a similarity between network effects and economies of scale?

A) Both are related to the costs incurred by a firm.
B) Both act as barriers to entry in a market.
C) Both act as disincentives to monopolies.
D) Both are related to the number of consumers using a firm's product.