Deck 11: Monopoly

Question 1

Technical superiority can be a source of entry barriers.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

A natural monopoly is one that deliberately erects entry barriers.

Question 5

Owning a patent can provide a firm with monopolistic power.

Question 6

Monopolies are always large firms with great economies of scale.

Question 7

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.

Question 8

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

Question 9

A pure monopoly is defined as having only one seller.

Question 10

Natural monopolies are of theoretical, but not practical interest.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

Only government restrictions serve as entry barriers.

Question 16

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

Question 17

Pure monopoly markets are very common in the real world.

Question 18

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

Question 19

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

Question 20

The drug maker Pfizer enjoyed a monopoly of the antibiotic Lipitor because of patent rights.

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

A monopolist faces a horizontal demand schedule.

Question 29

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

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

Question 32

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

Question 33

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

Question 34

A monopolist is a price maker.

Question 35

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

Question 36

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

Question 37

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 38

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

Question 39

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

Question 40

The software industry has traits in common with monopoly markets.

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

A monopolist will stop production when MR equals MC.

Question 51

Inefficient resource allocation is a major problem with monopolies.

Question 52

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 53

Entry barriers can lead to long-run economic profits.

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

____ 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 62

Price discrimination occurs only in monopolies.

Question 63

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 64

Price discrimination is always illegal.

Question 65

Price discrimination only occurs under monopoly.

Question 66

Price discrimination allows a monopolist to make higher profits.

Question 67

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 68

A natural monopoly is characterized by the fact that its average costs increase rather than decrease when its output expands.

Question 69

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 70

Price discrimination leads to higher prices for all consumers.

Question 71

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 72

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 73

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 74

Which of the following is not a barrier to entry?

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

Question 75

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 76

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 77

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 78

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 79

A natural monopoly would benefit by being broken into many smaller firms.

Question 80

Economists consider price discrimination to always be undesirable.