Deck 7: Monopoly

Question 1

Which of the following firms is likely to have the greatest market power?

A) A farmer who can sell as much lettuce as he can grow.
B) A single soft drink company serving a campus with no barriers to entry.
C) The sole producer of the latest computer microchip technology.
D) A regulated natural monopoly selling natural gas service.

Answer 1

C

Question 2

Monopolists are price:

A) Takers as are perfectly competitive firms.
B) Takers,but perfectly competitive firms are price makers.
C) Makers,but perfectly competitive firms are price takers.
D) Makers as are perfectly competitive firms.

Answer 2

C

Question 3

For a monopolist,marginal revenue is:

A) Equal to price,just as it is for a perfectly competitive firm.
B) Constant up to the rate of output that maximizes total revenues.
C) Always less than price,after the first unit.
D) The same as the demand curve.

Answer 3

C

Question 4

The demand curve for a monopolist:

A) Is steeper than the marginal revenue curve.
B) Lies below the marginal revenue curve at every point but the first.
C) Is the same as the marginal revenue curve.
D) Lies above the marginal revenue curve at every point but the first.

Question 5

The total quantities of a good that people are willing and able to buy at alternative prices defines:

A) Market equilibrium.
B) Marginal revenue.
C) Market supply.
D) Market demanD.

Question 6

Market power exists if a firm can alter:

A) Its costs of production.
B) The market price.
C) Its own supply curve.
D) The production function.

Question 7

A patent:

A) Is a government grant of exclusive ownership of an innovation.
B) Requires a firm to share its innovations with others.
C) Protects a perfectly competitive firm from competition.
D) Is an illegal method to protect an innovative idea.

Question 8

Since a monopoly has market power:

A) Its demand curve is upward sloping.
B) Its marginal revenue curve is below its demand curve.
C) It must hold price constant in order to sell an additional unit of output.
D) Its costs of production are minimal.

Question 9

An industry dominated by one firm is:

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

Question 10

Which of the following is true about market demand?

A) It is typically horizontal or flat.
B) It is downward sloping.
C) It is inconsistent with the law of demand.
D) It represents the quantity of a good people are willing,but not necessarily able,to buy.

Question 11

If the entire output of a market is produced by a single seller,the firm:

A) Is a monopoly.
B) Is competitive.
C) Is an oligopolist.
D) Faces a perfectly vertical demand curve.

Question 12

The demand curve for an individual monopolist:

A) Does not exist.
B) Slopes upward to the right.
C) Is the same as the market demand curve.
D) Is the same as the marginal revenue curve.

Question 13

Which of the following might be used to protect a monopoly from competition?

A) A horizontal demand curve.
B) Marginal revenue.
C) A patent.
D) A contestable market.

Question 14

The change in total revenue that results from a one-unit increase in quantity sold is:

A) Marginal cost.
B) Marginal revenue.
C) Marginal profit.
D) Total revenue.

Question 15

Which of the following is not a characteristic of a monopoly?

A) High barriers to entry
B) Differentiated product
C) Ownership of essential resources
D) Large economics of scale

Question 16

Which of the following is likely to be a monopolist?

A) A small firm with a patent granting it the exclusive right to produce a drug.
B) A large firm,such as HP,that produces a substantial portion of the printer market.
C) Bell Helicopter which is one of the largest producers of helicopters in the world.
D) A major car manufacturer such as General Motors.

Question 17

If a seafood restaurant can raise the price of its fried shrimp without losing all of its customers,then the restaurant definitely:

A) Has market power.
B) Is experiencing economies of scale.
C) Is using predatory pricing.
D) Has a monopoly.

Question 18

Which of the following is not true for a monopoly?

A) The demand curve for the monopoly and the market are the same.
B) It has no direct competitors.
C) It can use its market power to charge higher prices than a competitive firm.
D) It is a price taker.

Question 19

For a monopolist,the demand curve facing the firm is:

A) The same as for the perfectly competitive firm.
B) The same as the market demand curve.
C) Always below marginal revenue.
D) Perfectly elastic.

Question 20

Which of the following is likely to be a monopolist?

A) A potato chip company that sells lots of chips and competes with other chip producers.
B) A farmer who specializes in growing organic fruits and vegetables.
C) The sole producer of a new medical device for people with limited mobility.
D) The chemical company in a small town that employs most of the town's workforce.

Question 21

In order to sell one additional unit of output,a profit-maximizing monopolist must:

A) Increase the size of its factory.
B) Reduce marginal cost.
C) Increase marginal revenue.
D) Reduce the price of all units solD.

Question 22

A monopolist sets price at a point on the _______ curve,corresponding to the rate of output determined by the intersection of _______.

A) Demand;marginal revenue and marginal cost
B) Marginal revenue;marginal revenue and marginal cost
C) Average total cost;price and marginal cost
D) Demand;average total cost and marginal cost

Question 23

A monopolist sets its price:

A) Below the demand curve.
B) Without constraints since there is no competition.
C) At the rate of output where marginal revenue equals marginal cost.
D) At the minimum of the long-run average total cost curve.

Question 24

A monopolist:

A) Maximizes profit at the output where price equals marginal cost.
B) Charges a higher price than a competitive firm,ceteris paribus.
C) Is a price taker since it has market power.
D) Cannot earn an economic profit in the long run.

Question 25

Which of the following is true for a monopoly?

A) The intersection of total revenue and total cost establishes the profit-maximizing rate of output.
B) The demand curve indicates the highest price consumers are willing to pay for the rate of output.
C) Several different prices are compatible with the profit-maximizing rate of output.
D) The total revenue curve indicates the highest price consumers are willing to pay for the rate of output.

Question 26

For a monopolist,after the first unit of output,marginal revenue is always:

A) Constant.
B) Increasing.
C) Less than price.
D) Greater than marginal cost.

Question 27

Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each.In order to increase sales by one item per month,the monopolist must lower the price of its software by $1 to $49.The marginal revenue of the 11^th item is:

A) $1.
B) $39.
C) $49.
D) $50.

Question 28

A monopoly realizes larger profits than a comparable competitive market by charging a _______ price and producing _______ output.

A) Higher;the same level of
B) Higher;more
C) Lower;more
D) Higher;less

Question 29

Total profit can be calculated as:

A) Average total cost multiplied by price.
B) Total revenue divided by the quantity sold.
C) The difference between price and average total cost multiplied by the quantity sold.
D) Price and average total cost added together and then multiplied by the quantity solD.

Question 30

Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions for $25 each.In order to sell 101 prescriptions,the monopolist must lower the price to $24 per prescription.The marginal revenue of the 101^st prescription is:

A) -$76.
B) $24.
C) $25.
D) $2424.

Question 31

For a monopoly in long-run equilibrium,economic profits are likely to be:

A) Greater than zero.
B) Zero.
C) Less than zero.
D) Predatory.

Question 32

Why would a monopolist never set a price on a point in the inelastic portion of the demand curve?

A) Marginal revenue would be negative and therefore well below the marginal cost curve.
B) The point where marginal revenue equals marginal cost would be below the shutdown point.
C) The demand curve would be below the average total cost curve.
D) The monopolist would be operating at a loss.

Question 33

Which of the following statements is true,assuming the same cost and demand conditions?

A) A monopoly produces less output than a competitive firm.
B) A monopoly cannot earn an economic profit in the long run.
C) A monopoly charges a lower price than a competitive firm.
D) A monopoly maximizes profit where price equals marginal cost.

Question 34

In terms of pricing,which of the following is not true for a monopolist?

A) In the long-run economic profit is impossible.
B) Marginal revenue is always less then the price charged.
C) If marginal revenue is greater then marginal cost increasing output will increase profits (decrease loss).
D) Maximum profit (minimum loss)occurs where marginal revenue equals marginal cost.

Question 35

The price charged by a profit-maximizing monopolist occurs at:

A) The minimum of the average total cost curve.
B) The price where marginal cost equals marginal revenue.
C) A price on the demand curve above the intersection where marginal revenue equals marginal cost.
D) A price on the average cost curve below the point where marginal revenue equals marginal cost.

Question 36

The marginal revenue of a monopolist is:

A) Less than price because a monopolist is a price taker.
B) Less than price because to sell more output the firm must reduce the price on all units sold.
C) Above price because the firm is a price setter.
D) Always equal to price.

Question 37

Which of the following is true for a monopolist?

A) It is a price taker.
B) Profit is maximized where marginal cost equals marginal revenue.
C) The firm faces a horizontal or flat demand curve.
D) It will earn zero economic profit in the long run.

Question 38

Suppose a monopoly firm produces a medical device and can sell 15 items per month at a price of $2,000 each.In order to increase sales by one item per month,the monopolist must lower the price of its medical device by $100 to $1,900.The marginal revenue of the 16^th item is:

A) $100.
B) $400.
C) $1,900.
D) $2,000.

Question 39

If the price is $10 and marginal revenue equals marginal cost at $7 at a quantity of 400 lbs.If the firm's profit at that point is $800,find the average total cost.

A) $7
B) $8
C) $9
D) $10

Question 40

Which of the following do a monopolist and a competitive firm have in common?

A) Predatory pricing.
B) Barriers to entry.
C) Marginal cost pricing.
D) Profit-maximization rule.

Question 41

As noted in the text,which of the following protects the U.S.Postal Service as the provider of first-class mail?

A) A government franchise.
B) A patent.
C) Marginal cost pricing.
D) Predatory pricing.

Question 42

Which of the following is not an effective barrier to entry?

A) Low capital requirements.
B) Exclusive licensing.
C) Patent Protection.
D) Threat of entry.

Question 43

Obstacles that make it difficult or impossible for would-be producers to enter a market are known as:

A) Barriers to entry.
B) Monopoly profits.
C) Entry blockades.
D) Entry tariffs.

Question 44

As noted in the text,which of the following allowed Polaroid to win the monopoly power battle with Kodak?

A) A government franchise.
B) Natural monopoly.
C) A patent.
D) Exclusive licensing.

Question 45

As noted in the text,which of the following was used by Nintendo to control the video game market?

A) A natural monopoly.
B) Economies of scale.
C) A government franchise.
D) Exclusive licensing.

Question 46

Which of the following does not have the power to set prices?

A) A duopoly.
B) A monopoly.
C) An oligopoly.
D) A perfect competitor.

Question 47

Suppose a market is dominated by three firms.This type of market is called:

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

Question 48

Which of the following is consistent with a monopoly industry?

A) There are many firms.
B) Barriers to entry keep potential competitors out of the market.
C) There is pressure to reduce costs and improve product quality.
D) Zero economic profit in the long run.

Question 49

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

A) A patent.
B) Economic profits.
C) Exclusive licensing.
D) A government franchise.

Question 50

Which of the following helps to keep potential competitors out of a monopoly market?

A) Bundled products.
B) The profit motive.
C) Rising average total costs.
D) A high price for the gooD.

Question 51

Which of the following is not true about barriers to entry?

A) They allow a firm to control or restrict the amount of goods supplied in the market.
B) They allow a firm to earn economic profit in the long run.
C) They cause price to be lower and output higher than if they didn't exist.
D) They make it difficult for potential producers to enter a given market.

Question 52

Which of the following practices is Microsoft accused of using to restrict competition?

A) The threat of legal action.
B) Bundling products.
C) Exclusive licensing.
D) Government franchises.

Question 53

Which of the following is not consistent with a monopoly industry?

A) Production and supplies are constrained.
B) Barriers to entry keep potential competitors out of the market.
C) There is no pressure to reduce costs or improve product quality.
D) Many firms produce identical or similar products.

Question 54

In comparison to a competitive industry how is a monopoly different?

A) High prices and profits signal consumers' demand for more output.
B) Firms try to operate where marginal cost equals marginal revenue.
C) The product is standardized or unique.
D) During price adjustments price equals marginal cost throughout the process.

Question 55

Suppose two firms dominate a market and control price and output.This type of market is called:

A) A duopoly.
B) A monopoly.
C) Monopolistically competitive.
D) An oligopoly.

Question 56

Compared to a competitive market with the same long-run costs and market demand,a monopolist has:

A) Less pressure to reduce costs and less incentive to improve quality.
B) Less pressure to reduce costs and more incentive to improve quality.
C) More pressure to reduce costs and less incentive to improve quality.
D) More pressure to reduce costs and more incentive to improve quality.

Question 57

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

A) The exclusive right to produce a good.
B) The existence of substitute goods.
C) Legal action against new firms that enter the market.
D) A patent on important technology.

Question 58

Which of the following is consistent with a competitive industry?

A) Marginal cost pricing.
B) High barriers to entry.
C) Economic profit in the long run.
D) Production and supplies are constraineD.

Question 59

Which of the following is similar for both a competitive industry and a monopoly?

A) The level of economic profits in the long run.
B) Continuous pressure to improve product quality.
C) Profits signal consumers' demand for more output.
D) In the long run,average total costs are minimizeD.

Question 60

Under both monopoly and perfect competition,a firm

A) a price taker.
B) a price maker.
C) operates where marginal revenue equal marginal cost.
D) will in the long-run earn economic profits.

Question 61

The argument that concentration of market power enhances research and development efforts may be weak because:

A) Monopolies cannot afford basic research.
B) No one has attempted to gather any empirical evidence.
C) A monopoly may have no clear incentive to pursue new research and development.
D) No existing monopoly has a research and development program.

Question 62

If an increase in the size of a factory results in reductions in minimum average costs,this is known as:

A) Marginal cost pricing.
B) Diminishing marginal returns.
C) Rising average total cost.
D) Economies of scale.

Question 63

Firms that have significant market power tend to:

A) Produce at minimum average total costs.
B) Pursue cost reductions.
C) Pursue product improvements.
D) Inhibit economic growth.

Question 64

The market structure of the U.S.soft drink industry is most likely:

A) Perfectly competitive.
B) A monopoly.
C) Monopolistically competitive.
D) An oligopoly.

Question 65

A contestable market is:

A) A perfectly competitive market.
B) An imperfectly competitive situation with high barriers to entry.
C) An imperfectly competitive situation that is subject to entry.
D) A market with only one producer.

Question 66

A market made up of many firms,each of which has some distinct brand image,is called:

A) A price-setting market.
B) A monopolistically competitive market.
C) A perfectly competitive market.
D) An oligopoly.

Question 67

In which of the following industries is marginal cost pricing most likely?

A) Wheat.
B) Automobiles.
C) Breakfast cereals.
D) Computer software.

Question 68

Monopoly may not be a problem in contestable markets if:

A) The structure of a market is competitive.
B) Firms can exit from the market.
C) Antitrust regulations are enforced.
D) Potential competition exists.

Question 69

Which of the following is an argument in support of monopolies?

A) They increase output and raise prices,contributing to greater consumption of scarce resources.
B) They are protected from competition so they have greater ability to pursue research and development.
C) They contribute to efficient production when there are diseconomies of scale.
D) They provide the economic profit necessary for survival and efficient production in a market.

Question 70

Marginal cost pricing refers to the:

A) Offer of goods at prices equal to their marginal cost.
B) Sale of goods at the highest possible price.
C) Rate of output at which marginal cost equals marginal revenue.
D) Offer of goods at a price above marginal cost.

Question 71

In some situations a monopoly might be considered more desirable than a perfectly competitive firm:

A) Because a monopoly has more incentive to keep costs down.
B) Because a monopoly is the best way to increase output above the competitive level of production.
C) If economies of scale exist and can only be realized by a single firm.
D) Since price is less than marginal revenue for a monopoly.

Question 72

An industry in which one firm can achieve economies of scale over the entire range of output is referred to as:

A) A natural monopoly.
B) Perfectly competitive.
C) A neutral monopoly.
D) A contestable market.

Question 73

A natural monopoly is a firm that:

A) Produces a large volume of output and drives out most of its competitors.
B) Can produce the entire market supply more efficiently than any number of smaller firms.
C) Has government assistance in erecting high barriers to entry.
D) Guarantees the lowest price for consumers.

Question 74

The market structure of the U.S.fast food industry is most likely:

A) Perfectly competitive.
B) A monopoly.
C) Monopolistically competitive.
D) An oligopoly.

Question 75

Which of the following is an argument in support of market power?

A) Marginal cost pricing.
B) Economies of scale.
C) Price fixing.
D) Predatory pricing.

Question 76

In which of the following industries is marginal cost pricing most likely?

A) Laundry detergent.
B) Toothpaste.
C) Air travel.
D) Corn.

Question 77

Suppose a market has many firms and each firm has some brand image.This type of market is called:

A) Duopoly.
B) Monopoly.
C) Monopolistic competition.
D) Oligopoly.

Question 78

Consumers may not experience the benefits of economies of scale if a natural monopoly:

A) Raises price and fails to pass cost savings on to consumers.
B) Engages in marginal cost pricing.
C) Raises output beyond efficient levels.
D) Is regulated by the government.

Question 79

Which market structure is characterized by a few interdependent firms?

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

Question 80

Which of the following is an advantage of the competitive market structure?

A) Competitive firms have greater ability to pursue research and development.
B) Larger companies can produce goods more efficiently than smaller firms.
C) Competitive firms practice marginal cost pricing.
D) Competitive firms make better use of economies of scale.