Deck 8: Monopoly

Question 1

A monopolist, like a perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Answer 1

True

Question 2

The demand curve for a monopolist lies below the marginal revenue curve.

Answer 2

False

Question 3

When a monopolist is regulated to operate at a point where price equals marginal cost, it incurs an economic loss.

Answer 3

True

Question 4

A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.

Question 5

A monopoly firm can sell as much output as it wants at whatever price it sets.

Question 6

One difficulty associated with the average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Question 7

A natural monopoly exists when one large firm can produce a product at a lower per-unit cost than can smaller firms.

Question 8

Monopolists have no incentive to innovate as patents expire after a while.

Question 9

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

Question 10

Monopolies tend to produce a greater quantity and charge higher prices than perfectly competitive industries.

Question 11

A natural monopolist will voluntarily choose to produce at the point of allocative efficiency.

Question 12

Monopolists, unlike perfectly competitive firms, can continue to earn positive economic profits over time.

Question 13

A monopolist never incurs a loss.

Question 14

The Cellar-Kefauver Act made it illegal to engage in predatory pricing.

Question 15

Some near-monopolies have been important innovators.

Question 16

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Question 17

The welfare loss from monopoly is not really a loss to society as a whole since it is just a transfer from consumers to producers.

Question 18

Monopoly profits cannot persist in the long run because there are barriers to entry.

Question 19

Patents tend to slow down research and development.

Question 20

A profit-maximizing monopolist will choose to operate along the inelastic portion of its demand curve.

Question 21

Pure monopoly is a market structure:

A)that consists of a single supplier.
B)that involves many close substitutes.
C)that involves many competing firms.
D)that consists of a single buyer.
E)that has no barriers to the entry and exit of suppliers.

Question 22

The table below shows the quantity produced and the price set by a monopoly firm. Based on the table, the marginal revenue from the 14^th unit of output is _____.Table 8-1

A)$0.25
B)$46.00
C)$46.50
D)$49.75
E)$46.75

Question 23

A profit-maximizing monopolist will never produce at an output level where _____.

A)demand is elastic
B)it suffers economic losses in the short run
C)demand is inelastic
D)marginal revenue is zero
E)demand is perfectly elastic

Question 24

A monopolistic firm is a:

A)price taker that faces a horizontal market supply curve.
B)price taker that faces a horizontal market demand curve.
C)price maker that faces a upward-sloping market supply curve.
D)price maker that faces a horizontal market demand curve.
E)price maker that faces a downward-sloping market demand curve.

Question 25

Which of the following is true of a monopolist?

A)A monopolist has to reduce price on all units when it wants to expand output.
B)As a monopolist expands output, the average total cost of production declines.
C)A monopolist charges each consumer the highest possible price.
D)When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
E)A monopolist always sells as many units as demanded in the market at a competitive price.

Question 26

Which of the following is inconsistent with a monopoly?

A)A market where a single seller operates
B)A market that has a downward-sloping demand curve
C)A market where the firm is the price maker
D)A market that experiences economies of scale
E)A market that allows free entry of competing firms

Question 27

Which of the following is consistent with a monopoly?

A)A horizontal demand curve
B)The free entry of competitive firms
C)An increase in average total cost with increase in output
D)Marginal revenue that is less than the selling price
E)A single buyer

Question 28

If the marginal revenue from the tenth unit of output equals $4 for a non-discriminating, profit-maximizing monopolist and the marginal revenue from the ninth unit equals $6, then the price for the tenth unit is:

A)equal to $4.
B)is less than $4.
C)is greater than $4.
D)equal to $2.
E)equal to $6.

Question 29

If a monopolist's marginal revenue is less than zero over a range of output, then the price elasticity of demand must be:

A)greater than one.
B)equal to one.
C)less than one.
D)equal to zero.
E)less than zero.

Question 30

A price-discriminating monopoly firm will tend to charge a higher price to customers who have an inelastic demand than it does to customers with an elastic demand.

Question 31

U.S. public utilities are often:

A)perfect competitors.
B)created through patent protection.
C)regulated natural monopolies.
D)employee-owned public enterprises.
E)subject to diseconomies of scale.

Question 32

In order for a firm to be able to price discriminate, it must not be a price taker, there must be different demands from different groups of consumers, and there must be an ability to restrict resale.

Question 33

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

A)A patent on the design of the product
B)The absence of economies of scale in the product market
C)Government licensing of the product's producers
D)The control of an input crucial to produce the product
E)A downward-sloping demand curve for the product

Question 34

If a firm seeks to maximize total revenue, it should produce at the quantity where:

A)marginal revenue equals zero.
B)elasticity of demand is less than one.
C)elasticity of demand is greater than one.
D)marginal revenue is maximized.
E)marginal cost equals average revenue.

Question 35

A natural monopoly is likely to arise when:

A)the government restricts entry through licensing.
B)patents are awarded by the government to protect intellectual property.
C)economies of scale exist over a relevant range of industry demand.
D)a firm controls a crucial input to production.
E)average total cost rises over a relevant range of industry demand.

Question 36

A natural gas monopoly currently sells 100 cubic feet of gas at $1.10 per cubic foot. To sell one more cubic foot, the natural gas company must lower the price of gas to $1.09. Which of the following best describes the marginal revenue of the 101st cubic foot of natural gas?

A)The marginal revenue equals the price, which is$1.09.
B)The marginal revenue equals the change in price, which is $ 0.01.
C)The marginal revenue is less than $1.09.
D)The marginal revenue is greater than $1.09.
E)The marginal revenue equals $1.10

Question 37

A monopoly is characterized by:

A)a large number of sellers.
B)differentiated products.
C)large barriers to entry.
D)price-taking firms.
E)a single buyer.

Question 38

Which of the following is true for a monopoly?

A)The marginal revenue curve lies below the demand curve and is steeper than the demand curve.
B)The marginal revenue curve lies above the demand curve and is steeper than the demand curve.
C)The marginal revenue curve lies below the demand curve and is flatter than the demand curve.
D)The marginal revenue curve lies above the demand curve and is flatter than the demand curve.
E)The marginal revenue curve is a horizontal line, while the demand curve is downward sloping.

Question 39

The table below shows the quantity produced and the price set by a monopoly firm. Based on the table, the marginal revenue of the 28^th unit of output is _____.Table 8-2

A)−$16.50
B)−$13.50
C)$13.50
D)$16.50
E)$14.50

Question 40

For price discrimination to work, the person buying the product at a discount must face difficulty reselling the product.

Question 41

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the monopolist will produce ______.Figure 8-1:

A)Q₁ units of output
B)Q₂ units of output
C)Q₃ units of output
D)between Q₁ and Q₂ units of output
E)between Q₂ and Q₃ units of output

Question 42

Show Stoppers is a monopoly provider of ticket services for concerts and sporting events, and their current service charge is $10.00. In order to attract one more customer, they have to lower their service charge to $9.50. Show Stoppers' marginal revenue from this additional customer is:

A)equal to $9.50.
B)greater than $9.50.
C)less than $9.50.
D)between $10.00 and $9.50.
E)equal to $10.00

Question 43

A monopoly firm is producing at the output where marginal cost equals $6, marginal revenue equals $9, and average variable cost equals $5. To maximize profits, the firm should:

A)increase both output and price.
B)increase output but decrease the price.
C)decrease output and increase the price.
D)decrease both output and price.
E)decrease output, keeping price constant.

Question 44

A monopolist can sell 7 units per day at $7 per unit or 8 units per day at $6 per unit. Its marginal revenue for the eighth unit of output is:

A)$48.
B)$6.
C)$1.
D)−$1.
E)$7.

Question 45

A monopolist will shut down in the short run if:

A)marginal revenue is less than price.
B)price is less than marginal revenue.
C)total revenue is less than total fixed cost.
D)total revenue is less than total variable cost.
E)marginal revenue is less than marginal cost.

Question 46

At a given output level, a monopolist earns a profit only if:

A)the slope of the total revenue curve exceeds the slope of the total cost curve.
B)the height of the marginal revenue curve at the output produced exceeds the height of the marginal cost curve at that output.
C)the height of the demand curve at the output produced exceeds the height of the marginal revenue curve at that output.
D)the height of the demand curve at the output produced exceeds the height of the average total cost curve at that output.
E)the height of the marginal cost curve at the output level is equal to the height of the average total cost curve at that output.

Question 47

The table below shows a portion of the demand schedule faced by a monopoly firm. Based on the table, the marginal revenue of the third unit of output equals _____.Table 8-3

A)$12
B)$10
C)$8
D)$1
E)$6

Question 48

If a profit-maximizing monopolist finds that marginal cost is increasing and that it exceeds marginal revenue, it should:

A)increase output and decrease price.
B)increase price and decrease output.
C)decrease both price and output.
D)increase both price and output.
E)increase price, keeping output unchanged.

Question 49

Which of the following is not generally true about a profit-maximizing monopolist?

A)A profit-maximizing monopolist chooses an output level where average revenue equals marginal cost.
B)A profit-maximizing monopolist can potentially continue to earn economic profits in the long run.
C)A profit-maximizing monopolist charges a price that exceeds marginal cost.
D)A profit-maximizing monopolist chooses an output level where marginal revenue equals marginal cost.
E)A profit-maximizing monopolist faces no competition from rival firms as there are barriers to entry.

Question 50

Which of the following is a major difference between monopolists and firms in perfectly competitive markets?

A)Monopolists maximize profit, while firms in perfectly competitive markets maximize sales.
B)Monopolists may earn long-run economic profit, while firms in perfectly competitive markets cannot.
C)Monopolists are price takers, while firms in perfectly competitive markets are price makers.
D)Monopolists can earn short-run profit, while firms in perfectly competitive markets cannot.
E)Monopolists ensure greater consumer welfare, while firms in perfectly competitive markets do not.

Question 51

A perfectly competitive firm and a monopoly firm are alike in that:

A)both face horizontal demand curves.
B)both maximize profits at an output level where marginal revenue equals marginal cost.
C)both face economies of scale in the long run.
D)both earn zero economic profits in the long run.
E)both face competition in the long run because of the free entry and exit of rival firms.

Question 52

If the average total cost curve is always above the demand curve for a monopolist, _____.

A)the monopolist will be suffering from economic losses
B)the monopolist will be facing higher competition as there will be increased entry of rival firms into the market
C)the monopolist will be earning an economic profit
D)the monopolist will be producing inefficiently
E)the monopolist will be earning normal profit

Question 53

The figure below shows the revenue and cost curves of a profit-maximizing monopolist. Based on the figure, the monopolist will produce _____.Figure 8-2:

A)70 units of output
B)50 units of output
C)80 units of output
D)60 units of output
E)75 units of output

Question 54

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the region bounded by CADE represents ______.Figure 8-1:

A)total costs.
B)total losses.
C)total profits.
D)total consumer surplus.
E)total producer surplus.

Question 55

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the profit-maximizing monopolist's total revenue is indicated by the region ______.Figure 8-1:

A)0CEQ₁
B)0BFQ₂
C)0ADQ₁
D)CADE
E)BADF

Question 56

A monopolist can sell 20 units a week at a price of $10 per unit. To sell 21 units a week, it would have to lower its price to $9 per unit. The marginal revenue of the 21^st unit would be:

A)$9.
B)−$11.
C)−$12.
D)−$20.
E)$11.

Question 57

At a given level of output, a monopolist's marginal revenue is $10, marginal cost is $6, and economic profit is zero. If the market demand curve is downward sloping and its marginal cost curve is upward sloping, the monopolist:

A)can increase profit by increasing both output and price.
B)can increase profit by increasing output and decreasing its price.
C)can increase profit by increasing its price and decreasing its output.
D)should exit the market if significant fixed costs have been incurred.
E)can increase profit by decreasing both output and price.

Question 58

The figure below shows the revenue and cost curves of a profit-maximizing monopolist. Based on the figure, the total cost of producing the profit-maximizing level of output is indicated by the region ______.Figure 8-1:​

A)0CEQ₁
B)0BFQ₂
C)0ADQ₁
D)CADE
E)BADF

Question 59

A monopolist will operate at the quantity where:

A)average revenue equals average cost.
B)marginal revenue equals average cost.
C)average revenue equals marginal cost.
D)total revenue equals total cost.
E)marginal revenue equals marginal cost.

Question 60

If a profit-maximizing monopolist is currently operating on the inelastic region of its demand curve, it should:

A)increase price and decrease output.
B)decrease both price and output.
C)increase both price and output.
D)decrease price and increase output.
E)decrease price while keeping output constant.

Question 61

The patent system is intended to:

A)prevent natural monopolies from unfairly exploiting their cost advantages.
B)reward innovators by granting them temporary monopolies.
C)spread information among firms as quickly and economically as possible.
D)give small businesses a competitive edge over larger businesses.
E)correct negative externalities.

Question 62

There are two tables below. The first one shows a monopoly's costs of producing different units of canned iced coffee. The second table shows the demand schedule for canned coffee. Based on the table, at the profit-maximizing level of output, the firm's profits equal _____.Table 8-4Table 8-5

A)$2.35
B)$8.25
C)$10.00
D)$10.25
E)$6.00

Question 63

Welfare loss occurs in a monopoly because:​

A)marginal revenue exceeds marginal cost.
B)the monopolist restricts output below the socially efficient level.
C)average variable cost is not minimized.
D)total cost is not minimized.
E)the monopolist restricts the price below what would be charged under perfect competition.

Question 64

There are two tables below. The first one shows a monopoly's costs of producing different units of canned iced coffee. The second table shows the demand schedule for canned coffee. Based on the table, the monopolist's profit-maximizing level of output will be _____.Table 8-4Table 8-5

A)2 cans of iced coffee
B)3 cans of iced coffee
C)4 cans of iced coffee
D)5 cans of iced coffee
E)7 cans of iced coffee

Question 65

If an unregulated monopolist operates in a market, then:

A)customers will pay higher prices than if the market was competitive.
B)customers will purchase larger units of output than if the market was competitive.
C)society will be allocating its resources more efficiently than if the market was competitive.
D)the monopolist will be incurring an economic loss.
E)the monopolist will be producing at a point where price is lower than marginal cost.

Question 66

Which of the following is true about the Robinson-Patman Act?​

A)It made engaging in predatory activities illegal.
B)It forbade mergers if they led to weakened competition.
C)It toughened restrictions on mergers that reduced competition.
D)It forbade most forms of price discrimination.
E)It prohibited price fixing and collusion.

Question 67

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, welfare loss due to monopoly is indicated by the area _____.FIGURE 8-1

A)DGE
B)DFH
C)DFQ₂Q₁
D)EGQ₃Q₁
E)FEG

Question 68

Which of the following is true of monopolies?

A)Monopolists are concerned about reaping their monopoly profits, which retards technological innovation.
B)Monopolists always produce on the inelastic part of the demand curve because increased output leads to greater revenue.
C)Welfare losses that occur in a monopoly cannot be calculated.
D)Monopolists never incur economic losses in the long run.
E)Pure monopolies are abundant because many goods and services have only one producer.

Question 69

Which of the following is true about the Sherman Act?

A)It made engaging in predatory activities illegal.
B)It prohibited mergers if it led to weakened competition.
C)It encouraged firms to take advantages of the patent system.
D)It prohibited price discrimination.
E)It prohibited price fixing and collusion.

Question 70

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, in perfect competition, total welfare is denoted by the area _____.FIGURE 8-7​

A)a + b + c
B)d + e
C)a + b + c + d + e
D)a + b + d
E)c + e

Question 71

Which of the following statements is true?

A)Both a monopolist and a perfectly competitive firm earn zero economic profits in the long run.
B)A monopolist earns zero economic profits, while a perfectly competitive firm earns positive economic profits in the long run.
C)Both a monopolist and a perfectly competitive firm earn zero economic profits in the short run.
D)Both a monopolist and a perfectly competitive firm earn positive economic profits in the long run.
E)A monopolist earns positive economic profits, while a perfectly competitive firm earns zero economic profits in the long run.

Question 72

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the region bounded by FAGB represents _____.FIGURE 8-2

A)total costs.
B)total losses.
C)total profits.
D)total consumer surplus.
E)total producer's surplus.

Question 73

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the profit-maximizing monopolist's socially efficient level of output is _____.FIGURE 8-1

A)0Q₁
B)0Q₂
C)0Q₃
D)between 0Q₁ and 0Q₂
E)between 0Q₂ and 0Q₃

Question 74

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the welfare loss due to monopoly pricing and output practices is represented by the area _____.FIGURE 8-6​

A)ADB
B)DCB
C)ACB
D)DAP₁P₄
E)DP₄P₃C

Question 75

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, in a monopoly, deadweight loss is denoted by the area _____.FIGURE 8-7

A)b + c​
B)c + e
C)a + b + d
D)d + e
E)a + b + c

Question 76

Which of the following is not true?

A)The monopolist, like the perfect competitor, will maximize profits at the output where marginal revenue equals marginal cost.
B)The monopolist, like the perfect competitor, will maximize profits at the output where price equals marginal cost.
C)If a monopoly is incurring a loss, it will be eliminated by entry of other firms into the industry.
D)A monopolist produces at an output where the value to society from the last unit produced is greater than its marginal cost.
E)A monopolist incurs a loss if the demand is insufficient to cover average total cost.

Question 77

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, in perfect competition, producer surplus is indicated by the area denoted by _____.FIGURE 8-7

A)b + c​
B)b + d
C)d + e
D)d
E)c + e

Question 78

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the producer surplus is represented by the area _____.FIGURE 8-7

A)d
B)d + e
C)b + d
D)b + c + d + e
E)b + c

Question 79

The aim of antitrust policy is to:

A)provide adequate incentives for inventors and entrepreneurs.
B)prevent firms from acquiring or exercising undue market power.
C)protect established firms by deterring new entry into industries.
D)regulate the prices charged by perfectly competitive firms.
E)help infant industries by limiting competition against them.

Question 80

The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, consumer surplus is indicated by the area denoted by _____.FIGURE 8-7

A)a
B)a + b
C)a + b + c
D)a + b + d
E)c + e