Question 1

A monopoly can be temporary because of:
A) high barriers to entry.
B) privileges granted by the government.
C) economies of scale.
D) economic profits, which attract rivals.

Accepted Answer

A monopoly may be temporary due to the economic profits that it generates, which can attract potential competitors to enter the market. These new entrants create competition, reducing the market share of the existing monopoly.

Question 2

Situations in which the more users of a product there are, the more useful the product becomes are called:
A) network effects.
B) monopolies.
C) conglomerates.
D) exclusive franchises.

Accepted Answer

Network effects are situations where the value of a product or service increases as more people use it. This is because more users create a larger network or community, which in turn leads to more opportunities for interactions and benefits for the users. Monopolies, conglomerates and exclusive franchises are not related to this specific phenomenon.

Question 3

A location-based monopoly is most likely to result if a single firm:
A) is the only seller in a small town or community.
B) is investor owned, but granted the exclusive right by the government to operate in a market.
C) experiences long-run increasing economies of scale over a wide range of output.
D) has gained control over a strategic input of an important production process.

Accepted Answer

A location-based monopoly occurs when a single firm is the only seller in a specific geographic market, such as a small town or community. This firm has sole control over that market, which can lead to higher prices, lower quality products or services, and reduced consumer choice.

Question 4

A restricted-input monopoly is most likely to result if a single firm:
A) is the only seller in a small town or community.
B) is investor owned, but granted the exclusive right by the government to operate in a market.
C) experiences long-run increasing economies of scale over a wide range of output.
D) has gained control over a strategic factor of production.

Accepted Answer

A restricted-input monopoly occurs when a firm gains control over a strategic factor of production, such as owning a patent, exclusive access to a key resource, or proprietary technology. This allows the firm to limit the entry of competitors and maintain their market power. The other options may lead to a degree of market power, but not necessarily the level of control that would result in a restricted-input monopoly.

Question 5

A government-restrictions monopoly is most likely to result if a single firm:
A) is the only seller in a small town or community.
B) is investor-owned, but granted the exclusive right by the government to operate in a market.
C) experiences long-run increasing economies of scale over a wide range of output.
D) has gained control over a strategic input of an important production process.

Accepted Answer

A government-restrictions monopoly is one in which the government grants a single firm the exclusive right to operate in a market. This is often done for industries that are seen as essential or natural monopolies, such as utilities or telecommunications. The firm may still be investor-owned, but it operates under government restrictions that limit competition. This can lead to higher prices and reduced consumer choice, but it is done in the interest of promoting efficiency and stability.

Question 6

If you are the only seller of gasoline in a smaller town or community, your monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.

Accepted Answer

A monopoly based on location is often referred to as a natural monopoly, where the cost of entry into a market is so high that it prevents other competitors from entering. This can be the case in smaller towns or communities where there may not be enough demand to support multiple gasoline suppliers.

Question 7

If your local government gives you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.

Accepted Answer

The government restrictions or policies that grant the exclusive right to sell breakfast bagels in the community is the reason for the monopoly. This exclusivity is granted to the vendor as a legal protection against competitors, giving them complete control over the market.

Question 8

Barriers to entry are characteristics of a particular market:
A) in which the industry can make it so difficult for entry that only a few firms can do so, and this leads to monopoly power.
B) that block new firms from entering.
C) which include economies of scale, location advantages, and high sunk costs.
D) all of the above are true.

Accepted Answer

Barriers to entry refer to the characteristics of a particular market that make it difficult or even impossible for new firms to enter and compete with existing ones. These barriers can include economies of scale, location advantages, regulatory barriers, high sunk costs, brand identity, and so on. When these barriers are high, only a few firms can enter the market and dominate it, leading to monopoly power. Therefore, all of the above statements are true and describe the nature of barriers to entry.

Question 9

Which of the following is (are) true?
A) Firms constantly seek out the market power that monopoly offers.
B) Economic profits invite continuing attempts to break down the economic barriers that a monopoly may have.
C) Technological change and the pursuit of profit work against the entrenched power of monopolies.
D) All of the above are true.

Accepted Answer

All of the statements are true as they describe the dynamics of how firms operate in relation to monopoly power, the attraction of economic profits, and the impact of technological change on monopolies.

Question 10

Microsoft holds patents on Windows, but another source of its monopoly power identified in the book is:
A) the network effects associated with the standards set by Windows.
B) its willingness to use catalog sales as its primary form of retail sales.
C) its exclusive franchise from the government.
D) its restricted ownership of silica, the principle ingredient in manufacturing computer chips.

Accepted Answer

The network effects associated with the standards set by Windows play a significant role in Microsoft's monopoly power. Windows has become the dominant operating system because it has established a large network of complementary products and services that are dependent on it, making it difficult for competitors to enter the market. By controlling the standard, Microsoft has the power to dictate the terms of business to other companies, creating barriers to entry that protect their dominant market position.

Question 11

If a firm possesses monopoly power, it means that:
A) the firm can set its own price based on its output decision.
B) the firm's demand curve is always elastic.
C) the firm is necessarily a monopoly.
D) A and C are true.

Accepted Answer

If a firm possesses monopoly power, it means that the firm has the ability to set its own price based on its output decision. This is a defining characteristic of monopoly power. The demand curve for a monopoly is downward sloping, but it is not always elastic (as implied in choice B). Choice C is incorrect because a firm can have monopoly power without being the only firm in the market (i.e. a monopolistic competition or oligopoly market structure). Therefore, the correct answer is A.

Question 12

An expenditure that has already been made and cannot be recovered is called a _______ cost.
A) nonretrievable
B) floating
C) sunk
D) diseconomy of scale

Accepted Answer

A sunk cost refers to an expenditure that has already been incurred and cannot be recovered. It is not relevant in decision-making because it cannot be changed or recovered regardless of future action. Nonretrievable is not a commonly used term in economics. Floating cost refers to a cost that changes with changes in production levels. Diseconomy of scale refers to a situation where the cost per unit increases as production increases beyond a certain level.

Question 13

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles.High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand.Your monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.

Accepted Answer

The high fixed costs and decreasing average costs indicate economies of scale. This would give the company a monopoly as it would be difficult for any potential competitors to match the economies of scale in the industry.

Question 14

A monopoly can be temporary because of:
A) high barriers to entry.
B) privileges granted by the government.
C) economies of scale.
D) technological change.

Accepted Answer

Technological change can disrupt the market and create new competitors, thereby breaking a company's monopoly. For example, the rise of online streaming services disrupted the monopoly of traditional cable companies.

Question 15

A firm that confronts economies of scale:
A) at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly.
B) over the entire range of outputs demanded is called a natural monopoly.
C) at any particular level of output is called a natural monopoly.
D) has a continually rising long-run average cost curve.

Accepted Answer

A natural monopoly occurs when a firm experiences economies of scale over the entire range of outputs demanded, allowing it to supply the entire market at a lower cost than any combination of multiple firms.

Question 16

Suppose that your firm has spent several decades establishing a well-known brand name through advertising.If other firms are prevented from entering your industry because of high advertising expense, your monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In this case, the high advertising expense that other firms would need to incur to establish their own brand name is a sunk cost. This would prevent other firms from entering the industry and competing with your firm, resulting in a monopoly.

Question 17

A sunk-cost monopoly is most likely to result if a single firm:
A) is the only seller in a small town or community.
B) is investor owned, but granted the exclusive right by the government to operate in a market.
C) experiences long-run increasing economies of scale over a wide range of output.
D) has made extensive investments in advertising to establish brand-name recognition among consumers.

Accepted Answer

A sunk-cost monopoly arises when a firm has made significant investments, known as sunk costs, in equipment, advertising, or other assets that cannot be recovered if the firm exits the market. Option D suggests that a firm has made extensive investments in advertising to establish brand-name recognition among consumers, which is a classic example of sunk-cost investment. Therefore, option D is the best choice. Options A and B are incorrect because they do not describe the conditions necessary for a sunk-cost monopoly to arise. Option C is incorrect because long-run increasing economies of scale can lead to natural monopoly, but not necessarily a sunk-cost monopoly.

Question 18

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:
A) sunk costs.
B) location.
C) restricted ownership of inputs.
D) government restrictions.

Accepted Answer

The monopoly in this scenario results from restricted ownership of inputs, as the rare cocoa bean needed to make chocolate-covered peanuts is only available from the farm in question. This limits the ability of other sellers to enter the market and offer a substitute product, giving the farm exclusive control over the supply of the crucial ingredient.

Question 19

An expenditure that has already been made that cannot be recovered is a(n):
A) sunk cost.
B) accounting outlay.
C) indirect expense.
D) economy of scale.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. It is not relevant in decision making since it is already in the past and cannot be changed.

Question 20

The Aluminum Company of America gained monopoly power because:
A) of its strategic location.
B) the considerable finances required to enter into the aluminum industry kept other firms out.
C) it had exclusive ownership of a resource required to produce aluminum.
D) it had been granted an exclusive franchise by Congress to sell aluminum in the United States.

Accepted Answer

The Aluminum Company of America (Alcoa) gained monopoly power primarily because it had exclusive ownership of bauxite mines, which are essential for producing aluminum.

Quiz 10: Monopoly

A monopoly can be temporary because of:

Situations in which the more users of a product there are, the more useful the product becomes are called:

A location-based monopoly is most likely to result if a single firm:

A restricted-input monopoly is most likely to result if a single firm:

A government-restrictions monopoly is most likely to result if a single firm:

If you are the only seller of gasoline in a smaller town or community, your monopoly would result from:

If your local government gives you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:

Barriers to entry are characteristics of a particular market:

Which of the following is (are) true?

Microsoft holds patents on Windows, but another source of its monopoly power identified in the book is:

If a firm possesses monopoly power, it means that:

An expenditure that has already been made and cannot be recovered is called a _______ cost.

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles.High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand.Your monopoly would result from:

A monopoly can be temporary because of:

A firm that confronts economies of scale:

Suppose that your firm has spent several decades establishing a well-known brand name through advertising.If other firms are prevented from entering your industry because of high advertising expense, your monopoly would result from:

A sunk-cost monopoly is most likely to result if a single firm:

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

An expenditure that has already been made that cannot be recovered is a(n) :

The Aluminum Company of America gained monopoly power because: