Deck 9: Monopoly

Question 1

Market power means the ability to

A) earn a normal profit.
B) earn an economic profit.
C) have some control over price.
D) eliminate competition.

Answer 1

C

Question 2

To exercise market power, a firm must

A) be a monopoly.
B) have some control over price.
C) be the sole producer of a product.
D) rely on the government to protect its price.

Answer 2

B

Question 3

What is a characteristic of a monopoly industry?

A) easy entry and exit
B) barriers to entry
C) a vertical firm demand curve
D) many buyers and sellers

Answer 3

B

Question 4

Which of these is NOT a characteristic of a monopoly?

A) The market has just one seller.
B) There exist significant barriers to entry.
C) Close substitutes for the monopolist's product are available to buyers.
D) The monopolist has market power.

Question 5

A monopoly differs from a perfectly competitive market in that

A) a monopolist always earns a normal profit in the long run.
B) a monopoly market is easy to enter.
C) no close substitutes exist for the monopolist's product.
D) there is a lot of market power in a perfectly competitive market.

Question 6

Which characteristic is NOT typical of a monopoly?

A) There is only one seller.
B) There are significant barriers to entry.
C) There is low demand for the product.
D) There are no close substitutes for the product.

Question 7

A price maker is a firm that

A) can influence market price by adjusting its level of output.
B) can choose any price it wishes to sell at, whether or not it is on the demand curve.
C) makes a profit by selling at the highest price possible.
D) makes a loss if it charges a low price.

Question 8

A one-firm industry with no close product substitutes and substantial barriers to entry is called a(n)

A) monopsony.
B) monopoly.
C) competitive industry.
D) oligopoly.

Question 9

Papabear Corporation is a single seller of Wonderstuff, but there are two substitutes for Wonderstuff. Given this situation, Papabear

A) cannot be a monopoly because there are substitutes for Wonderstuff.
B) cannot be a monopoly because two substitutes make it a competitive market.
C) can still be a monopoly because it is unknown if the two substitutes are close substitutes.
D) acts as if it were competitive and takes the price set in the market.

Question 10

Barriers to entry allow

A) all monopolists to earn economic profits in the long run.
B) some monopolists to earn economic profits in the long run.
C) monopolists to charge as high a price as they want.
D) monopolists to make people buy more of a good than the people really want.

Question 11

______ describe(s) a type of barrier to entry for a monopoly in which one firm can operate more efficiently than two or more firms.

A) Patents
B) Copyrights
C) Economies of scale
D) Price discrimination

Question 12

The imposition of a tariff on a good produced by a monopolist provides it with additional protection because the tariff

A) reduces competition from imports by raising the import price.
B) prevents entrepreneurs from entering the market.
C) is added to the firm's profits.
D) allows more imports into the country.

Question 13

A constantly declining long-run average cost curve is a characteristic of what type of industrial structure?

A) monopoly
B) natural monopoly
C) oligopoly
D) perfect competition

Question 14

Natural monopolies are closely associated with

A) high-demand products.
B) low elasticities of demand.
C) market disequilibrium.
D) economies of scale.

Question 15

Which industry or firm would be an example of natural monopoly?

A) a pretzel company
B) Pabst Brewing Company
C) the market for cotton
D) an electric utility company

Question 16

Which of these is NOT an example of a natural monopoly?

A) the chemical industry
B) the local newspaper
C) the railroad industry
D) electric utilities

Question 17

Which of these is NOT a significant barrier to entry?

A) patents
B) government franchises
C) large economies of scale
D) opportunity costs

Question 18

An exclusive right granting ownership to individuals or firms of certain types of intellectual property for a period of time is called a

A) barrier to entry.
B) copyright.
C) natural monopoly.
D) resource ownership.

Question 19

Which of these is the BEST example of a barrier to entry?

A) comparative advantage
B) high elasticity of demand
C) a U-shaped long-run average cost curve
D) a government franchise

Question 20

Which of these is NOT a legal barrier to entry?

A) a government franchise
B) a patent
C) a copyright
D) control over a significant factor of production

Question 21

If the economies of scale are so large that only one firm can survive in the industry, then that industry is called a(n)

A) monopoly.
B) natural monopoly.
C) oligopoly.
D) oligopoly.

Question 22

In the United States, patents are usually granted for what amount of time?

A) 7 years
B) 10 years
C) 20 years
D) an unlimited amount of time

Question 23

Power plants have traditionally been considered natural monopolies due to

A) large economies of scale.
B) high variable costs.
C) labor expenses.
D) insurance premiums.

Question 24

_____ in an industry can be so large that demand is able to support only one firm.

A) Economies of scope
B) Diseconomies of scale
C) Economies of scale
D) Elasticity

Question 25

The exclusive right to produce or reproduce certain types of intellectual property (e.g., books, works of art) for an extended period of time is called a(n)

A) government franchise.
B) copyright.
C) patent.
D) output decision.

Question 26

The demand curve facing a monopoly firm is

A) horizontal at the market equilibrium price.
B) equivalent to the firm's marginal cost curve.
C) equivalent to the market demand curve.
D) upward sloping when the firm experiences economies of scale.

Question 27

Which of these is NOT true about the demand curve of a monopolist?

A) The firm's demand curve is the same as the market demand curve.
B) The demand curve is downward sloping.
C) The demand curve is perfectly elastic.
D) The marginal revenue curve is below the market demand curve.

Question 28

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium price for this monopolist?

A) $12
B) $16
C) $20
D) $30

Question 29

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium output for this monopolist?

A) 5 units
B) 12 units
C) 16 units
D) 20 units

Question 30

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, which statement is TRUE about this monopolist?

A) It is operating at a profit.
B) It is operating at a loss but will continue to produce.
C) It is operating at a loss and will shut down.
D) It is operating at a normal profit.

Question 31

Which statement is NOT true about determining the equilibrium price and quantity for a monopolist?

A) Monopolists use the MR = MC rule to determine optimal price and quantity levels.
B) Monopolists do not always earn a profit.
C) Monopolists select the price that is equal to the average total cost.
D) Price is determined by market demand.

Question 32

If a monopoly firm sells more than one unit of output, marginal revenue will then be

A) equal to the price.
B) less than the price.
C) greater than the price.
D) equal to market demand.

Question 33

Suppose that the only café in town can sell five fish dinners per night at a price of $10 each. If this monopoly firm wants to sell six fish dinners, it must reduce the price to $9 each. When the business pursues this strategy to increase sales, the marginal revenue from the sixth dinner sold is

A) $54.
B) $50.
C) $9.
D) $4.

Question 34

Perfectly competitive firms and monopoly firms should increase production when _____ marginal cost.

A) marginal revenue is less than
B) marginal revenue is greater than
C) price is less than
D) price is equal to

Question 35

Assume that at a given level of output, a monopoly firm has marginal revenue of $9, its average total cost is $9, and marginal cost is $7. If this firm were to increase its production by one unit, then its profit will

A) increase.
B) remain the same.
C) decrease.
D) change but cannot be determined without additional information.

Question 36

In a monopoly, the price of a good or service is always

A) less than the average total cost.
B) equal to marginal revenue.
C) greater than marginal revenue.
D) less than marginal revenue.

Question 37

(Figure: Determining Monopolist Profit) Based on the graph, the profit earned by the monopolist is represented by the rectangle

A) abfe.
B) aceg.
C) adeh.
D) abcd.

Question 38

(Figure: Determining Monopolist Profit) Based on the graph, the profit-maximizing price is at point

A) e
B) f
C) g
D) d

Question 39

(Figure: Determining Monopolist Profit) Based on the graph, the profit-maximizing firm's total revenue is represented by rectangle

A) abfe.
B) cdhg.
C) acge.
D) adhe.

Question 40

(Figure: Determining Monopolist Profit) Based on the graph, the profit-maximizing firm's total cost is represented by rectangle

A) bcgf.
B) cdhg.
C) acge.
D) bdhf.

Question 41

A monopolist will maximize its profit when it produces the quantity of output at which

A) MC is minimized.
B) MR = P.
C) MR = MC.
D) P is maximized.

Question 42

A monopolist will shut down when _____ in the long run and when _____ in the short run.

A) P > ATC; P = ATC
B) P < ATC; P > AVC
C) P = ATC; P < ATC
D) P < ATC; P < AVC

Question 43

Which statement is NOT correct for a monopolist?

A) Because it takes the demand curve as given, a monopolist has no influence over price.
B) A profit-maximizing monopolist will expand output until MR = MC.
C) Marginal revenue is less than the price at the profit-maximizing level of output.
D) A monopolist faces a downward-sloping market demand curve.

Question 44

If the monopolist charges the same price to each customer, to sell an additional unit of output requires that the price be lowered on each unit sold. For the monopolist, this leads to

A) MR = P.
B) MR > P.
C) MC = P.
D) MR < P.

Question 45

Why is MR < P for a monopolist?

A) The monopolist restricts output, and marginal cost rises as more output is produced.
B) The monopolist is constrained by market demand, so in order to sell even one more unit of output, it must lower the price.
C) The demand for the monopolist's product is price elastic.
D) The monopolist has large economies of scale, so its average total cost is constantly falling, and it can still profit at a lower price.

Question 46

Profit-maximizing monopolists never produce in the range of output where MR is negative because

A) costs and revenues are falling as output is rising.
B) costs are falling as revenues and output are rising.
C) costs and output are rising as revenues are declining.
D) costs, revenues, and output are rising.

Question 47

Because the market demand curve slopes down and to the right, the monopolist's marginal revenue will always be

A) greater than the market price.
B) less than the market price.
C) equal to the market price.
D) equal to total revenue.

Question 48

Marginal revenue is

A) equal to total revenue in monopoly industries.
B) equal to the change in total revenue derived from the sale of one additional unit.
C) always increasing for a monopoly.
D) equal to the market price in monopoly industries.

Question 49

(Table) Suppose a monopolist faces the demand schedule shown in the table. If the firm is currently selling 4 units per day and wants to sell 5 units per day, what is the effect on total revenue for this sale of one additional unit?
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { Demanded }\end{array} & \text { Price } \\\hline 1 & \$ 10 \\\hline 2 & \$ 8 \\\hline 3 & \$ 7 \\\hline 4 & \$ 5 \\\hline 5 & \$ 3 \\\hline 6 & \$ 2 \\\hline\end{array}$

A) Total revenue falls by $5.
B) Total revenue rises by $20.
C) There is no effect on total revenue.
D) Total revenue falls by $15.

Question 50

(Table) Suppose a monopolist faces the demand schedule shown in the table. Marginal revenue for the second unit of output is
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { Demanded }\end{array} & \text { Price } \\\hline 1 & \$ 10 \\\hline 2 & \$ 8 \\\hline 3 & \$ 7 \\\hline 4 & \$ 5 \\\hline 5 & \$ 3 \\\hline 6 & \$ 2 \\\hline\end{array}$

A) $8.
B) $21.
C) $6.
D) $2.

Question 51

(Table) Suppose a monopolist faces the demand schedule shown in the table. If the marginal cost is $6, then the profit-maximizing output is
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { Demanded }\end{array} & \text { Price } \\\hline 1 & \$ 10 \\\hline 2 & \$ 8 \\\hline 3 & \$ 7 \\\hline 4 & \$ 5 \\\hline 5 & \$ 3 \\\hline 6 & \$ 2 \\\hline\end{array}$

A) 1 unit.
B) 2 units.
C) 3 units.
D) 4 units.

Question 52

Which statement is TRUE?

A) Monopoly firms can incur losses and declare bankruptcy.
B) Monopoly firms will always earn economic profit because they have no competition.
C) Monopoly firms may suffer losses in the short run, but in the long run they will earn an economic profit.
D) Monopoly firms earn normal profit in the long run.

Question 53

The fundamental constraint on a monopoly firm's exercise of market power is

A) government regulation.
B) market demand.
C) diseconomies of scale.
D) decreasing marginal revenue.

Question 54

For a monopoly firm, if AVC < P < ATC, then the profit-maximizing firm should

A) increase production.
B) produce at the point at which MC = MR.
C) reduce production.
D) shut down.

Question 55

For a monopoly firm, if AVC = $20, P = $21, and ATC = $22, then the profit-maximizing firm should

A) increase production.
B) produce at the point at which MC = MR.
C) reduce production.
D) shut down.

Question 56

For a monopoly firm, if AVC = $35, P = $30, and ATC = $40, then the profit-maximizing firm should

A) increase production.
B) produce at the point at which MC = MR.
C) reduce production.
D) shut down.

Question 57

(Figure: Interpreting Cost and Revenue Curves) The graph shows the cost and revenue curves for a monopolist. Based on the graph, the monopolist

A) suffers a loss.
B) earns normal profit.
C) earns economic profit.
D) breaks even.

Question 58

For the monopolist, average profit per unit equals

A) P- ATC
B) P - AVC.
C) P- MC.
D) P - MR.

Question 59

A monopolist sells 2,000 units for $20 each. The total cost of producing 2,000 units is $30,000. If the price falls to $19, the number of units sold increases to 2,100. The total cost of producing 2,100 units is $30,075. Total profits at 2,000 units of output and a price of $20 are

A) $30,000.
B) $20,000.
C) $10,000.
D) $0 in the long run.

Question 60

A monopolist sells 2,000 units for $20 each. The total cost of producing 2,000 units is $30,000. If the price falls to $19, the number of units sold increases to 2,100. The total cost of producing 2,100 units is $30,075. When the monopolist reduces its price from $20 to $19, its marginal revenue will

A) increase.
B) decrease.
C) stay the same.
D) be zero.

Question 61

As a single seller in her town, Jasmine could sell fifteen units at $12 per unit and sixteen units at $11.25 per unit. Her marginal revenue for the sixteenth unit is

A) $45.
B) $135.
C) $11.25.
D) $0.

Question 62

Which statement about monopolies is NOT correct?

A) In the short run, monopolies can suffer losses.
B) In the short run, monopolies never shut down.
C) In the long run, monopolies must at least earn normal profit.
D) In the long run, if losses persist, monopolies will exit the industry.

Question 63

Which statement is TRUE about monopolies?

A) Monopolies always earn economic profits.
B) If price falls below the minimum AVC, the monopolist shuts down.
C) If price falls below the minimum AVC, the monopolist continues to produce where MR = MC.
D) Monopolies never earn normal profit.

Question 64

(Table) According to the table, the monopolist's marginal revenue on the fifth unit of output is
$\begin{array}{|c|c|}\hline \mathbf{Q} & \mathbf{P} \\\hline 0 & 20 \\\hline 1 & 18 \\\hline 2 & 16 \\\hline 3 & 13 \\\hline 4 & 10 \\\hline 5 & 7 \\\hline 6 & 4 \\\hline\end{array}$

A) $35.
B) -$5.
C) -$11.
D) $40.

Question 65

The demand curve that the monopolist faces is

A) variable because the monopolist controls the demand curve.
B) positively sloped.
C) the market demand curve.
D) infinitely elastic.

Question 66

Companies that sell products through infomercials fall under the monopoly market framework structure because they

A) experience significant economies of scale.
B) practice perfect price discrimination.
C) earn economic profits.
D) advertise their products as one-of-a-kind goods.

Question 67

Why do many sellers whose products are advertised via infomercials fail?

A) The sellers advertise products that the consumer will not use on a daily basis.
B) The sellers are not bundling enough products together.
C) The sellers fail to distinguish these products from existing products.
D) The sellers do not know the consumers' price elasticity of demand.

Question 68

Which of these is a reason infomercials provide special prices to consumers only for a fixed time?

A) The infomercials advertise products that the consumer will not use on a daily basis.
B) The less time a consumer has to search for a substitute product, the more market power the seller has.
C) The sellers have limited production capacity.
D) The seller needs to save advertising dollars for future production runs.

Question 69

Which of these is NOT a characteristic of infomercials?

A) providing a limited-time-only order time frame to limit the time consumers can search for substitutes
B) bundling products to build perceived value
C) offering lifetime warranties
D) marginal cost pricing

Question 70

(Figure: Monopolist Production) Based on the graph, if the marginal cost of production is constant at $20 per unit produced, then the monopolist would produce _____ while the perfect competitor would produce _____.

A) 20 units; 20 units
B) 25 units; 50 units
C) 10 units; 40 units
D) 20 units; 40 units

Question 71

(Figure: Monopolist Production) Based on the graph, if the marginal cost of production is constant at $20 per unit produced, then the monopolist will earn total revenue of

A) $400.
B) $800.
C) $1,200.
D) $200.

Question 72

(Table: Monopoly) The monopolist represented in the table has a constant marginal cost per unit of $4. The profit-maximizing level of production for this monopolist would be
$\begin{array}{|c|c|}\hline \boldsymbol{Q} & \boldsymbol{P} \\\hline 0 & 90 \\\hline 3 & 81 \\\hline 6 & 72 \\\hline 9 & 63 \\\hline 12 & 54 \\\hline 15 & 45 \\\hline 18 & 36 \\\hline 21 & 27 \\\hline 24 & 18 \\\hline 27 & 9 \\\hline 30 & 0 \\\hline\end{array}$

A) 9 units.
B) 12 units.
C) 15 units.
D) 18 units.

Question 73

(Table: Monopoly) The monopolist represented in the table has a marginal cost per unit of $4 times the quantity produced. The profit-maximizing price for this monopolist would be
$\begin{array}{|c|c|}\hline \boldsymbol{Q} & \boldsymbol{P} \\\hline 0 & 90 \\\hline 3 & 81 \\\hline 6 & 72 \\\hline 9 & 63 \\\hline 12 & 54 \\\hline 15 & 45 \\\hline 18 & 36 \\\hline 21 & 27 \\\hline 24 & 18 \\\hline 27 & 9 \\\hline 30 & 0 \\\hline\end{array}$

A) $63.
B) $54.
C) $45.
D) $36.

Question 74

(Figure: Monopoly Market) A monopolist faces the market demand and marginal revenue curves in the graph. It has marginal cost of $20. To maximize profit, this monopolist should produce _____ units and charge a price of _____.

A) 20; $40
B) 40; $20
C) 25; $50
D) 20; $60

Question 75

Compared with competitive markets, monopolies charge _____ prices and produce a _____ output.

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

Question 76

For both the monopolist and the perfectly competitive firm, profit is maximized at the level of output where

A) P = MC.
B) P = MR.
C) P = ATC.
D) MR = MC.

Question 77

An important difference between perfect competition and a monopoly is that a monopoly

A) faces a downward-sloping demand curve, while the perfect competitor faces a horizontal demand curve.
B) faces an inelastic demand curve, while the perfect competitor faces an elastic demand curve.
C) always earns economic profit, while a perfect competitor earns economic profit only sometimes.
D) is not regulated by the market, while a perfect competitor is regulated by the market.

Question 78

A perfectly competitive firm charges a price that is _____ and produces _____ than a monopolist.

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

Question 79

A monopoly creates deadweight loss while a perfectly competitive industry does not because _____ than those of a perfectly competitive industry.

A) both monopoly output and price are higher
B) both monopoly output and price are lower
C) monopoly output is higher but its price is lower
D) monopoly output is lower but its price is higher

Question 80

A deadweight loss

A) results from a monopoly failing to protect its patent or government franchise.
B) occurs when the monopoly charges a price that is below the market price.
C) occurs when the monopoly charges a price that is below the marginal revenue.
D) is the same as welfare loss to society.