Deck 16: Monopoly

Question 1

A major characteristic of monopoly is

A)a single seller of a product.
B)multiple sellers of a product.
C)two sellers of a product.
D)a few sellers of differentiated products.
E)a few sellers of an identical product.

Answer 1

A

Question 2

A natural barrier to entry is defined as a barrier that arises because of

A)technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.
B)patents or licenses that exclude others from producing a good or service.
C)many firms producing the good and thereby allowing choice for all consumers.
D)anticompetitive practices by a firm that keep other firms from producing.
E)one firm owning a key natural resource.

Answer 2

A

Question 3

We define a monopoly as a market with

A)one supplier and no barriers to entry.
B)one supplier with barriers to entry.
C)many suppliers with no barriers to entry.
D)many suppliers with barriers to entry.
E)a few suppliers and barriers to entry.

Answer 3

B

Question 4

Which of the following describes a barrier to entry?

A)something that establishes a barrier to expanding output
B)anything that protects a firm from the arrival of new competitors
C)a government regulation that bars a monopoly from earning an economic profit
D)firms already in the market incurring economic losses so that no new firm wants to enter the market
E)Firms are legally prohibited from exiting the market in order to enter another market.

Question 5

A natural monopoly

A)arises as a result of legal barriers to entry.
B)occurs when one firm controls a natural resource.
C)arises when one firm can meet the entire market demand at a lower average total cost than two or more firms.
D)Both answers A and B are correct.
E)Both answers A and C are correct.

Question 6

A monopoly

A)must determine the price it will charge.
B)faces extensive competition from firms making close substitutes.
C)cannot price discriminate because such a pricing strategy is illegal in the United States.
D)has no control over the price it can charge.
E)Both answers B and C are correct.

Question 7

If a single firm can meet the entire market demand at a lower average total cost than a larger number of smaller firms, the single firm is

A)price discriminating.
B)a natural monopoly.
C)a legal monopoly.
D)efficient when profit maximizing.
E)an ownership-of-the-market monopoly.

Question 8

Which of the following firms is most likely to be a monopoly?

A)local restaurant
B)local distributor of natural gas
C)local book store
D)clothing store
E)local bank

Question 9

A monopoly produces a product ________ and there ________ barriers to entry into the market.

A)identical to its many competitors; are
B)with no close substitutes; are
C)identical to its many competitors; are no
D)with no close substitutes; are no
E)slightly different from those of its many competitors; are

Question 10

A barrier to entry is

A)the economic term for diseconomies of scale.
B)illegal in most markets.
C)anything that protects a firm from the arrival of new competitors.
D)a factor that increases competition because firms must continue to operate in the market in which they were founded.
E)the same as rent seeking.

Question 11

Which of the following is a characteristic of monopoly?

A)The firm faces competition from many other firms.
B)The firm produces a product that has many close substitutes.
C)There are barriers to enter the market.
D)The firm's demand is perfectly elastic.
E)The firm produces a product identical to that produced by its many competitors.

Question 12

One of the requirements for a monopoly is that

A)products are high priced.
B)there are several close substitutes for the product.
C)there is a product with no close substitutes.
D)the product cannot be produced by small firms.
E)there is no barrier to entry.

Question 13

A natural monopoly exists when

A)diseconomies of scale exist in an industry.
B)one firm can supply an entire market at a lower average total cost than can two or more firms.
C)a firm can engage in price discrimination.
D)the producers in an industry have formed a cartel.
E)a monopoly firm faces a horizontal demand curve.

Question 14

The good produced by a monopoly

A)has perfect substitutes.
B)has no substitutes at all.
C)has no close substitutes.
D)can be easily duplicated.
E)must be unable to be resold.

Question 15

A major characteristic of monopoly is that

A)no barriers to entry exist.
B)the product is identical to that produced by other companies.
C)a barrier to entry keeps out competitors.
D)competition is intense.
E)a few firms compete with each other.

Question 16

A natural monopoly is one that arises from

A)patent law.
B)economies of scale.
C)copyright law.
D)any government-imposed barrier to entry.
E)mergers.

Question 17

An example of a monopoly would be

A)one of many U.S. wheat farmers.
B)one of the few U.S. auto makers.
C)AT&T cell phone service.
D)the local water company.
E)Taco Bell

Question 18

Natural barriers to entry arise when, over the relevant range of output, there

A)are diseconomies of scale.
B)are constant returns to scale.
C)are several firms who produce at the lowest average cost.
D)are economies of scale.
E)is one firm that owns a key natural resource.

Question 19

A monopoly

A)is not protected by barriers to entry.
B)produces a good with no close substitutes.
C)faces a downward-sloping demand curve.
D)Both answers A and B are correct.
E)Both answers B and C are correct.

Question 20

A monopoly is a market with

A)many suppliers each producing an identical product.
B)no barriers to entry.
C)many substitutes.
D)one supplier.
E)many suppliers each producing a slightly different product.

Question 21

A natural monopoly's average cost curve
I∙intersects the demand curve while the average cost curve slopes downward.
Ii∙reaches its minimum before it intersects the demand curve.
Iii∙intersects the demand curve below the intersection of the marginal cost curve and the demand curve.

A)i only.
B)ii only.
C)iii only.
D)i and iii.
E)i, ii, and iii.

Question 22

Which of the following goods is the best example of a natural monopoly?

A)distribution of electricity
B)diamonds
C)first-class mail
D)a patented good
E)blouses

Question 23

Which of the following is a legal barrier to entry?
I) public franchise
Ii) government license
Iii) patent

A)iii only
B)i and iii
C)ii and iii
D)i, ii, and iii
E)i and ii

Question 24

A monopoly will arise if

A)two out of three of a town's pizzerias go out of business and only one new pizzeria opens.
B)the town council passes a law granting Nick's Pizza the exclusive right to operate in that town.
C)Papa Joe's Pizza becomes the largest pizza producer in town and Nick's Pizza stays small in size.
D)several big pizza chains force several small pizzerias out of business.
E)people decide they like pizza more than before so some pizzeria's gain new customers.

Question 25

Patents
I∙encourage the invention of new products and production methods.
Ii∙generally discourage innovation
Iii∙are exclusive rights granted to the inventor of a product or service.

A)i only
B)ii only
C)ii and iii
D)i and iii
E)i, ii, and iii

Question 26

Which of the following is an example of a natural monopoly?

A)the Pittsburgh Penguins hockey team, a National Hockey League team
B)Ford Motors, the large automobile producing company
C)Florida Power and Light, an electric utility in Florida
D)Sony, the Japanese producer of the Playstation III
E)JCPenney, the large department store chain

Question 27

Which of the following is an example of a natural monopoly?

A)the trademark protecting Gatorade
B)the talents of Tom Hanks
C)the local water company
D)the patent on an Intel processor
E)Debeers' ownership of a large fraction of the world's diamonds

Question 28

A natural monopoly arises when

A)one firm controls the supply of a unique resource.
B)a firm has many small firms that it can control.
C)there are firms which act together as a monopoly.
D)the long-run average cost curve slopes downward as it crosses the demand curve.
E)one firm naturally convinces the government to limit competition in the market.

Question 29

Which of the following would create a natural monopoly?

A)ownership of all the available units of a necessary input
B)an exclusive right granted to supply a good or service
C)requirement of a government license before the firm can sell the good or service
D)technology enabling a single firm to produce at a lower average total cost than two or more firms
E)a patent granted the producer of the good or service

Question 30

Ownership of a necessary input creates what type of barrier to entry?

A)legal barrier to entry
B)natural barrier to entry
C)a public franchise
D)a government license
E)ownership barrier to entry

Question 31

Which of the following is the best example of a natural monopoly?

A)ownership of the only ferry across Puget Sound for twenty miles
B)the United States Postal Service
C)the cable television company in your hometown
D)owning the only licensed taxicab in town
E)producing a patented drug

Question 32

The U.S.Postal Service's monopoly on first-class mail service is the result of

A)a natural monopoly.
B)a patent.
C)a public franchise.
D)a government license.
E)an ownership barrier to entry.

Question 33

Patents

A)are granted only to competitive firms and not monopolies.
B)require that monopolies increase the amount they produce.
C)increase the incentive to capture economies of scale.
D)increase the incentive to innovate.
E)grant the holder a monopoly that lasts forever.

Question 34

Which of the following can be a barrier to entry?
I∙ownership of a necessary input
Ii∙requiring a government license
Iii∙large diseconomies of scale

A)i only
B)ii only
C)i and iii
D)i and ii
E)i, ii, and iii

Question 35

The long-run average cost curve of a natural monopoly

A)is positively sloped until it crosses the demand curve.
B)intersects the demand curve while it is negative sloped.
C)intersects the demand curve while it is positively sloped.
D)is the natural monopoly's supply curve.
E)is the same as the natural monopoly's demand curve.

Question 36

For a natural monopoly, economies of scale

A)exist along the long-run average cost curve at least until it crosses the market demand curve.
B)and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.
C)lead to a legal barrier to entry.
D)as well as constant returns to scale and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.
E)are totally absent.

Question 37

The makers of the movie Titanic have some monopoly power over this film because the

A)movie is patented.
B)name Titanic is trademarked.
C)movie is protected by copyright law.
D)government has issued the maker of this movie a public franchise.
E)owner never price discriminated in marketing the movie.

Question 38

The U.S.Postal Service has a monopoly over first-class mail service because

A)the government has granted this agency a public franchise.
B)stamps are copyrighted.
C)stamps are trademarked.
D)stamps are patented.
E)it owns a vital resource, namely all mailboxes.

Question 39

If the technology for producing a good enables one firm to meet the entire market demand at a lower average total cost than two or more firms could, then that firm has

A)patented the market.
B)a natural monopoly.
C)increasing average total costs.
D)a legal barrier to entry.
E)a discriminatory monopoly.

Question 40

Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work?

A)patent
B)copyright
C)public franchise
D)government license
E)natural barrier

Question 41

If a monopoly wants to sell a larger quantity, it must

A)set a higher price.
B)maintain the current price.
C)set a lower price.
D)implement new technology.
E)increase the barrier to entry that protects it.

Question 42

A gas station in the mountains of Oregon has a monopoly over the retail gas market within a 50-mile radius.The station decides not to price discriminate.As a result, all consumers will pay

A)the highest price each consumer is willing to pay.
B)the lowest price possible.
C)a single price.
D)multiple prices.
E)a price that depends on their willingness to pay.

Question 43

Which of the following is an example of a person or firm that is most likely to have been granted a public franchise?

A)medical doctor
B)taxi cab driver
C)the local pizza parlor
D)the local telephone company
E)the local Honda dealership

Question 44

A monopoly is

A)a price taker.
B)able to ignore the demand for its product when setting its price.
C)able to set the price for its product.
D)able to earn only a normal profit in the long run.
E)a firm with no marginal revenue curve.

Question 45

In order for a hotel to successfully price discriminate so that senior citizens are given a discount, the hotel must be able to

A)offset the economic loss from charging senior citizens a lower price by lowering the marginal cost of renting rooms to senior citizens.
B)lower its prices to younger customers too.
C)prevent senior citizens from reselling their rooms to younger customers.
D)shift its demand curve rightward.
E)determine if a senior citizen can pay a higher price.

Question 46

A ________ monopoly sells different units of its good or service for ________.

A)price-discriminating; different prices
B)price-discriminating; the same price
C)single-price; the same price
D)single-price; different prices
E)Both Answers A and C are correct.

Question 47

Firms that can effectively price discriminate

A)can be either perfectly competitive firms or monopolies.
B)can prevent the resale of their products.
C)have only one class of buyers, buyers willing to pay a high price.
D)Both answers A and B are correct.
E)Both answers A and C are correct.

Question 48

Price discrimination is

A)always illegal in the United States.
B)defined as charging the same price to all consumers.
C)defined as charging different prices for different units.
D)setting the price to minimize the quantity sold.
E)Both answers A and C are correct.

Question 49

In States where the government runs liquor stores, the monopoly results from

A)economies of scale.
B)legal restrictions.
C)control of an essential resource.
D)patents.
E)public fear.

Question 50

Which of the following is an example of price discrimination?

A)UPS charges more if a package is sent from New York to Hawaii and less if it is sent from New York to New Jersey.
B)Frank's Furniture shop charges no delivery fee for furniture delivered within Dutchess County but charges $40 delivery fee outside of the county.
C)Albert pays 25 percent less on prescription drugs because he is a senior citizen.
D)Only answers A and B are correct.
E)Answers A, B, and C are all correct.

Question 51

A single-price monopoly

A)sets a single, different price for each consumer.
B)sets a single price for all consumers.
C)asks each consumer what single price they would be willing to pay.
D)sets a single, different price for each of two different groups.
E)sells each unit of its output for the single, highest price that the buyer of that unit is willing to pay.

Question 52

To encourage invention and innovation, the government provides

A)patents.
B)public franchises.
C)government licenses.
D)natural monopolies.
E)easily obtained ownership barriers to entry.

Question 53

To be able to price discriminate, a firm must

A)have a public franchise.
B)be a natural monopoly.
C)be able to prevent resales of its good.
D)have a patent.
E)have an ownership barrier to entry.

Question 54

Which of the following statements is correct?

A)Any firm can price discriminate.
B)Only firms that sell high-priced products can price discriminate.
C)In order to price discriminate, a firm must sell a good or service that cannot be resold.
D)In order to price discriminate, the firms must sell a low-priced product.
E)Price discrimination is always illegal.

Question 55

Price discrimination occurs when a firm

A)charges customers different prices for different goods.
B)is able to sell different units of a good at different prices.
C)charges customers the same price for different goods.
D)can determine which of the many market equilibrium prices it will charge.
E)has a marginal cost curve that is horizontal.

Question 56

A price-discriminating monopoly is a monopoly that

A)sells its output at a single price to all of its customers.
B)sells different units of a good or service at different prices.
C)has control over the resources used to produce the product.
D)has a license to sell the product.
E)illegally charges different customers different prices for the good it produces.

Question 57

Patents

A)are a legal barrier to entry.
B)remove legal barriers to entry.
C)create economies of scale.
D)decrease the incentive to innovate.
E)are prohibited in the United States.

Question 58

Which of the following is NOT correct about patents?

A)Patents encourage invention of new products.
B)Patents stimulate innovation.
C)A patent is a barrier to entry.
D)Patents enable a firm to be a permanent monopoly.
E)Patents are granted to the inventor of a product or service.

Question 59

Price discrimination is prevented in situations where

A)customers can resell the good.
B)firms have monopolies.
C)there are legal barriers to entry.
D)there are no close substitutes for the good or service.
E)customers have different willingnesses to pay for the good.

Question 60

Which of the following statements is correct?

A)Monopolies are guaranteed to earn an economic profit.
B)The market demand and the firm's demand are the same for a monopoly.
C)Monopolies have perfectly inelastic demand for the product sold.
D)Because a monopoly is the only firm in the market, its supply curve is the same as the market demand curve.
E)Because a monopoly is the only firm in the market, its marginal revenue curve must be the same as the market demand curve.

Question 61

For a single-price monopoly, price is

A)equal to marginal revenue.
B)greater than marginal revenue.
C)less than marginal revenue because the firm must lower its price in order to sell another unit of output.
D)less than marginal revenue because the firm cannot increase its total revenue when the demand curve is downward sloping.
E)equal to zero because the firm is not a price taker.

Question 62

A monopoly market has

A)a few firms.
B)a single firm.
C)two dominating firms in the market.
D)only two firms in it.
E)some unspecified number of firms in it.

Question 63

Suppose a single-price monopoly sells 3 units of a good at $20 per unit.If the monopoly sells 4 units, the total revenue increases to $72.What is the marginal revenue of the fourth unit?

A)$52
B)$18
C)$60
D)$12
E)$20

Question 64

The demand curve for a monopoly is

A)horizontal because the demand is perfectly elastic.
B)downward sloping.
C)vertical because the demand is perfectly inelastic.
D)upward sloping.
E)undefined because it is the only supplier in the market.

Question 65

Which of the following is always true for a single-price monopolist?

A)P > MR
B)P < MR
C)P = MR
D)P = elasticity of demand
E)None of the above answers is correct because none of them is always true.

Question 66

Total revenue is equal to

A)the change in price resulting from a one-unit increase in quantity sold.
B)the amount people will buy at a given price.
C)the change in the quantity sold when you change the price by one unit.
D)price multiplied by the quantity sold.
E)the price at which the good or service is sold.

Question 67

A legal barrier is created when a firm

A)has economies of scale, which allow it to produce at a lower cost than two or more firms.
B)is granted a public franchise, government license, patent, or copyright.
C)produces a unique product or service.
D)produces a standardized product or service.
E)has an ownership barrier to entry.

Question 68

A natural monopoly is one that arises from

A)patent law.
B)copyright law.
C)a firm buying all of a natural resource.
D)economies of scale.
E)ownership of a natural resource.

Question 69

A single-price monopoly faces a linear demand curve.If the marginal revenue for the second unit is $20, then the marginal revenue for the

A)first unit is less than $20.
B)third unit is less than $20.
C)third unit is more than $20.
D)third unit is also $20.
E)more information is needed to determine if the marginal revenue for the third unit is more than, less than, or equal to $20.

Question 70

For a monopoly, marginal revenue is equal to

A)the amount people buy at a given price.
B)the amount people buy between two prices.
C)the change in total revenue brought about by a one-unit increase in quantity sold.
D)the price multiplied by the quantity sold.
E)the price of the product.

Question 71

Two types of barriers to entry are called ________ barriers to entry and ________ barriers to entry.

A)legal; illegal
B)natural; legal
C)natural; illegal
D)natural; rent seeking
E)ownership; rent seeking

Question 72

For a single-price monopolist, why is marginal revenue less than price?

A)Because the firm is a price taker
B)To sell another unit, the price must be lowered.
C)Demand is elastic when another unit is sold.
D)Demand is inelastic when another unit is sold.
E)The question is false because marginal revenue is always equal to price.

Question 73

If a monopoly wants to sell a greater quantity of output, it must

A)lower its price.
B)raise its price.
C)tell consumers to buy more because it's a monopolist.
D)raise its marginal cost.
E)change its fixed costs.

Question 74

Suppose a single-price monopoly sells 3 units of a good at $20 per unit.If the monopoly sells 4 units, the total revenue increases to $72.What price is being charged for 4 units?

A)$52 each
B)$18 each
C)$60 each
D)$12 each
E)$20 each

Question 75

The marginal revenue for a single-price monopoly with a downward-sloping demand curve

A)is less than the price.
B)is greater than the price.
C)is equal to the price.
D)might be more than, less than, or equal to the price, depending on whether the slope of the demand curve exceeds 1.0 in magnitude.
E)might be more than, less than, or equal to the price, depending on whether the price elasticity of demand exceeds 1.0 in magnitude.

Question 76

Suppose a monopoly can sell 10 units of output for $21.In order to sell 11 units of output, the price must fall to $20.What is the marginal revenue of the 11th unit?

A)$41
B)$20
C)$10
D)$1
E)$220

Question 77

Pizza producers charge one price for a single pizza and almost give away a second one.This is an example of

A)monopoly.
B)a barrier to entry.
C)behavior that is not profit-maximizing.
D)price discrimination.
E)rent seeking.

Question 78

A single-price monopoly can sell 2 units for $8.50 per unit.In order to sell 3 units, the price must be $8.00 per unit.The marginal revenue from selling the third unit is

A)$24.00.
B)$8.50.
C)$7.00.
D)$6.50.
E)$17.00.

Question 79

A single-price monopoly can sell 10 units of its product at a price of $45 each but to sell 11 units, the monopoly must cut the price to $44.What is the marginal revenue of the extra unit sold?

A)$484
B)$450
C)$44
D)$34
E)-$1

Question 80

A single-price monopoly

A)must practice price discrimination.
B)can lower its price for only a few select consumers if it wants to increase its sales.
C)will set its price equal to a consumer's willingness to pay.
D)must lower the price for all customers if it wants to increase its sales.
E)is able to raise its price as high as it wants and consumers must still buy from it because it is a monopoly.