Deck 13: Monopoly and Antitrust

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

When a monopolist practices price discrimination,consumer surplus tends to increase.

Question 5

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

Question 6

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 7

The demand curve faced by a monopolist is the same as the marginal revenue curve.

Question 8

A price-discriminating monopoly firm will tend to charge a higher price to customers with a greater willingness to pay than it does to customers with a lower willingness to pay.

Question 9

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

Question 10

The U.S.Postal Service historically has had a monopoly over the market for the delivery of first-class letters in the United States.

Question 11

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 12

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 13

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

Question 14

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

Question 15

Peak load pricing - which causes consumers to pay higher prices at certain times - leads to greater efficiency.

Question 16

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

Question 17

A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive.

Question 18

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

Question 19

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

Question 20

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

Question 21

Which of the following is inconsistent with a monopoly?

A) a single seller
B) a downward-sloping demand curve
C) marginal revenue exceeds price
D) a U-shaped average total cost curve

Question 22

Which of the following can serve as a barrier to entry?

A) legal restrictions
B) patents
C) control of scarce inputs or resources
D) all of the above

Question 23

Which of the following is not a source of monopoly?

A) technologies that allow each of many small firms to produce at the same per-unit costs as one large firm
B) patents
C) control of crucial inputs
D) government licensing requirements

Question 24

If the average total cost curve is always above the demand curve of a monopolist:

A) that monopolist will suffer economic losses.
B) entry will occur, forcing the monopolist to reduce price and expand output.
C) the monopolist will earn an economic profit.
D) the monopolist must be producing inefficiently.

Question 25

Graphically 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.

Question 26

Why does the government allow some markets to be monopolized by granting patents?

A) to promote a more equal distribution of income
B) to correct for negative externalities
C) to promote technological progress
D) to ensure lower prices for consumers in the short run

Question 27

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

A) patent protection 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 a crucial input necessary to produce the product

Question 28

Pure monopoly:

A) is characterized by a single supplier.
B) is a market structure in which no close substitute products are available.
C) exists when entry and survival of potential competitors is extremely unlikely.
D) is characterized by all of the above.

Question 29

Which of these contributes to the existence of monopoly power?

A) the control of critical resources
B) legal barriers
C) patents
D) All of the above contribute to the existence of monopoly power.

Question 30

Graphically,the marginal revenue curve of a monopolist:

A) lies below the demand curve of a monopolist.
B) is the same as the demand curve of a monopolist.
C) lies above the demand curve of a monopolist.
D) is the same as the marginal cost curve of a monopolist.

Question 31

Which of the following is generally true of monopoly?

A) Price exceeds marginal cost.
B) Marginal revenue is less than price.
C) Output is restricted relative to the socially efficient level.
D) All of the above are generally true of monopoly.

Question 32

A monopolist will operate at the quantity where:

A) MR = MC and charge a price equal to marginal revenue.
B) MR = MC and charge a price equal to average variable cost.
C) MR = MC and charge a price corresponding to demand at that level.
D) MR = MC and charge a price corresponding to average total cost at that level.

Question 33

A monopolistic firm is a:

A) price taker that faces the market supply curve.
B) price taker that faces the market demand curve.
C) price maker that faces the market supply curve.
D) price maker that faces the market demand curve.

Question 34

Many communities have granted monopoly rights to cable companies.This is an example of a monopoly created through:

A) government licensing.
B) ownership of the cable resources.
C) patent protection.
D) smart business practices by shrewd entrepreneurs.

Question 35

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

A) To sell more units, a monopolist must increase the price on all units sold.
B) As a monopolist expands output, its average total cost declines.
C) When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
D) When a monopolist reduces price in order to sell more units, it must lower the price of some units that could otherwise have been sold at a higher price.

Question 36

Barriers that prevent the entry of new firms may arise because:

A) economies of scale exist over a substantial range of industry demand.
B) marginal revenue is less than average total cost.
C) the government protects some firms from competition.
D) of both (a) and (c).

Question 37

The demand curve of a monopolist is:

A) is identical to the marginal cost curve.
B) downward sloping and above the marginal revenue curve.
C) downward sloping and below the marginal revenue curve.
D) kinked because of recognized interdependence with other firms.

Question 38

The DeBeers Diamond Company,which owns most of the South African diamond production,has market power over the diamond trade.This market power was obtained through:

A) illegal means.
B) control of a scarce resource.
C) patent protection.
D) government licensing.

Question 39

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

Question 40

Which of the following is a characteristic of a monopoly?

A) a large number of sellers
B) homogeneous products
C) large barriers to entry
D) price taking firms

Question 41

Exhibit 13-1 Refer to Exhibit 13-1.The profit-maximizing firm's total revenue is indicated in the diagram as area:

A) 0CEQ₁.
B) 0BFQ₂.
C) 0ADQ₁.
D) CADE.

Question 42

Which of the following is likely in a monopolized market?

A) a price that exceeds marginal cost
B) a price that exceeds marginal revenue
C) a welfare loss due to the restriction of output
D) all of the above

Question 43

Monopoly results in a welfare loss because:

A) marginal revenue does not equal 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.

Question 44

Profit-maximizing monopolists choose a level of output such that:

A) average total cost is minimized.
B) price equals marginal revenue but exceeds average variable cost.
C) price equals marginal cost but exceeds average variable cost.
D) marginal revenue equals marginal cost.

Question 45

Exhibit 13-1 Refer to Exhibit 13-1.The socially efficient level of output equals:

A) 0Q₁.
B) 0Q₂.
C) 0Q₃.
D) none of the above.

Question 46

At his current level of output,a monopolist has a MR of $10,a MC of $6,and an economic profit of zero.If the market demand curve is downward sloping and his marginal cost curve is upward sloping,the monopolist:

A) is producing at the profit-maximizing level of output.
B) could increase profit by increasing output.
C) could increase profit by increasing his price.
D) should exit the market if significant fixed costs have been incurred.

Question 47

If a profit-maximizing monopolist finds that marginal cost is increasing and 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.

Question 48

Which of the following accurately describes a major difference between a monopolist and firms in perfectly competitive markets?

A) The monopolist maximizes profit; firms in perfectly competitive markets maximize sales.
B) The monopolist may earn long-run economic profit; firms in perfectly competitive markets cannot.
C) The monopolist is a price taker; firms in other markets are price searchers.
D) The monopolist may earn short-run profit; firms in perfectly competitive markets cannot.

Question 49

Exhibit 13-1 Refer to Exhibit 13-1.The profit-maximizing firm will produce at what level of output?

A) 0Q₁
B) 0Q₂
C) 0Q₃
D) None of the above.

Question 50

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.

Question 51

Based on the table below what is the marginal revenue of the 28^th unit of output?

A) -$16.50
B) -$13.50
C) $13.50
D) $16.50

Question 52

If marginal revenue on the tenth unit of output equals $4 for a non-discriminating,profit-maximizing monopolist,then price:

A) equals $4.
B) is less than $4.
C) is greater than $4.
D) must be equal to average total cost.

Question 53

For a profit-maximizing monopolist,the price of a product is:

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

Question 54

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

A) The monopolist faces a perfectly elastic demand curve.
B) The monopolist can potentially continue to earn economic profits in the long run.
C) The monopolist charges a price that exceeds marginal cost.
D) The monopolist chooses output where marginal revenue equals marginal cost.

Question 55

If a firm seeks to maximize total revenue,it should produce 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.

Question 56

Exhibit 13-1 Refer to Exhibit 13-1.If the firm is profit maximizing,the region bounded by CADE represents:

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

Question 57

Based on the table below what is the marginal revenue of the 14^th unit of output?

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

Question 58

Which of the following best explains why marginal revenue for a monopolist is less than the sales price?

A) To sell more units, the monopolist must reduce price on all units sold.
B) As the monopolist expands output, the average total cost of production declines.
C) The 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.

Question 59

Exhibit 13-1 Refer to Exhibit 13-1.The welfare loss due to monopoly is indicated in the diagram as area:

A) DGE.
B) DFH.
C) DFQ₂Q₁.
D) EGQ₃Q₁.

Question 60

Exhibit 13-1 Refer to Exhibit 13-1.Total cost when the monopolist is maximizing profits is indicated by area:

A) 0CEQ₁.
B) 0BFQ₂.
C) 0ADQ₁.
D) CADE.

Question 61

A profit-maximizing monopolist,if producing at all,chooses a level of output where:

A) total revenue is maximized.
B) total cost is minimized.
C) average total cost is minimized.
D) marginal revenue equals marginal cost.

Question 62

If a monopoly firm is at a level of output where MC equals $10 and is increasing,MR equals $10,and average variable cost equals $9.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) not change either the output or the price.

Question 63

A monopolist will shut down in the short run if:

A) price exceeds marginal revenue.
B) price is less than marginal revenue.
C) price is less than average total cost.
D) total revenue is less than total variable cost.

Question 64

Exhibit 13-3 A monopoly producer of canned iced coffee produces with the following costs:
Consumers demand iced coffee according to the following demand schedule:
Refer to Exhibit 13-3.What would the monopolist's profit-maximizing level of output be?

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

Question 65

A monopoly firm is charging the price the market will bear at a level of output where MC equals $22 and is increasing,MR equals $20,and average variable cost equals $17.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.

Question 66

Which of the following would likely be an example of a monopolistic industry?

A) fast-food restaurants
B) wireless phone service
C) auto manufacturing
D) none of the above

Question 67

What is the maximum amount of profit that the firm below could generate?

A) -$2,800
B) $2,400
C) $2,480
D) $2,880

Question 68

The consumer surplus lost because monopolists restrict the production of output represents a welfare loss because:

A) it is transferred to producers in the form of profit.
B) consumers pay a higher price than they would in a more competitive market.
C) society is not using its scarce resources in the best way possible.
D) of both a. and b., but not c.

Question 69

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 cost is less than average total cost.

Question 70

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

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

Question 71

Exhibit 13-2 Refer to Exhibit 13-2.The profit-maximizing firm will produce at what level of output?

A) 0Q₁
B) 0Q₂
C) 0Q₃
D) zero units

Question 72

Exhibit 13-3 A monopoly producer of canned iced coffee produces with the following costs:
Consumers demand iced coffee according to the following demand schedule:
Refer to Exhibit 13-3.At the profit-maximizing level of output,the firm's profits equal:

A) $2.35.
B) $8.25.
C) $10.00.
D) $10.25.

Question 73

A monopoly firm is charging the price the market will bear at a level of output where MC equals $6 and is increasing,MR 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.

Question 74

If an unregulated monopolist operates in a market,then:

A) customers will pay higher prices than if the market were competitive.
B) customers will purchase fewer units of output than if the market were competitive.
C) society will not be allocating its resources efficiently.
D) all of the above will occur.

Question 75

The following represents a portion of the demand schedule faced by a monopoly firm. The marginal revenue of the third unit of output equals:

A) $12.
B) $10.
C) $8.
D) $1.

Question 76

In the short run,a monopolist:

A) always suffers an economic loss.
B) always earns an economic profit.
C) always earns a normal rate of return.
D) may make an economic loss, an economic profit, or zero economic profits.

Question 77

A monopoly is inefficient because:

A) consumers are forced to pay higher prices for products.
B) firms are able to earn economic profits.
C) the cost of increased production is less than the value that society places on it.
D) price exceeds marginal revenue.

Question 78

Exhibit 13-2 Refer to Exhibit 13-2.The region bounded by P*ABC represents:

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

Question 79

What is the maximum amount of profit that the firm below could generate?

A) $2,220
B) $3,000
C) $3,300
D) $3,700

Question 80

A price-taking firm and a monopoly firm are alike in that:

A) price equals marginal revenue for both.
B) both maximize profits by choosing an output where marginal revenue equals marginal cost.
C) price exceeds marginal cost at the profit-maximizing level of output for both.
D) in the long run, both earn zero economic profits.