Deck 8: The Economics of Monopoly Power: Can Markets Be Controlled

Question 1

A pure monopoly industry has a 4-firm concentration ratio equal to

A)0
B)0.25
C)050
D)0.9
E)1.0

Answer 1

E

Question 2

To maximize profits,a competitive firm produces the output level at which

A)Its total receipts are greatest
B)Its total costs are minimum
C)Its marginal cost equals its marginal revenue
D)Its total costs equal its total receipts
E)None of the above

Answer 2

C

Question 3

Which of the following is likely to have the most monopoly power?

A)Ford Motor Corporation
B)Your local water company
C)Mobil Oil Corporation
D)Avon products (cosmetics)
E)A fast food restaurant

Answer 3

B

Question 4

Imperfect competition can best be described as a situation in which

A)A few large firms produce and sell a particular product
B)Many firms produce and sell a product
C)Only one firm produces and sells a product
D)Firms exercise some monopoly power
E)Both (a)and (d)

Question 5

Concentration ratios are used to measure the

A)Potential monopoly power within an industry
B)Strength of the demand for an industry's product
C)Potential monopoly power of a firm
D)Degree of competition between firms in different markets
E)Level of perfection in a competitive market

Question 6

The Following Questions Refer to the table below.
The 4-firm concentration ratio in this industry is

A)0.5
B)0.6
C)0.7
D)0.8
E)0.9

Question 7

Profit equals

A)Total revenue minus total cost
B)Marginal revenue minus marginal cost
C)Quantity times price
D)Marginal cost minus marginal revenue
E)Income minus opportunity cost

Question 8

Which of the following would cause an industry's concentration ratio to make it appear less competitive than it really is?

A)Firms in the industry are located in one area of the country
B)Transporting the industry's output is very easy
C)Foreign firms export the industry's product to the United States
D)High barriers to entry
E)All of the above

Question 9

One difference between a competitive seller and a monopolistic seller is that the

A)Competitive firm faces a horizontal supply curve
B)Monopolist tries to maximize profit
C)Monopolist has some price setting ability
D)Competitive firm is free to vary output
E)Market demand curve is positively sloped for a monopoly

Question 10

In a competitive market,the single firm

A)Competes with other firms for its share of the market
B)Is unable to raise the price of the product
C)Can increase its sales by advertising
D)Can increase its sales by lowering its price
E)Is all of the above

Question 11

The Following Questions Refer to the table below.
Assume that no firm in this industry accounts for less than 5% of industry sales.What is the largest number of firms that could be in this industry?

A)6
B)7
C)8
D)9
E)10

Question 12

Monopoly

Question 13

To maximize profits,a monopolist produces the output level at which

A)Its total receipts are greatest
B)Its total costs are minimum
C)Its marginal cost equals its marginal revenue
D)Its total costs equal its total receipts
E)None of the above

Question 14

Profits and losses in a private enterprise economic system

A)Contribute toward a breakdown of the system
B)Lead to a monopolization of the industries in which they occur
C)Show where productive capacity should be expanded and where it should be contracted
D)Do all of the above
E)Do both (a)and (b)

Question 15

The Following Questions Refer to the table below.
The 6-firm concentration ratio in this industry is

A)0.6
B)0.7
C)0.8
D)0.9
E)1.0

Question 16

For a firm,at the output level at which marginal revenue equals marginal cost,

A)Profits are highest
B)There is neither unemployment nor inflation
C)Output is maximized
D)Revenues are maximized
E)Costs are minimized

Question 17

Suppose the U.S.auto industry sells 1,000 autos per year.Of this,GM sells 400,Ford 300,and Dodge 250.Given this information,the four-firm concentration ratio of the industry must be at least

A)95%
B)5%
C)50%
D)100%
E)Cannot tell without further information

Question 18

A major objective of firms in all types of market structures is

A)Output restriction
B)Output maximization
C)To raise prices
D)Profit maximization
E)To maximize revenues

Question 19

The monopoly power of a firm can be measured by the firm's

A)Profits relative to other firms in the industry
B)Control over the demand for its product
C)Revenues as a percent of industry revenues
D)Prices compared to average prices in the industry
E)Control over the market supply of its product

Question 20

A firm's total revenue equals its

A)Income minus expenses
B)Pre-tax net income
C)Income for tax purposes
D)Quantity times price
E)Quantity times costs

Question 21

A monopoly is not efficient because

A)Price exceeds marginal cost
B)Entry into the market is blocked
C)Output is too large
D)Monopoly is illegal
E)Price is too low

Question 22

In a competitive market in the short run,firms

A)May earn profits or losses
B)Always break even
C)Earn neither profits nor losses
D)Must be free to enter or exit the market
E)Charge a high price and produce a low quantity

Question 23

The Following Questions Refer to the following graph.For each question,disregard any irrelevant lines.
The area of the triangle ABC

Question 24

Patents and copyright laws

A)Are governmental barriers to market entry
B)Encourage orderly market entry
C)Discourage research and development
D)Reduce monopoly power
E)Do all of the above

Question 25

The dead-weight welfare loss due to monopoly is

A)Too small to be important
B)About 10% of GDP per year
C)Unable to be determined in a complex economy such as our own
D)About 1% of GDP per year
E)About .01% of GDP per year

Question 26

The dead-weight welfare loss due to monopoly

A)Results from the monopolist's tendency to reduce output below the competitive level
B)Is a measure of the cost to society from the monopolistic misallocation of resources
C)Is estimated to be about 1% of GDP per year
D)Is a loss to consumers not offset by anyone else's gain
E)All of the above

Question 27

The Following Questions Refer to the graph below,which is for a firm in a competitive market.

The firm's total revenue is

A)$5
B)$7
C)$100
D)$150
E)$500

Question 28

If the demand curve faced by a firm is downward sloping and the market price of the product is above marginal cost of production,which of the following is correct?

A)Not enough of the economy's resources are being allocated to producing the good
B)Too much of the economy's resources are being allocated to producing the good
C)The firm is in a competitive market
D)The firm is making profits
E)The firm is losing money

Question 29

The Following Questions Refer to the graph below,showing a monopoly market.
For the firm shown on the graph,profit maximization occurs at what price and quantity?

A)$20 and 50
B)$15 and 70
C)$15 and 50
D)$10 and 50
E)$10 and 70

Question 30

When firms earn profits,

A)They will likely expand
B)New firms will have an incentive to enter the market
C)They are providing a good or service that consumers want more of
D)The market is signaling more firms to enter
E)All of the above

Question 31

The Following Questions Refer to the following graph.For each question,disregard any irrelevant lines.
Suppose the market is competitivE.Equilibrium market price and output will be

A)P₁,X₂
B)P₂,X₃
C)P₃,X₁
D)P₁,X₄
E)P_3, X₂

Question 32

The Following Questions Refer to the graph below,which is for a firm in a competitive market.

The profit-maximizing price and quantity for this competitive firm are

A)$5 and 100
B)$5 and 150
C)$7 and 100
D)$7 and 150
E)$7 and more than 150

Question 33

The Following Questions Refer to the following graph.For each question,disregard any irrelevant lines.
If this industry changes from pure competition to monopoly,output changes from

A)X₄ to X₁
B)X₄ to X₂
C)X₂ to X₄
D)X₃ to X₂
E)X₂ to X₃

Question 34

The Following Questions Refer to the graph below,which is for a firm in a competitive market.

Equilibrium price and quantity in the market are

A)$5 and 100
B)$5 and 150
C)$7 and 150
D)$7 and more than 150
E)None of the above

Question 35

Monopolization of a previously competitive market leads to

A)Reduced production and product quality and increased costs and prices
B)Increased production and higher prices
C)Increased production,product quality and prices
D)Government regulation
E)None of the above

Question 36

The Following Questions Refer to the graph below,which is for a firm in a competitive market.

If the firm has a total cost of $400,it is earning a

A)Profit of $0
B)Profit of $100
C)Loss of $100
D)Loss of $200
E)Loss of $500

Question 37

The Following Questions Refer to the graph below,showing a monopoly market.
At the profit maximizing quantity,the firm's total revenue equals

A)$10
B)$15
C)$20
D)$1,000
E)$1,400

Question 38

The most common forms of nonprice competition are

A)Profit maximization and loss minimization
B)Monopolization and output restriction
C)Advertising and changes in product quality and design
D)Inflation and unemployment
E)None of the above

Question 39

The Following Questions Refer to the following graph.For each question,disregard any irrelevant lines.
Now suppose the same market is monopolizeD.Equilibrium market price and output would be

A)P₃,X₁
B)P₃,X₂
C)P₂,X₃
D)P₁,X₂
E)P₁,X₄

Question 40

The Following Questions Refer to the graph below,which is for a firm in a competitive market.

Since this is a competitive market,the firm's marginal revenue is

A)$5
B)$7
C)$20
D)$100
E)$150

Question 41

The supply curve for a monopoly

A)Is its marginal revenue curve
B)Is its total revenue curve
C)Is its marginal cost curve
D)Is its total cost curve
E)Does not exist

Question 42

The Following Questions Refer to the graph below.
If this industry starts as perfectly competitive and then becomes a monopoly,the deadweight loss to society is equal to area

A)ABC
B)ADC
C)BDEC
D)ADEC
E)None of the above

Question 43

The Following Questions Refer to the graph below.
If this industry is a monopoly,equilibrium price and output in the market will be

A)$16 and 10
B)$12 and 10
C)$12 and 14
D)$8 and 14
E)$8 and 10

Question 44

Which of the following is a government barrier to entry?

A)An occupational license
B)Ownership of raw materials
C)Product differentiation
D)Advertising
E)All of the above

Question 45

The Following Questions Refer to the graph below.
If this industry is perfectly competitive,equilibrium price and output in the market will be

A)$16 and 10
B)$12 and 10
C)$12 and 14
D)$8 and 14
E)$8 and 10

Question 46

A telephone is much more useful to a consumer when other people also have telephones.This illustrates which of the following concepts?

A)Economies of scale
B)Diseconomies of scale
C)Natural monopoly
D)Network economies
E)Constant returns to scale

Question 47

The Following Questions Refer to the graph below.
Society's net benefits are maximized when price and quantity in the market are

A)$16 and 10
B)$12 and 10
C)$12 and 14
D)$8 and 14
E)$8 and 10

Question 48

The Following Questions Refer to the graph below,showing a monopoly market.
Monopolization of this market leads to a deadweight loss equal to

A)$0
B)$50
C)$100
D)$150
E)Cannot be determined

Question 49

The demand curve for a

A)Monopoly firm is downward sloping
B)Monopoly industry is downward sloping
C)Perfectly competitive firm is horizontal
D)Perfectly competitive industry is downward sloping
E)All of the above

Question 50

If a firm sells 100 units of output at a price of $5 and each unit costs $3 to produce,the firm's total revenue equals

A)$3
B)$5
C)$200
D)$300
E)$500

Question 51

Which of the following is true of a firm's total costs? They

A)Do not include opportunity costs
B)Become lower as more is produced
C)Are greater than total revenue when the firm is earning a profit
D)Are equal to the cost per unit times the number of units produced
E)All of the above

Question 52

The Following Questions Refer to the graph below,showing a monopoly market.
If this were a perfectly competitive market,equilibrium price and quantity would be

A)$20 and 50
B)$15 and 70
C)$15 and 50
D)$10 and 50
E)$10 and 70

Question 53

If a firm sells 100 units of output at a price of $5 and each unit costs $3 to produce,the firm is earning a

A)Profit of $200
B)Loss of $2 per unit
C)Loss of $200
D)Profit of $500
E)Loss of $300

Question 54

If a firm sells 100 units at a price of $5 and each unit costs $3 to produce,its total cost equals

A)$3
B)$5
C)$200
D)$300
E)$500

Question 55

The Following Questions Refer to the graph below,showing a monopoly market.
If the firm has total costs of $1,200 at the profit maximizing output,then it is earning a

A)Profit of $0
B)Profit of $100
C)Profit of $200
D)Loss of $100
E)Loss of $200

Question 56

Which of the following is a private barrier to entry?

A)An occupational license
B)A patent
C)Ownership of raw materials
D)A regulatory commission
E)All of the above

Question 57

A perfectly competitive firm's supply curve is its

A)Demand curve
B)Marginal revenue curve
C)Total revenue curve
D)Marginal cost curve
E)Total cost curve

Question 58

The Following Questions Refer to the graph below.
If this industry starts as perfectly competitive and then becomes a monopoly,market price will change from

A)$16 to $12
B)$16 to $8
C)$12 to $8
D)$8 to $16
E)$12 to $16

Question 59

Which of the following is a barrier to entry?

A)Import restrictions
B)Copyright laws
C)Exclusive franchises
D)Zoning ordinances
E)All of the above

Question 60

Firms may advertise their products in order to

A)Create a barrier to entry
B)Provide consumers with information
C)Increase demand for their product
D)Differentiate their product
E)Do all of the above

Question 61

The capture theory of regulation suggests

A)In the absence of regulation,consumer welfare is often captured by firms in the market
B)The lost consumer welfare due to unfair business practices can be offset through government regulation
C)When market failure exists,regulation is appropriate
D)The regulators of an industry are often "captured" by the firms in the market
E)None of the above

Question 62

The Following Questions Refer to the graph below.
At what level(s)of output do reductions in the average costs of production cease?

A)0
B)0 - Q₀
C)Q₀
D)Above Q₀
E)There are no reductions in the average costs of production

Question 63

A guarantee that allows the purchase of shares of stock at a fixed price is a(n)

A)Non-pecuniary benefit of employment
B)Stock option
C)Disincentive to expand a corporation
D)Illegal means to compensate CEOs
E)Stock split

Question 64

Which of the following is likely to reduce monopoly power in the United States the most?

A)Placing an absolute limit on the total assets that any one company can have
B)Removing all government-imposed entry barriers to industries and occupations
C)Placing a government ban on television advertising
D)Placing a special tax on monopolists' outputs
E)None of the above

Question 65

Which of the following provides the strongest economic justification for regulation?

A)Natural monopoly
B)Excess consumer information
C)Shortages and high prices
D)All of the above
E)None of the above

Question 66

The Following Questions Refer to the graph below.
It is cheaper per unit to produce higher quantities when output is

A)High
B)Between 0 and Q₀
C)Q₀
D)Above Q₀
E)Decreasing

Question 67

The loss to society caused by monopoly power may be greater than simply the losses associated with deadweight losses because it also includes losses due to

A)Private barriers to entry
B)Government barriers to entry
C)Extensive product differentiation
D)Occupational licensing
E)All of the above

Question 68

Which of the following is a negative consequence of allowing an unregulated natural monopoly?

A)Deadweight welfare loss
B)Higher prices
C)Restricted output
D)All of the above
E)None of the above

Question 69

The government's regulation of pollution

A)Is justified because of natural monopoly
B)Is justified by poorly defined property rights
C)Is justified by concentration ratios
D)Is not likely to improve on the market outcome
E)Cannot be defended on economic grounds

Question 70

With a natural monopoly,

A)The long-run average cost curve of the firm declines over the range of production
B)Government regulation ensures that consumer's interests will be served
C)Government regulation will fail
D)There are no significant economies of scale in producing the good
E)None of the above

Question 71

The "agency problem" is caused by

A)Corporate managers pursuing goals different from stockholder's goals
B)Stockholders attempting to micromanage corporations
C)Regulatory agencies interfering with corporate operations
D)Sudden declines in stock prices
E)Over-investment in new capital

Question 72

Which of the following is a negative consequence of allowing competition in an industry that is a natural monopoly?

A)Deadweight welfare loss
B)Lower prices
C)Restricted output
D)Higher average costs
E)All of the above

Question 73

There is the possibility that the sheer size of some firms-their "bigness"-is a problem for an economy because

A)Big firms possess larger entry barriers
B)Bigness implies that the people who run such firms are unethical
C)Bigger firms are more inefficient
D)The effects that the failure of large firms can have on the US economy
E)The number of shares of stock that are traded in large firms

Question 74

Which of the following is an example of nonprice competition?

A)Advertising
B)Changing the design of a product
C)Incorporating new technology in a product
D)Improving the quality of a product
E)All of the above

Question 75

Some would argue that one of the primary benefits of possessing a monopoly is

A)The chance to erect entry barriers
B)The opportunity to live the quiet life
C)The ability to restrict output
D)The chance to create deadweight losses
E)The ability to jack up prices to consumers

Question 76

The Following Questions Refer to the graph below.
At what level of output does the firm experience economies of scale?

A)0
B)0 - Q₀
C)Q₀
D)Above Q₀
E)This firm does not experience economies of scale

Question 77

The Following Questions Refer to the graph below.
Increasing output beyond Q₀ will cause the firm to experience

A)Economies of scale
B)Diseconomies of scale
C)Constant returns to scale
D)Network economies
E)Decreasing total costs

Question 78

Approximately what percent of sales in the United States are made by corporations?

A)40
B)50
C)60
D)70
E)90

Question 79

Corporations

A)Are legal entities separate from their owners
B)Are owned by stockholders
C)Finance their operations through many small investors
D)Account for 20% of all businesses in the United States
E)All of the above

Question 80

The best estimate of the dead-weight welfare loss due to monopoly is biased downward because it does not take into account

A)Reductions in product quality
B)Higher costs of production
C)Decreases in product variety
D)All of the above
E)None of the above