Question 1

A price discriminating monopolist having identical costs in two separated markets should charge a higher price in that market&#10;A)which has a higher demand.&#10;B)which has a more elastic demand.&#10;C)which has a less elastic demand.&#10;D)which has a higher marginal revenue.

Accepted Answer

A price discriminating monopolist will charge a higher price in the market with less elastic demand because consumers in that market are less sensitive to price changes and are willing to pay more for the product. Elasticity of demand measures consumers' responsiveness to price changes; less elastic demand indicates that consumers will continue to buy the product even as its price increases, allowing the monopolist to charge higher prices.

Question 2

All of the following might explain a firm offering quantity discounts except:&#10;A)lower costs of handling large orders.&#10;B)an inelastic demand for the good.&#10;C)monopoly power in this market.&#10;D)adoption of a sales maximization strategy.

Accepted Answer

Quantity discounts are typically offered to encourage larger purchases, which wouldn't align with inelastic demand where quantity purchased doesn't significantly change with price changes.

Question 3

The &#34;deadweight loss&#34; from a monopoly refers to&#10;A)the portion of a monopolist's profits that are above the competitive profit level.&#10;B)the increase in price due to the monopolization of a market.&#10;C)the inefficient use of factors of production by a monopoly.&#10;D)the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic actor.

Accepted Answer

Deadweight loss from a monopoly refers to the loss of consumer surplus that occurs when a monopoly restricts output and charges a higher price than a competitive market would. This loss is not transferred to any other economic actor, hence the answer is D.

Question 4

One possible benefit of a monopoly is&#10;A)a more efficient allocation of resources; only one firm is needed to supply quantity demanded.&#10;B)greater opportunities for research due to long-run positive economic profits.&#10;C)the government is better able to ensure that it follows laws and guidelines because there is only one firm to monitor.&#10;D)goods and services are provided at a lower price than under perfect competition because of a monopoly's decreasing average cost curve.

Accepted Answer

Monopolies can have greater opportunities for research and development because they often earn long-run positive economic profits, which can be reinvested into innovation and improvement of products or services.

Question 5

A monopoly's economic profits are represented by&#10;A)(price minus marginal cost)times number of units sold.&#10;B)(price minus average cost)times number of units sold.&#10;C)(marginal revenue minus price)times number of units sold.&#10;D)(marginal cost minus price)times number of units sold.

Accepted Answer

Economic profit is defined as total revenue minus total cost. In the case of a monopoly, the total revenue is equal to the price times the quantity sold. The total cost includes both fixed and variable costs, so the average cost is used as a measure of total cost. Therefore, the economic profits of a monopoly can be represented by (price - average cost) times the number of units sold.

Question 6

The supply curve for a monopoly is given by&#10;A)the firm's marginal cost curve above the average variable cost curve.&#10;B)the one point on the demand curve that corresponds to the quantity for which price is equal to MC.&#10;C)the one point on the demand curve that corresponds to the quantity for which MR equals MC.&#10;D)the entire demand curve above the point where price is equal to average cost.

Accepted Answer

The supply curve for a monopoly is not derived from the firm's cost curves, but rather from the point where marginal revenue (MR) equals marginal cost (MC). This is because for a monopoly, the firm is the only seller in the market and can control the price it charges to maximize profits. Therefore, the firm will produce the quantity where MR equals MC and use the corresponding point on the demand curve as the supply curve.

Question 7

For the practice of price discrimination to be successful,the monopoly must&#10;A)be able to prevent resale of its product.&#10;B)face similar demand curves for various markets.&#10;C)have similar costs among markets.&#10;D)have a downward sloping marginal cost curve.

Accepted Answer

Price discrimination is the practice of charging different prices to different customers for the same product or service. In order to successfully implement price discrimination, the monopoly must be able to prevent resale of its product, as price discrimination relies on charging different prices to different groups of customers based on their willingness to pay. If customers can easily resell the product at a lower price, then the monopoly loses the ability to charge different prices and the practice of price discrimination becomes ineffective.

Question 8

All monopolies exist because of&#10;A)firms' desire to maximize profits.&#10;B)failure of antitrust laws.&#10;C)barriers to entry.&#10;D)natural selection.

Accepted Answer

Monopolies exist because there are barriers to entry, which prevent other firms from entering the market and competing against the monopolist. These barriers could be in the form of patents, economies of scale, or government regulations. The firm can then charge a higher price than in a competitive market, and as long as there are no close substitutes, consumers will have no choice but to bear the higher prices. The desire to maximize profits (A) is a common motivation for firms, but it alone cannot explain why monopolies exist. Antitrust laws (B) are designed to prevent monopolies from forming, but some monopolies may still exist despite these laws. Natural selection (D) is a concept from biology and does not apply to the formation of monopolies.

Question 9

Which of the following is not a technical barrier to entry in a monopolized market?&#10;A)A patent.&#10;B)Decreasing average cost.&#10;C)A low cost method of production known only by monopolist.&#10;D)Increasing returns to scale.

Accepted Answer

The answer of Which of the following is not a...

Question 10

If the government requires a natural monopoly to price at marginal cost,&#10;A)monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good.&#10;B)monopoly firms will operate at a loss because P < AC.&#10;C)more firms will be able to enter the market.&#10;D)producer surplus will increase because quantity supplied is greater.

Accepted Answer

When a natural monopoly is required to price at marginal cost, it will likely operate at a loss because the price (P) will be less than the average cost (AC) of production. Natural monopolies have high fixed costs and decreasing average costs over the relevant range of output, so pricing at marginal cost doesn't cover the total costs.

Question 11

If a monopoly is maximizing profits&#10;A)price will always be greater than average cost.&#10;B)price will always equal marginal cost.&#10;C)price will always be greater than marginal cost.&#10;D)price will always equal marginal revenue.

Accepted Answer

The answer of If a monopoly is maximizing profits&#10;A)price will...

Question 12

The principal difference between economic profits for a monopolist and for a competitive firm is that&#10;A)monopoly profits create major problems of equity whereas competitive profits do not.&#10;B)competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.&#10;C)monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.&#10;D)monopoly profits are usually larger than competitive profits.

Accepted Answer

The answer of The principal difference between economic profits for...

Question 13

Relative to single price policy third degree price discrimination&#10;A)always reduces welfare.&#10;B)always increases welfare.&#10;C)may increase welfare if total output falls.&#10;D)may increase welfare if total output rises.

Accepted Answer

The answer of Relative to single price policy third degree...

Question 14

A profit maximizing monopoly will produce that output for which&#10;A)marginal revenue equals price.&#10;B)average cost is minimized.&#10;C)marginal cost is minimized.&#10;D)marginal cost equals marginal revenue.

Accepted Answer

The answer of A profit maximizing monopoly will produce that...

Question 15

Perfect (first degree)price discrimination&#10;A)is a common occurrence in situations with many buyers.&#10;B)occurs fairly often in situations with only a few buyers.&#10;C)is only observed in competitive markets.&#10;D)rarely occurs because firms do not have sufficient power to differentiate among specific buyers.

Accepted Answer

The answer of Perfect (first degree)price discrimination&#10;A)is a common occurrence...

Question 16

A natural monopoly&#10;A)is a monopoly in the production of raw materials.&#10;B)occurs when one firm can supply the entire market more cheaply than can a number of firms.&#10;C)is one result of a patent.&#10;D)necessarily involves inefficient pricing.

Accepted Answer

The answer of A natural monopoly&#10;A)is a monopoly in the...

Question 17

In the real world,a monopolist's costs will often be&#10;A)lower than for a firm in a competitive industry.&#10;B)equal to the costs of a firm in a competitive industry.&#10;C)higher than for a firm in a competitive industry.&#10;D)almost zero.

Accepted Answer

The answer of In the real world,a monopolist's costs will...

Question 18

A monopoly producer of a durable good&#10;A)can earn even greater profits than a producer of a non-durable.&#10;B)must consider competition from its own output decisions.&#10;C)will have higher marginal costs than most other monopolies.&#10;D)will not set marginal revenue equal to marginal cost.

Accepted Answer

The answer of A monopoly producer of a durable good&#10;A)can...

Deck 12: Monopoly