Deck 9: A: Monopoly

Question 1

Anything that prevents new firms from competing on an equal basis with existing firms in an industry is called a barrier to entry.

Answer 1

True

Question 2

Patent laws

A) reduce incentive to innovate by restricting market entry
B) reduce incentive to innovate by making it difficult to use the patented innovation
C) increase incentive to innovate by restricting entry into a market
D) increase incentive to innovate by giving a firm permanent and exclusive production rights
E) give a firm the right to provide a wide variety of goods or services

Answer 2

C

Question 3

Which of the following would probably not be considered a natural monopoly?

A) a municipal water company
B) the local telephone industry
C) the cable television industry
D) natural gas and electric companies
E) the automobile industry

Answer 3

E

Question 4

U.S. patent laws establish property rights for inventors of new products

A) forever
B) until a superior invention comes along
C) for 3 years
D) for 10 years
E) for 20 years

Question 5

In the monopoly market structure, new firms

A) cannot profitably enter the industry, even in the long run
B) may freely enter and leave the industry in both the short run and the long run
C) may freely enter and leave the industry in the long run only
D) may freely enter and leave the industry in the short run only
E) have no incentive to enter the industry, even if economic profits are present

Question 6

Which of the following is not considered a barrier to entry?

A) patents
B) government licenses
C) economies of scale
D) diseconomies of scale
E) control over essential resources

Question 7

Patent laws promote technical progress in all of the following ways except one. Which is the exception?

A) They allow other firms to copy successful products as soon as they are marketed.
B) They prevent duplication of inventions.
C) They provide a stimulus to innovation.
D) They provide the inventor with a temporary monopoly.
E) They increase a firm's incentive to incur the up-front costs of developing new products.

Question 8

Which of the following could not bar entry into an industry?

A) economies of scale
B) diseconomies of scale
C) patents
D) licenses
E) one firm's control of essential resources

Question 9

Which of the following is true of monopoly?

A) There are no barriers to entry.
B) The firm is a price taker.
C) There are no close substitutes for the product being produced.
D) There are many firms in the industry.
E) The firm faces a horizontal demand curve.

Question 10

Which of the following is true?

A) Patents reduce a firm's incentive to develop new products.
B) Patents are given for new works of art or literature.
C) Patents give a permanent exclusive right to produce a new good.
D) Patents give a temporary exclusive right to produce a new good.
E) Patents guarantee economic profits.

Question 11

Willie Stand obtains a patent on his new invention, the bipod. After twenty years,

A) he can renew his patent
B) new entrants will begin bipod production if price exceeds average variable cost
C) new entrants will drive up the price of the bipod
D) Willie will eventually earn no more than a normal profit
E) Willie will continue to earn a positive economic profit, because entry will not affect the price of bipods

Question 12

A natural monopoly is based on economies of scale.

Question 13

Which of the following could be true of perfect competition but not of monopoly?

A) The government licenses production of the good to a few firms.
B) The government grants a patent for the good.
C) A firm can earn economic profit in the long run.
D) If price falls below average variable cost, it pays to shut down.
E) There are no barriers to entry.

Question 14

A monopolist is

A) one of a large number of small firms that produce a homogeneous good
B) one of a small number of large firms that produce a differentiated good
C) a single seller of a product with many close substitutes
D) one of a small number of large firms that produce a homogeneous good
E) a single seller of a product with no close substitutes

Question 15

Which of the following describes the market structure of monopoly?

A) many firms with some control over price, and considerable product differentiation
B) many firms with no control over price, producing identical products with no differentiation
C) a few firms with some control over price, producing similar products which are close substitutes
D) a few firms with no control over price, producing highly differentiated products
E) a single firm producing all of the output for the industry

Question 16

Which of the following prevents potential competitors from entering a monopolist's market?

A) legal restrictions
B) diseconomies of scale
C) product differentiation
D) stable market demand
E) rising marginal cost

Question 17

Patents stimulate investment

A) by giving inventors an incentive to incur up-front costs of developing new products
B) by giving tax breaks to inventors
C) by guaranteeing a profit from new products
D) by lowering interest rates
E) through government payments that cover costs of research and development

Question 18

A natural monopoly results when a firm has

A) a license
B) a patent
C) official approval to produce a product
D) decreasing average costs over the range of market demand
E) exclusive use of a natural resource

Question 19

Natural monopolies form when

A) small firms merge to form larger firms
B) one firm has control over the entire supply of a basic input required to produce the product
C) one firm's monopoly position is created and enforced by the government
D) one firm receives patent protection for certain basic production processes
E) long-run average cost declines as a firm expands output

Question 20

Innovation is the process of turning an invention into a marketable product.

Question 21

Average revenue, demand, and price are all depicted by the same curve for a monopoly.

Question 22

In order to sell an additional unit of its product, a monopolist must decrease price on all units.

Question 23

Average revenue equals the change in total revenue divided by the change in the quantity of output produced.

Question 24

A monopolist has complete control over both price and quantity of output.

Question 25

Jewelers are willing to hold large inventories of diamonds

A) because the demand for diamonds is large and growing
B) because that minimizes the fixed cost of producing diamond jewelry
C) because, given monopoly control of the market for diamonds, they are confident that the price of diamonds will not plummet rapidly
D) because, given monopoly control of the market for diamonds, they are confident that the price of diamonds will rise rapidly
E) because that is what their customers expect them to do

Question 26

For a monopolist, P < MR at all quantities.

Question 27

DeBeers is a natural monopoly in the world's diamond trade.

Question 28

The demand curve a monopolist uses in making an output decision is

A) the same as the demand curve facing a perfectly competitive firm
B) vertical because there are no close substitutes for its product
C) horizontal because there are no close substitutes for its product
D) the same as the market demand curve
E) perfectly inelastic

Question 29

If a firm is a natural monopoly, its

A) long-run average cost declines over the full range of market demand
B) long-run average cost increases over the full range of market demand
C) fixed cost declines over the full range of market demand
D) fixed cost increases over the full range of market demand
E) long-run average cost declines and marginal cost rises over the full range of market demand

Question 30

The demand curve a monopolist faces

A) is more elastic than a perfectly competitive firm's demand curve
B) is the market demand curve
C) is as elastic as a perfectly competitive firm's demand curve
D) is not affected by the prices of complements
E) will not shift in response to a change in consumer tastes

Question 31

De Beers has a monopoly in the market for diamonds because they own a significant portion of the known diamond mines. One important source of challenge to De Beers' control of the diamond market is

A) the additional market supply from Russia, Australia, and Canada
B) the emerging auction markets for diamonds in France and Spain
C) the growing demand for diamonds in industrial uses
D) that its South African mines are not producing as many diamonds as they did decades ago
E) antitrust legislation in the United States

Question 32

For a monopolist, marginal revenue is

A) equal to price
B) greater than price
C) less than price
D) represented by a horizontal curve
E) equal to average revenue

Question 33

Maximizing total revenue is the same as maximizing profit.

Question 34

A monopolist's demand curve is

A) its marginal cost curve
B) its marginal revenue curve
C) identical to the market demand curve
D) the same as the demand curve of a firm in perfect competition
E) nonexistent

Question 35

Which of the following is not a barrier to entry which leads to monopoly power.

A) economies of scale
B) control over key patents
C) control of an essential resource
D) government-imposed barriers to entry
E) homogeneous product

Question 36

Which of the following is true of marginal revenue for a monopolist that charges a single price?

A) P = MR because there are no close substitutes for the monopolist's product.
B) P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
C) P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
D) AR = MR because there are no close substitutes for the monopolist's product.
E) P = MR only at the profit-maximizing quantity.

Question 37

A price searcher is any firm that has no control over price and must accept the market price as given.

Question 38

The demand curve faced by a firm with a patent on a marketable product

A) is horizontal
B) is vertical
C) slopes upward
D) slopes downward
E) is nonexistent

Question 39

If a monopolist must lower the price on all units in order to sell an additional unit,

A) it is impossible for the monopolist to maximize profit
B) the monopolist will always lose profit when it increases quantity
C) the monopolist will always lose revenue when it increases quantity
D) price will always be greater than marginal revenue
E) price will always be less than marginal revenue

Question 40

A profit-maximizing monopolist will always operate where demand is unit elastic.

Question 41

NARRBEGIN: Exhibit 9-2
Exhibit 9-2

In Exhibit 9-2, the average revenue of the fourth unit is

A) $12
B) $3
C) $4
D) -$4
E) $0

Question 42

The demand curve facing a monopolist is perfectly elastic.

Question 43

As a monopolist increases the quantity of output produced, what happens to price (P) and marginal revenue (MR)?

A) both P and MR remain constant
B) P is constant, but MR decreases
C) P decreases, but MR is constant
D) both P and MR decrease, but P falls faster than MR
E) both P and MR decrease, but MR falls faster than P

Question 44

For a monopolist,

A) P = MR = AR
B) P = MR > AR
C) P > MR = AR
D) P = MR < AR
E) P = AR > MR

Question 45

NARRBEGIN: Exhibit 9-1
Exhibit 9-1

In Exhibit 9-1, total revenue from selling 5 units is

A) $20
B) $140
C) $100
D) $10
E) $5

Question 46

On a graph, to determine the price a profit-maximizing monopolist would charge, find the quantity at which MC and MR intersect and read up to the demand curve.

Question 47

The demand curve facing a single-price monopolist

A) is the same as its average revenue curve
B) is the same as its marginal revenue curve
C) is the same as the perfect competitor's demand curve
D) lies above its average revenue curve
E) lies below its marginal revenue curve

Question 48

NARRBEGIN: Exhibit 9-1
Exhibit 9-1

In Exhibit 9-1, the marginal revenue of the sixth unit is

A) $10
B) $60
C) $100
D) $40
E) -$40

Question 49

A monopolist maximizes total revenue at the quantity where marginal revenue equals zero.

Question 50

For a monopolist,

A) marginal revenue and price are constant as quantity increases
B) marginal revenue falls but price is constant as quantity increases
C) marginal revenue is constant but price falls as quantity increases
D) both marginal revenue and price fall as quantity increases, but price falls faster
E) both marginal revenue and price fall as quantity increases, but marginal revenue falls faster

Question 51

The demand curve facing a monopolist

A) is kinked at the market price
B) is perfectly elastic
C) lies above its marginal revenue curve
D) lies below its marginal revenue curve
E) is the same as its marginal revenue curve

Question 52

NARRBEGIN: Exhibit 9-2
Exhibit 9-2

The price elasticity of demand between P = $3 and P = $2 in Exhibit 9-2 is

A) 9/5
B) $1.80
C) 5/9
D) $0.56
E) 1

Question 53

NARRBEGIN: Exhibit 9-2
Exhibit 9-2

Between which quantities in Exhibit 9-2 is demand unit elastic?

A) 1 and 2
B) 2 and 3
C) 3 and 4
D) 4 and 5
E) 5 and 6

Question 54

For a monopolist, as output expands, price and marginal revenue become more divergent (i.e., are farther apart).

Question 55

Suppose that a monopolist must choose between two points on its demand curve; it can sell 100 units for $3 each, or it can sell 160 units for $2 each. Which of the following is true?

A) The monopolist is facing an elastic demand.
B) The monopolist is facing unit elastic demand.
C) The monopolist is facing inelastic demand.
D) The monopolist is facing perfectly elastic demand.
E) The elasticity of demand cannot be determined with the information given.

Question 56

If all of a monopolist's costs are fixed costs, it will produce where demand is unit elastic.

Question 57

NARRBEGIN: Exhibit 9-2
Exhibit 9-2

In Exhibit 9-2, the marginal revenue of the fourth unit is

A) $12
B) $3
C) $4
D) -$4
E) $0

Question 58

NARRBEGIN: Exhibit 9-2
Exhibit 9-2

From the following demand schedule for a monopolist, what is the marginal revenue associated with the sale of the fourth unit?

A) $10
B) $30
C) $60
D) $240
E) marginal revenue cannot be determined from the information given

Question 59

A monopolist's marginal revenue curve is flatter than its demand curve.

Question 60

NARRBEGIN: Exhibit 9-1
Exhibit 9-1

In Exhibit 9-1, the marginal revenue of the third unit is

A) $20
B) $120
C) $100
D) $40
E) $0

Question 61

A profit-maximizing monopolist never produces along the __________ portion of the demand curve because marginal revenue is __________ there.

A) elastic; positive
B) elastic; negative
C) inelastic; negative
D) inelastic; positive
E) inelastic; zero

Question 62

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

The firm in Exhibit 9-3, which charges the same price to all customers, will produce where

A) MR = 0
B) MR = MC
C) MC < MR
D) MC = ATC
E) P = MC

Question 63

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

The profit-maximizing output and price for the firm in Exhibit 9-3, which charges the same price to all customers, are

A) 117 and $14
B) 150 and $22
C) 150 and $14
D) 117 and $22
E) 117 and $24

Question 64

NARRBEGIN: Exhibit 9-4-1
Exhibit 9-4

What is the revenue-maximizing output for the monopolist represented in Exhibit 9-4, assuming it does not price discriminate?

A) 0 units
B) 2 units
C) 3 units
D) 4 units
E) 5 units

Question 65

If a firm's demand curve slopes downward, the firm's

A) marginal revenue will rise as price is reduced
B) marginal revenue will generally be less than price
C) total revenue will decline continuously as price is reduced
D) marginal revenue will always be greater than its demand
E) average revenue will increase continuously as output increases

Question 66

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

At the profit-maximizing output for the firm in Exhibit 9-3, the single price monopolist will charge _____ per unit of output.

A) $30
B) $24
C) $22
D) $20
E) $10

Question 67

Suppose that a monopolist must choose between two points on its demand curve: it can sell 100 units for $3 each, or it can sell 150 units for $2 each. Which of the following is true?

A) The monopolist is facing elastic demand.
B) The monopolist is facing unit elastic demand.
C) The monopolist is facing inelastic demand.
D) The monopolist is facing perfectly elastic demand.
E) The elasticity of demand cannot be determined with the information given.

Question 68

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

The firm in Exhibit 9-3, a monopolist that maximizes profit by charging all customers the same price, is making a profit of

A) $0
B) $234
C) $482
D) $960
E) $468

Question 69

Suppose it costs Minnie's Mini-Golf (a monopolist) not a penny more to let another person on the course. If Minnie's faces a linear (downward-sloping) market demand curve, it will maximize profit by choosing the point on the demand curve at which

A) marginal revenue is greatest
B) price elasticity is unit elastic
C) price elasticity is inelastic
D) price exceeds average total cost by the greatest amount
E) price exceeds marginal cost by the greatest amount

Question 70

A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's marginal revenue is

A) $500
B) more than $10 but less than $500
C) $10
D) less than $10
E) zero

Question 71

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

The total revenue for the firm in Exhibit 9-3, a monopolist that maximizes profit while charging all customers the same price, is

A) $2,574
B) $2,808
C) $2,100
D) $1,638
E) $3,300

Question 72

What is the relationship between price elasticity of demand and the monopolist's revenue?

A) marginal revenue is maximized where demand is unit elastic.
B) average revenue is maximized where demand is unit elastic.
C) marginal revenue is negative where demand is inelastic.
D) average revenue is negative where demand is inelastic.
E) marginal revenue is lowest where demand is unit elastic.

Question 73

A monopolist's demand curve

A) is horizontal at the market price
B) lies above its marginal revenue curve
C) is the same as its marginal cost curve
D) indicates that the firm must raise price to sell additional units
E) lies above the marginal cost curve at all levels of output

Question 74

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

At the profit-maximizing quantity, the demand curve facing the firm in Exhibit 9-3 is

A) perfectly elastic
B) price elastic
C) price inelastic
D) unit elastic
E) perfectly inelastic

Question 75

NARRBEGIN: Exhibit 9-4-1
Exhibit 9-4

What is the profit-maximizing or loss-minimizing output for the monopolist represented in Exhibit 9-4, assuming it does not price discriminate?

A) 0 units
B) 2 units
C) 3 units
D) 4 units
E) 5 units

Question 76

A profit-maximizing monopolist

A) never produces on the inelastic portion of the demand curve because it can increase profit by increasing output
B) never produces on the inelastic portion of the demand curve because marginal revenue exceeds marginal cost
C) always produces on the inelastic portion of the demand curve
D) never produces on the elastic portion of the demand curve because there are no substitutes for the good it produces
E) never produces on the inelastic portion of the demand curve because marginal revenue is negative there

Question 77

For a monopolist, if marginal revenue is $40, total revenue is

A) increasing
B) decreasing
C) zero
D) positive
E) negative

Question 78

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

The total cost for the firm in Exhibit 9-3, a monopolist that maximizes profit while charging all customers the same price, is

A) $3,300
B) $3,400
C) $2,808
D) $2,340
E) $1,638

Question 79

Suppose that a monopolist must choose between two points on its demand curve: it can sell 100 units for $3 each, or it can sell 140 units for $2 each. Which of the following is true?

A) The monopolist is facing elastic demand.
B) The monopolist is facing unit elastic demand.
C) The monopolist is facing inelastic demand.
D) The monopolist is facing perfectly elastic demand.
E) The elasticity of demand cannot be determined with the information given.

Question 80

NARRBEGIN: Exhibit 9-3-1
Exhibit 9-3

At the profit-maximizing output for the firm in Exhibit 9-3, the single price monopolist will earn a profit of ______ per unit of output?

A) $10
B) $5
C) $4
D) $0
E) -$5