Deck 15: Monopoly

Question 1

What is the defining characteristic of a natural monopoly

A)constant marginal cost over the relevant range of output
B)constant average fixed costs over the relevant range of output
C)constant returns to scale over the relevant range of output
D)economies of scale over the relevant range of output

Answer 1

economies of scale over the relevant range of output

Question 2

Figure 15-1

Refer to Figure 15-1.The shape of the average-total-cost curve suggests an opportunity for a profit-maximizing monopolist to take advantage of what

A)economies of scale
B)diseconomies of scale
C)decreasing marginal cost
D)increasing marginal cost

Answer 2

economies of scale

Question 3

Figure 15-1

Refer to Figure 15-1.In view of what is known about the relationship between average total cost and marginal cost,what do we know about the marginal-cost curve for this firm

A)It must lie entirely above the average-total-cost curve.
B)It must lie entirely below the average-total-cost curve.
C)It must be upward sloping.
D)It must be downward sloping.

Answer 3

It must lie entirely below the average-total-cost curve.

Question 4

When does a government-created monopoly arise

A)when government spending in a certain industry gives rise to monopoly power
B)when the government exercises its market control by encouraging competition among sellers
C)when the government gives a firm the exclusive right to sell some good or service
D)when the government imposes a sales tax so high competitors are discouraged from entry

Question 5

What can be said about the laws governing patents and copyrights

A)They can lead to monopolies.
B)They are intended to serve private interests not the public interest.
C)They have costs but no benefits.
D)They can discourage research.

Question 6

What is the main difference between a competitive firm and a monopoly

A)A competitive firm owns a key resource, but a monopoly firm does not.
B)A competitive firm is a price taker, and a monopoly is a price maker.
C)A competitive firm produces output at a lower cost than a monopoly firm.
D)A competitive is subject to government regulations, but a monopoly firm is not.

Question 7

Why are drug companies allowed to be monopolists in the drugs they discover

A)in order to allow drug companies to charge a price that is equal to their marginal cost
B)in order to discourage new firms from entering the drug market
C)in order to encourage research
D)in order to regulate health and safety concerns

Question 8

Figure 15-1

Refer to Figure 15-1.The shape of the average-total-cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market.Which monopoly type best coincides with the figure

A)a resource monopoly
B)a natural monopoly
C)a government-created monopoly
D)a dynamic monopoly

Question 9

What do we know about a monopoly's marginal cost

A)It will be less than its average fixed cost.
B)It will be less than the price per unit of its product.
C)It will exceed its marginal revenue.
D)It will equal its average total cost.

Question 10

When a firm's average-total-cost curve continually declines,what is the firm considered

A)a government-created monopoly
B)a natural monopoly
C)a revenue monopoly
D)a subsidized monopoly

Question 11

Kureha Corporation holds 70 percent of the market as a supplier for polymer,which is used to make the compact battery for smartphones.Why is Kureha Corporation considered as a classic example of a monopoly

A)It is a government-created corporation.
B)It arises from the ownership of a key resource.
C)It results in very little advertising of the product that the monopolist produces.
D)It was broken up by the government a long time ago.

Question 12

Why do natural monopolies differ from other forms of monopoly

A)They are not subject to barriers to entry.
B)They are not regulated by government.
C)They generally don't make a profit.
D)They are generally not worried about competition.

Question 13

What is a benefit to society of the patent and copyright laws

A)These laws help to keep prices down.
B)These laws help to prevent a single firm from acquiring ownership of a key resource.
C)These laws encourage creative activity.
D)These laws discourage excessive amounts of output of certain products.

Question 14

Angelo is a wholesale meatball distributor.He sells his meatballs to all the finest Italian restaurants in town.Nobody can make meatballs like Angelo.As a result,his is the only business in town that sells meatballs to restaurants.Assuming that Angelo is maximizing his profit,how will meatball prices compare with marginal cost

A)Meatball prices will be less than marginal cost.
B)Meatball prices will equal marginal cost.
C)Meatball prices will exceed marginal cost.
D)Meatball prices will be a function of supply and demand and will therefore fluctuate around marginal costs.

Question 15

When does a natural monopoly occur

A)when the product is sold in its natural state (such as water or diamonds)
B)when there are economies of scale over the relevant range of output
C)when the firm is characterized by a rising marginal-cost curve
D)when production requires the use of free natural resources, such as water or air

Question 16

What does encouraging firms to invest in research and development,and individuals to engage in creative endeavours such as writing novels,justify

A)resource monopolies
B)natural monopolies
C)government-created monopolies
D)breaking up monopolies into smaller firms

Question 17

When a natural monopoly exists,how cost effective is it to produce the product

A)It is generally cost effective for government-owned firms to produce the product.
B)It is generally not cost effective for one firm to produce the product.
C)It is generally cost effective for two or more private firms to produce the product.
D)It is generally not cost effective for two or more private firms to produce the product.

Question 18

What would result from a reduction in a monopolist's fixed costs

A)The profit-maximizing price would decrease, and the profit-maximizing quantity produced would increase.
B)The profit-maximizing price would increase, and the profit-maximizing quantity produced would decrease.
C)The profit-maximizing price would decrease and the profit-maximizing quantity produced would not change.
D)The profit-maximizing price would increase, and the profit-maximizing quantity produced would not change.

Question 19

What type of monopoly are patent and copyright laws major sources of

A)natural monopolies
B)government-created monopolies
C)resource monopolies
D)product monopolies

Question 20

Suppose during the tsunami in 2011,Kureha Corporation suffered significant damage.As a result,smartphone makers have to look for other sources for the supply of polymer.In this case,what will happen to Kureha Corporation

A)It has less incentive to advertise than it would otherwise have.
B)It has less market power than it would otherwise have.
C)It has more control over the price of polymer than it would otherwise have.
D)It has higher profits than it would otherwise have.

Question 21

Under which circumstance can a firm that has a monopoly on water (which is a necessity) charge a high price for water

A)only if the marginal cost of producing water is high
B)even if the marginal cost of producing water is low
C)only if the firm is a natural monopoly
D)even if the demand for water is low

Question 22

What is the key difference between a competitive firm and a monopoly firm

A)the ability to select the level of competition in the market
B)the ability to select the level of production
C)the ability to select inputs in the production process
D)the ability to select the price of its output

Question 23

In what way and by which of the following factors is a natural monopolist's ability to price its product affected

A)It is constrained by the market demand curve.
B)It is constrained by market supply.
C)It is restricted by potential entrants.
D)It is enhanced by regulatory control of the government.

Question 24

Consider a transportation corporation named C.R.Evans,which has just completed the development of a new subway system in a medium-sized city in Western Canada.Currently,there are plenty of seats on the subway,and it is never crowded.Its capacity far exceeds the needs of the city.After just a few years of operation,the shareholders of C.R.Evans experienced incredible rates of return on their investment due to the profitability of the corporation.How can C.R.Evans continue to be a monopolist in the subway transportation industry

A)only if population growth leads to an overcrowding of the subway cars
B)only if there are no new entrants to the market
C)only if demand for transportation services decreases
D)only if the firm decides to offer public shares in the stock exchange

Question 25

When does a natural monopoly arise

A)when there are constant returns to scale over the relevant range of output
B)when there are economies of scale over the relevant range of output
C)when one firm owns a key natural resource
D)when the government gives a single firm the exclusive right to produce a particular good or service

Question 26

What shape of demand curves do competitive firms have,and how much output can they sell

A)They have downward-sloping demand curves, and they can sell as much output as they desire at the market price.
B)They have downward-sloping demand curves, and they can sell only a limited quantity of output at each price.
C)They have horizontal demand curves, and they can sell as much output as they desire at the market price.
D)They have horizontal demand curves, and they can sell only a limited quantity of output at each price.

Question 27

Which scenario best represents a monopoly situation

A)Bill and Tom work separately from one another but both sell a very rare form of the same diamond.They are the only sellers of this type of diamond in town.
B)Tim owns a fishing tackle shop in Vancouver, in which he sells the top-of-the-line fishing equipment.
C)Bob owns the only grocery store in a small community that lies 300 kilometres from the nearest city.
D)Robert is the only seller of a specific cola soft drink, but Erin sells one that is a close substitute.

Question 28

Scenario 15-1
Consider the market for water in a small town in the Old West.Assume that the only source of water is the underground aquifer that lies directly below the town.Wells are used to supply water to the entire town.
Refer to Scenario 15-1.What happens if only one resident owns all the wells in town

A)The price of a litre of water will be driven to equal its marginal cost.
B)The price of a litre of water will exceed its marginal cost.
C)Because water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
D)The seller will be able to earn unlimited profit.

Question 29

If many good substitutes exist for a competitive firm's product,what type of demand curve does it face

A)unit elastic
B)perfectly inelastic
C)perfectly elastic
D)inelastic only over a certain region

Question 30

When a single firm can supply a product to an entire market at a smaller cost than could two or more firms,what is the industry called

A)a resource industry
B)an exclusive industry
C)a government monopoly
D)a natural monopoly

Question 31

When a firm has a natural monopoly,what effect does the firm experience

A)Its marginal cost always exceeds its average total cost.
B)Its total-cost curve is horizontal.
C)Its average-total-cost curve is downward sloping.
D)It has scale economies over a small scale of output.

Question 32

When is it possible for a natural monopoly to evolve into a competitive market

A)as a market expands
B)as patent and copyright laws change
C)as technological advances give rise to economies of scale
D)as new resources are discovered

Question 33

When a monopolist decreases the price of its good,what do consumers do

A)They will not buy the good.
B)They will buy more of the good.
C)They buy less of the good.
D)They will buy the same amount of the good.

Question 34

How do competitive firms and monopolists differ

A)A competitive firm cannot choose its level of output; a monopolist chooses its level of output.
B)A competitive firm's short-run profit is always zero; a monopolist can have a positive short-run profit.
C)A competitive firm's marginal-revenue curve is horizontal; a monopolist's marginal-revenue curve is downward sloping.
D)A competitive firm sets price equal to marginal cost; a monopolist sets price equal to marginal revenue.

Question 35

What shape of demand curves do monopoly firms have,and how much output can they sell

A)They have downward-sloping demand curves, and they can sell as much output as they desire at the market price.
B)They have downward-sloping demand curves, and they can sell only a limited quantity of output at each price.
C)They have horizontal demand curves, and they can sell as much output as they desire at the market price.
D)They have horizontal demand curves, and they can sell only a limited quantity of output at each price.

Question 36

Why do additional firms often NOT try to compete with a natural monopoly

A)They fear retaliation in the form of pricing wars from the natural monopolist.
B)They are unsure of the size of the market in general.
C)They know they cannot achieve the same low costs that the monopolist enjoys.
D)They see that the natural monopoly doesn't make a huge profit.

Question 37

Scenario 15-1
Consider the market for water in a small town in the Old West.Assume that the only source of water is the underground aquifer that lies directly below the town.Wells are used to supply water to the entire town.
Refer to Scenario 15-1.If dozens of residents have their own wells,which statement most adequately describes the behaviour of sellers of water

A)Because water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
B)Sellers will be able to charge a premium for the water.
C)The price of a litre of water will exceed its marginal cost.
D)The price of a litre of water will be driven to equal its marginal cost.

Question 38

When an industry is a natural monopoly,what can we expect

A)It is characterized by constant returns to scale.
B)It is characterized by diseconomies of scale.
C)A larger number of firms may lead to a lower average cost.
D)A larger number of firms will lead to a higher average cost.

Question 39

Scenario 15-1
Consider the market for water in a small town in the Old West.Assume that the only source of water is the underground aquifer that lies directly below the town.Wells are used to supply water to the entire town.
Refer to Scenario 15-1.Assume that Jack is the sole owner of all the wells in town.He decides to move to a more suitable climate and sells the wells to a couple of dozen different town residents.What will be the result

A)The town residents will likely be worse off.
B)The price of water is likely to rise.
C)The individual water sellers will not have as many customers as Jack had.
D)More water will be offered for sale.

Question 40

Which attribute does a firm that is a natural monopoly have

A)It is very likely to be concerned about new entrants eroding its monopoly power.
B)It is taking advantage of loyal consumers.
C)It would experience lower average total revenue if more firms entered the market.
D)It experiences economies of scale.

Question 41

When a monopolist increases the amount of output that it produces and sells,what happens to the price of its output

A)It may only increase if the demand is elastic.
B)It may only decreases if the demand is inelastic.
C)It decreases regardless of the elasticity of demand.
D)It increases regardless of the elasticity of demand.

Question 42

If a profit-maximizing monopolist faces a downward-sloping market demand curve,what do we know

A)Its average revenue is less than the price of the product.
B)Its average revenue equals marginal revenue.
C)Its marginal revenue equals total revenue.
D)Its marginal revenue is less than the price of the product.

Question 43

Table 15-1

Refer to Table 15-1.What is the marginal revenue for the monopolist for the sixth unit sold

A)$3
B)$5
C)$8
D)$11

Question 44

Which of the following feats is impossible for a monopolist to accomplish

A)controlling the price of its good
B)charging a higher price and continuing to sell the same quantity
C)operating at a point on the upper half of the demand curve
D)increasing total surplus in a market compared to that in a competitive market

Question 45

A monopoly firm can sell 200 units of output for $36.00 per unit.Alternatively,it can sell 201 units of output for $35.50 per unit.What is the marginal revenue of the 201st unit of output

A)-$35.50
B)-$64.50
C)$64.50
D)$35.50

Question 46

For which item is it sometimes meaningful for a monopoly to consider negative values

A)marginal revenue
B)average revenue
C)marginal cost
D)average total cost

Question 47

Table 15-1

Refer to Table 15-1.If the monopolist wants to maximize its revenue,how many units of its product should it sell

A)4
B)5
C)6
D)7

Question 48

Table 15-1

Refer to Table 15-1.When four units of output are produced and sold,what is the average revenue

A)$17
B)$21
C)$23
D)$26

Question 49

In order to sell more of its product,what must a monopolist do

A)It must sell to the government.
B)It must sell in international markets.
C)It must lower its price.
D)It must keep its price constant.

Question 50

Table 15-3
A monopolist faces the following demand curve:

Refer to Table 15-3.Consider that the monopolist has total fixed costs of $40 and a constant marginal cost of $5.At the profit-maximizing level of output,what is the monopolist's average total cost

A)$5.82
B)$6.74
C)$7.50
D)$9.00

Question 51

When a monopolist increases the number of units it sells,there are two effects on revenue.What are they

A)the demand effect and the supply effect
B)the competition effect and the cost effect
C)the income effect and the monopoly effect
D)the output effect and the price effect

Question 52

What is the typical market demand curve for a monopolist

A)upward sloping
B)downward sloping
C)horizontal
D)vertical

Question 53

Table 15-1

Refer to Table 15-1.If the monopolist sells eight units of its product,how much total revenue will it receive from the sale

A)$40
B)$108
C)$112
D)$164

Question 54

Table 15-1

Refer to Table 15-1.Assume this monopolist's marginal cost is constant at $11.What quantity (Q) of output will it produce and what price (P) will it charge

A)Q = 4; P = $25
B)Q = 4; P = $26
C)Q = 5; P = $23
D)Q = 7; P = $17

Question 55

How is marginal revenue for a monopolist computed

A)average revenue divided by quantity sold
B)average revenue times quantity divided by price
C)total revenue divided by quantity sold
D)change in total revenue divided by change in quantity sold

Question 56

When a firm operates under conditions of monopoly,what do we know about its pricing

A)Its pricing is not constrained.
B)Its pricing is constrained by marginal cost.
C)Its pricing is constrained by demand.
D)Its pricing is constrained only by its social agenda.

Question 57

Table 15-2
A monopolist faces the following demand curve:

Refer to the table.If the monopolist has total fixed costs of $60 and has a constant marginal cost of $18,what is the profit-maximizing level of production

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

Question 58

What is generally the case for a monopolist's average revenue

A)It is equal to marginal revenue.
B)It is less than marginal revenue.
C)It is equal to the price of its product.
D)It is less than the price of its product.

Question 59

When a monopolist increases the amount of output that it produces and sells,what happens to its average revenue and its marginal revenue

A)Both its average revenue and its marginal revenue increase.
B)Its average revenue increases, and its marginal revenue decreases.
C)Its average revenue decreases, and its marginal revenue increases.
D)Both its average revenue and its marginal revenue decrease.

Question 60

A monopoly firm can sell 150 units of output for $12.00 per unit.Alternatively,it can sell 151 units of output for $11.85 per unit.What is the marginal revenue of the 151st unit of output

A)-$11.85
B)-$10.65
C)$10.65
D)$11.85

Question 61

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.Which curve depicts the demand curve for a monopoly firm

A)A
B)B
C)C
D)D

Question 62

Figure 15-3
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-3.What is a profit-maximizing monopoly's profit

A)P₂ × Q₄
B)P₃ × Q₂
C)(P₃ - P₀) × Q₂
D)(P₃ - P₁) × Q₂

Question 63

For a monopoly firm,which of the following equalities holds

A)Price = Marginal revenue
B)Price = Average revenue
C)Marginal revenue = Demand
D)Marginal revenue = Average revenue

Question 64

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.Which curve depicts the marginal-cost curve for a monopoly firm

A)A
B)B
C)C
D)D

Question 65

Suppose a certain firm has a monopoly on electricity.To sell the 100th unit of electricity,what must the firm experience

A)less marginal revenue on the 100th unit of electricity than it experienced on the 99th unit
B)more average revenue on the 100th unit of electricity than it experienced on the 99th unit
C)less marginal cost on the 100 units of electricity than it experienced on the first 99 units
D)more marginal revenue on the 100th unit of electricity than it experienced on the 99th unit

Question 66

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.Which curve depicts the average-total-cost curve for a monopoly firm

A)A
B)B
C)C
D)D

Question 67

How do economists assume that monopolists behave

A)as cost minimizers
B)as profit maximizers
C)as price maximizers
D)as output maximizers

Question 68

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.Which curve depicts the marginal-revenue curve for a monopoly firm

A)A
B)B
C)C
D)D

Question 69

Figure 15-3
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-3.At the profit-maximizing level of output,what occurs at P₃

A)Marginal revenue is equal to P₃.
B)Marginal cost is equal to P₃.
C)Average revenue is equal to P₃.
D)Average cost is equal to P₃.

Question 70

Figure 15-3
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-3.What would profit be on a typical unit sold for a profit-maximizing monopoly

A)P₂ - P₀
B)P₂ - P₁
C)P₃ - P₀
D)P₃ - P₁

Question 71

For which firm can marginal revenue become negative

A)competitive firms, since price is equal to marginal revenue
B)competitive firms, since they are facing downward-sloping demand curves
C)monopoly firms, since they are facing a downward-sloping demand curves
D)monopoly firms, since price is equal to marginal revenue

Question 72

Let P = price,MR = marginal revenue,and MC = marginal cost.For a profit-maximizing monopolist,which relationship holds

A)P > MR = MC
B)P = MR = MC
C)P > MR > MC
D)MR < MC = P

Question 73

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.If the monopoly firm wants to maximize its profit,what level of output should it operate at

A)Q₁
B)Q₂
C)Q₃
D)Q₄

Question 74

For a monopolist,how do we determine the sign of the marginal-revenue curve

A)It is positive when the demand effect is greater than the supply effect.
B)It is positive when the monopoly effect is greater than the competitive effect.
C)It is negative when the price effect is greater than the output effect.
D)It is negative when the output effect is greater than the price effect.

Question 75

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.If the monopoly firm is currently producing Q₃ units of output,what will a decrease in output necessarily cause profit to do

A)decrease
B)remain unchanged
C)increase as long as the new level of output is at least Q₁
D)increase as long as the new level of output is at least Q₂

Question 76

When a monopoly increases its output and sales,what is the impact of the output effect and the price effect on total revenue

A)Both the output effect and the price effect work to increase total revenue.
B)The output effect works to increase total revenue, and the price effect works to decrease total revenue.
C)The output effect works to decrease total revenue, and the price effect works to increase total revenue.
D)Both the output effect and the price effect work to decrease total revenue.

Question 77

Figure 15-2
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-2.What price will maximize profit

A)P₀
B)P₁
C)P₂
D)P₃

Question 78

At what level of output will a profit-maximizing monopolist produce

A)the level of output at which price is equal to average total cost
B)the level of output at which average revenue is equal to marginal cost
C)the level of output at which marginal revenue is equal to marginal cost
D)the level of output at which total revenue is equal to opportunity cost

Question 79

Figure 15-3
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-3.What is a profit-maximizing monopoly's total revenue

A)P₂ × Q₄
B)P₃ × Q₂
C)(P₃ - P₁) × Q₂
D)(P₃ - P₀) × Q₄

Question 80

Figure 15-3
The figure below reflects the cost and revenue structure for a monopoly firm.

Refer to Figure 15-3.What is a profit-maximizing monopoly's total cost

A)P₀ × Q₀
B)P₀ × Q₂
C)P₀ × Q₃
D)(P₁ - P₀) × Q₂