Question 1

A benefit of a monopoly is
A) lower prices.
B) a wide variety of similar products.
C) decreasing long-run average total costs.
D) greater creativity by authors who can copyright their novels.

Accepted Answer

A benefit of a monopoly is that it can lead to greater creativity by authors who can copyright their novels, as they have exclusive rights to their work and can earn more profits without competition. However, this benefit may not extend to all industries or products, and in general, monopolies tend to have negative effects on consumers and the overall market.

Question 2

Which of the following would be most likely to have monopoly power?
A) a long-distance telephone service provider
B) a local cable TV provider
C) a large department store
D) a gas station

Accepted Answer

A local cable TV provider is most likely to have monopoly power as they are the only provider of cable TV in a specific region or area. Long-distance telephone service providers often face competition from other providers, large department stores compete with other retailers, and gas stations typically have multiple locations in an area.

Question 3

Suppose most people regard emeralds,rubies,and sapphires as close substitutes for diamonds.Then DeBeers,a large diamond company,has
A) less incentive to advertise than it would otherwise have.
B) less market power than it would otherwise have.
C) more control over the price of diamonds than it would otherwise have.
D) higher profits than it would otherwise have.

Accepted Answer

If emeralds, rubies, and sapphires are considered close substitutes for diamonds, then DeBeers would have less market power over the price of diamonds. This is because consumers have more options to choose from and can easily switch to a different gemstone if diamonds become too expensive. As a result, DeBeers would have to compete with other gemstone companies and would not be able to raise prices as easily.

Question 4

Which of the following would be most likely to have monopoly power?
A) a national florist
B) an online bookstore
C) a local restaurant
D) a local electrical cooperative

Accepted Answer

A local electrical cooperative is the most likely to have monopoly power as they often hold exclusive rights to provide electricity in a particular area through government regulation. This makes it difficult for other companies to enter the market and compete, giving the cooperative significant market power. The other options are less likely to have monopoly power as there are likely to be other similar businesses in the market.

Question 5

A monopoly
A) can set the price it charges for its output and earn unlimited profits.
B) takes the market price as given and earns small but positive profits.
C) can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.
D) can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

Accepted Answer

A monopoly can set the price it charges for its output, but it faces a downward-sloping demand curve, which means that it cannot earn unlimited profits. As the monopoly increases the price, the quantity demanded decreases, which reduces the total revenue earned. Therefore, the monopoly has to find the optimal price that maximizes its profit, which is below the price that would maximize total revenue.

Question 6

The fundamental source of monopoly power is
A) barriers to entry.
B) profit.
C) decreasing average total cost.
D) a product without close substitutes.

Accepted Answer

Barriers to entry prevent new firms from entering the market and competing with existing firms, allowing the existing firms to maintain their market power and charge higher prices. This results in a monopoly.

Question 7

Which of the following statements is correct?
A) Both a competitive firm and a monopolist are price takers.
B) Both a competitive firm and a monopolist are price makers.
C) A competitive firm is a price taker,whereas a monopolist is a price maker.
D) A competitive firm is a price maker,whereas a monopolist is a price taker.

Accepted Answer

A competitive firm operates in a market where there are many other firms producing similar products, hence it cannot influence the market price and has to accept the prevailing market price as given, making it a price taker. A monopolist, on the other hand, is the only supplier in the market and has the power to influence the market price, making it a price maker. Therefore, option C is correct.

Question 8

A benefit of a monopoly is
A) efficient production.
B) decreasing long-run marginal costs.
C) profit that can be invested in research and development.
D) All of the above are correct.

Accepted Answer

A monopoly can generate higher profits, which can then be invested in research and development leading to innovation and technological advancement. However, the other options do not necessarily apply to a monopoly as it may not always be efficient in production and may not experience decreasing long-run marginal costs.

Question 9

A monopoly market is characterized by
A) many buyers and sellers.
B) "natural" products.
C) barriers to entry.
D) a Nash equilibrium.

Accepted Answer

A monopoly market is characterized by the presence of barriers to entry, which prevent new firms from entering the market and competing with the existing monopoly firm. This lack of competition allows the monopoly firm to control the price of the product, leading to higher prices for consumers and potentially lower quality goods or services. Therefore, option C is the best choice as it best describes the main feature of a monopoly market. Options A, B, and D do not accurately describe a monopoly market.

Question 10

The simplest way for a monopoly to arise is for a single firm to
A) decrease its price below its competitors' prices.
B) decrease production to increase demand for its product.
C) make pricing decisions jointly with other firms.
D) own a key resource.

Accepted Answer

Owning a key resource can give a firm exclusive access to a necessary input, allowing it to operate at a lower cost than potential competitors. This can lead to eventual dominance of the market, resulting in a monopoly.

Question 11

Because a monopolist does not face competition from other firms,the outcome in a market with a monopoly
A) does not illustrate profit maximization.
B) is often not in the best interest of society.
C) is characterized by unlimited profits.
D) would be improved if the government produced the product rather than a private firm.

Accepted Answer

Monopolies often lead to higher prices and lower output, which is not in the best interest of society as a whole. Additionally, monopolies can use their market power to limit competition and innovation, further harming consumers and the economy. While monopolies may generate high profits, they may not necessarily be maximizing profits in the long run, as their lack of competition can lead to complacency and a failure to innovate. The suggestion that government production would improve the outcome is not necessarily true, as government-run industries can also suffer from inefficiencies and lack of competition.

Question 12

Which of the following is not a characteristic of a monopoly?
A) barriers to entry
B) one seller
C) one buyer
D) a product without close substitutes

Accepted Answer

Monopoly refers to a market structure where there is only one seller and no close substitutes for the product, which gives the seller significant market power. Barriers to entry prevent other firms from entering the market and competing with the existing seller. However, there can be many buyers in a monopoly market structure, and the seller has control over the price and output of the product.

Question 13

Which of the following are necessary characteristics of a monopoly? (i)
The firm is the sole seller of its product.
(ii)
The firm's product does not have close substitutes.
(iii)
The firm generates a large economic profit.
(iv)
The firm is located in a small geographic market.
A) (i)and (ii)only
B) (i)and (iii)only
C) (i), (ii),and (iii)only
D) (i), (ii), (iii),and (iv)

Accepted Answer

A monopoly is characterized by both (i) and (ii). It can generate economic profit but it is not necessary for it to do so, and its geographic location does not play a role in determining whether it is a monopoly or not.

Question 14

Which of the following is not a reason for the existence of a monopoly?
A) sole ownership of a key resource
B) patents
C) copyrights
D) diseconomies of scale

Accepted Answer

Diseconomies of scale actually make it harder for a monopoly to exist as they lead to higher costs, reducing the ability of a single firm to control the market. A, B, and C are all reasons that can contribute to the existence of a monopoly.

Question 15

A perfectly competitive market
A) may not be in the best interests of society,whereas a monopoly market promotes general economic well-being
B) promotes general economic well-being,whereas a monopoly market may not be in the best interests of society.
C) and a monopoly market are equally likely to promote general economic well-being.
D) is less likely to promote general economic well-being than a monopoly market.

Accepted Answer

A perfectly competitive market promotes general economic well-being because it allows for efficient allocation of resources, low prices, and innovation. On the other hand, a monopoly market may not be in the best interests of society because it leads to higher prices, reduced competition, and lower innovation. Therefore, choice B is the best answer.

Question 16

Microsoft faces very little competition from other firms for its Windows software.Why isn't the price of the software $1,000 per copy?
A) because the government would not allow such a high price
B) because stockholders would not allow such a high price
C) because the company would sell so few copies that they would earn higher profits by selling at a lower price
D) All of the above are correct.

Accepted Answer

Microsoft has a near-monopoly on the Windows software market, but selling the software at a price of $1,000 per copy would result in very few people being able to afford it, leading to lower profits overall. By keeping the price at a more affordable level, Microsoft can maximize profits by selling a larger volume of copies. The government and stockholders would likely have some influence on pricing decisions, but ultimately the market demand and profitability considerations would be the primary factors.

Question 17

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where
A) marginal cost equals price,while a monopolist produces where price exceeds marginal cost.
B) marginal cost equals price,while a monopolist produces where marginal cost exceeds price.
C) price exceeds marginal cost,while a monopolist produces where marginal cost equals price.
D) marginal cost exceeds price,while a monopolist produces where marginal cost equals price.

Accepted Answer

In a perfectly competitive market, firms are price takers and they produce where their marginal cost equals the market price. This is because there are many firms producing identical products and consumers have perfect information about prices, so any firm that charges a higher price will lose all its customers to competitors. On the other hand, a monopoly has market power and can charge a higher price than its marginal cost. This is because there are no close substitutes for its product and it can restrict the quantity it produces in order to increase the price. Therefore, a monopolist produces where its marginal revenue equals its marginal cost, which is less than the price it charges.

Question 18

Which of the following is a characteristic of a monopoly?
A) low fixed costs as a portion of total costs
B) free entry and exit
C) barriers to entry
D) declining marginal cost

Accepted Answer

Barriers to entry are a defining characteristic of a monopoly. Without such barriers, new firms would be able to enter the market and compete, reducing or even eliminating the monopolist's market power. A low fixed cost as a portion of total costs may make it easier for new firms to enter, so it is not a characteristic of a monopoly. Free entry and exit also imply a lack of barriers, so it is not a characteristic of a monopoly. Declining marginal cost is not necessarily associated with a monopoly, as it depends on the specific cost structure of the firm.

Question 19

The DeBeers company faces very little competition from other firms in the wholesale diamond market.Why isn't the price of the wholesale diamonds $10,000 per carat?
A) because the government would not allow such a high price
B) because stockholders would not allow such a high price
C) because the company would sell so few copies that they would earn higher profits by selling at a lower price
D) All of the above are correct.

Accepted Answer

Even though DeBeers faces little competition, they would not price their wholesale diamonds at $10,000 per carat because few people would be willing to buy them at such a high price. Instead, they would earn higher profits by selling at a lower price and selling more diamonds. The government and stockholders do not necessarily have a direct influence on the price of the diamonds.

Question 20

Because monopoly firms do not have to compete with other firms,the outcome in a market with a monopoly is often
A) not in the best interest of society.
B) one that fails to maximize total economic well-being.
C) inefficient.
D) All of the above are correct.

Accepted Answer

Monopoly power allows firms to charge higher prices and produce less output than would occur in a competitive market. This results in a misallocation of resources and a decrease in total economic well-being. Overall, the outcome in a market with a monopoly is often not in the best interest of society and is inefficient.

Quiz 15: Monopoly

A benefit of a monopoly is

Which of the following would be most likely to have monopoly power?

Suppose most people regard emeralds,rubies,and sapphires as close substitutes for diamonds.Then DeBeers,a large diamond company,has

Which of the following would be most likely to have monopoly power?

A monopoly

The fundamental source of monopoly power is

Which of the following statements is correct?

A benefit of a monopoly is

A monopoly market is characterized by

The simplest way for a monopoly to arise is for a single firm to

Because a monopolist does not face competition from other firms,the outcome in a market with a monopoly

Which of the following is not a characteristic of a monopoly?

Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market.

Which of the following is not a reason for the existence of a monopoly?

A perfectly competitive market

Microsoft faces very little competition from other firms for its Windows software.Why isn't the price of the software $1,000 per copy?

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

Which of the following is a characteristic of a monopoly?

The DeBeers company faces very little competition from other firms in the wholesale diamond market.Why isn't the price of the wholesale diamonds $10,000 per carat?

Because monopoly firms do not have to compete with other firms,the outcome in a market with a monopoly is often