Question 1

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?
A) Ownership of a vital resource.
B) Government franchises and licenses.
C) Patents and copyrights.
D) Economies of scale.

Accepted Answer

A

Question 2

An industry is said to be a natural monopoly when:
A) legal barriers limit entry into the market.
B) diseconomies of scale are present in the market.
C) the market demand for the product supplied by a firm is inelastic.
D) long-run average cost continues to decline as the quantity of output increases.

Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of a market at a lower cost than any potential competitor. This occurs due to economies of scale, where the long-run average cost of production continues to decline as output increases. Therefore, choice D is the correct answer.

Question 3

Which of the following firms operates in a natural monopoly?
A) Telephone company.
B) Electric company.
C) Water company.
D) All of the above.

Accepted Answer

All of the above firms operate in natural monopolies because they provide essential goods or services that are costly to duplicate and require large infrastructures. This creates barriers to entry for potential competitors, giving the existing firm the ability to control prices without fear of losing its market share.

Question 4

A monopolist faces a downward-sloping demand curve because:
A) the demand for its product is inelastic.
B) the industry demand curve is horizontal.
C) resource prices increase as the monopolist expands output.
D) the entire market demand curve is the monopolist's demand curve.

Accepted Answer

A monopolist is the sole producer of a good, so the entire market demand curve is the monopolist's demand curve. The demand curve facing a monopolist is downward-sloping because as the price of the good decreases, consumers demand more of it, leading to a larger quantity demanded.

Question 5

Which of the following is true under natural monopoly?
A) The marginal cost curve will be above the average cost curve.
B) The monopolist will set price equal to marginal cost and will earn economic profits.
C) Economies of scale exist.
D) Output is produced under conditions of constant cost.

Accepted Answer

Economies of scale exist under natural monopoly, which means that the average cost curve decreases as the firm produces more output. This allows the monopolist to produce at a lower average cost than any potential competitors, making it difficult for new firms to enter the market and compete. Therefore, a natural monopoly often results in a single dominant firm in the market, which has the power to set prices above marginal cost and earn economic profits. The marginal cost curve will be below the average cost curve, as the monopolist will produce at a level where marginal revenue equals marginal cost, but the price charged will be higher than marginal cost. There is no condition of constant cost under economies of scale.

Question 6

An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a:
A) natural monopoly.
B) competitive monopoly.
C) patent monopoly.
D) limit monopoly.

Accepted Answer

In a natural monopoly, a single firm with economies of scale is able to produce at a lower cost than any potential competitor, making it a more efficient and cost-effective option for consumers. As a result, there is no incentive for other firms to enter the market, and the monopolist can maintain its dominant position with minimal competition.

Question 7

Which of the following factors is not a barrier to entry?
A) legally enforced patent rights
B) an inelastic demand for a product
C) licensing
D) control over an essential resource

Accepted Answer

An inelastic demand for a product is not a barrier to entry as it refers to consumer behavior and does not prevent new firms from entering the market. A, C, and D are all examples of common barriers to entry that can limit the ability for new entrants to successfully compete in a market.

Question 8

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.

Accepted Answer

The demand curve a monopolist faces is the market demand curve because it is the only seller in the market, and therefore, can set the price at any level it desires based on the relationship between price and quantity demanded. The monopolist has the power to influence the market price and can adjust its output level accordingly. However, the monopolist has to take into account the elasticity of the market demand curve to maximize its profits.

Question 9

Which of the following is a market structure of monopoly?
A) Few firms operating as price takers.
B) Single firm operating as a price taker.
C) Single firm that is a price maker.
D) All of the above are true.

Accepted Answer

A monopoly is a market structure in which there is a single firm that is the sole producer or seller of a product or service, giving it significant market power to set prices (price maker) without the risk of competition from other firms. Therefore, choice C is the correct answer. Choices A and B describe a market structure of perfect competition or monopolistic competition, where firms are price takers and have little market power to affect prices.

Question 10

Which of the following is not associated with the monopoly market structure?
A) Many sellers.
B) A single seller.
C) A unique product.
D) Impossible entry into the market.

Accepted Answer

The monopoly market structure is characterized by a single seller who controls the entire market, has no close substitutes, and enjoys high barriers to entry. Therefore, many sellers are not associated with the monopoly market structure.

Question 11

A monopolized market is characterized by:
A) a sole seller of a product for which there are few suitable substitutes.
B) very strong barriers to entry.
C) a single firm facing the market demand curve.
D) all of the above.

Accepted Answer

A monopolized market is characterized by all of these factors: a sole seller of a product for which there are few suitable substitutes, very strong barriers to entry, and a single firm facing the market demand curve.

Question 12

Which of the following firms best fits the definition of a monopoly?
A) General Motors
B) Exxon Mobile
C) Local electric utility
D) AT&T

Accepted Answer

A local electric utility is most likely to fit the definition of a monopoly as they are often the sole provider of electricity in a specific geographical area and there may be legal restrictions on competitors entering the market. General Motors and Exxon Mobile operate in industries with many competitors and AT&T, although a large telecommunications company, still faces competition from other providers such as Verizon and T-Mobile.

Question 13

A monopolist faces a downward sloping demand curve that is equal to which of the following?
A) The prevailing market price.
B) The market demand curve.
C) Its marginal cost curve.
D) Marginal revenue.

Accepted Answer

The answer of A monopolist faces a downward sloping demand...

Question 14

The demand curve any monopolist uses in making output decisions 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.

Accepted Answer

A monopolist's demand curve is the same as the market demand curve because it is the only supplier in the market and sets the price based on its output level. The monopolist has some market power to influence the price, but ultimately it must consider the overall market demand in setting its output level.

Question 15

A natural monopoly is a market where:
A) a single firm has control over a vital natural resource.
B) many smaller firms can produce the entire market output at the same per-unit cost as could one large firm.
C) a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.
D) many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm.

Accepted Answer

A natural monopoly occurs when a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms due to economies of scale. This means that as the scale of production increases, the average cost per unit decreases. Therefore, it is not feasible for many smaller firms to enter the market and compete with the larger firm.

Question 16

What is the name of the monopolist having a declining long-run average cost throughout the market?
A) Monopolistic competition.
B) Monopoly by legal barrier.
C) Natural monopoly.
D) Contrived monopoly.

Accepted Answer

A natural monopoly is a type of monopoly that arises when a single firm can supply a good or service to an entire market at a lower cost than any combination of two or more smaller firms. In other words, a natural monopoly has a declining long-run average cost throughout the market. This can occur when the fixed costs of producing the good or service are so high that they can only be spread across the market by one firm.

Question 17

A monopoly is:
A) a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
B) the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
C) the only buyer of a unique raw material.
D) the producer of a product subsidized by the government.

Accepted Answer

A monopoly is a market structure in which there is only one seller of a good or service, and there are no close substitutes available. This generally occurs when there are high barriers to entry, making it difficult or impossible for other firms to enter the market and compete. The monopolist, therefore, has significant market power to set prices and control output levels, potentially leading to higher prices and lower quantities produced compared to a competitive market.

Question 18

The monopolist's demand curve is:
A) identical to the market demand curve.
B) identical to the marginal revenue curve.
C) below the marginal revenue curve.
D) a horizontal line at the market price.
E) a U-shaped curve.

Accepted Answer

The answer of The monopolist's demand curve is:
A) identical to...

Question 19

Monopoly is a market structure characterized by a:
A) single firm operating as a price taker.
B) few firms operating as price takers.
C) single firm that is not a price taker.
D) none of the above.

Accepted Answer

Monopoly is characterized by a single dominant firm that has significant control over the market and is able to set its own prices, making it a price maker rather than a price taker. Therefore, option C is the correct choice. Option A describes a perfectly competitive market structure, while option B describes an oligopoly market structure. Option D is not correct because one of the options above is correct.

Question 20

Which barrier to entry results in the creation of a natural monopoly?
A) Legal barriers like government franchises.
B) Economies of scale.
C) Ownership of a vital resource.
D) Patents and copyrights.

Accepted Answer

Economies of scale is the barrier to entry that results in the creation of a natural monopoly. As the firm increases its output, it benefits from lower per-unit costs, making it difficult for new firms to enter the market and compete. This allows the existing firm to maintain a monopoly position and earn high profits. Legal barriers, ownership of a vital resource, and patents and copyrights can also create barriers to entry, but they may not necessarily result in natural monopolies.

Quiz 8: Monopoly

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?

An industry is said to be a natural monopoly when:

Which of the following firms operates in a natural monopoly?

A monopolist faces a downward-sloping demand curve because:

Which of the following is true under natural monopoly?

An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a:

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

The demand curve a monopolist faces:

Which of the following is a market structure of monopoly?

Which of the following is not associated with the monopoly market structure?

A monopolized market is characterized by:

Which of the following firms best fits the definition of a monopoly?

A monopolist faces a downward sloping demand curve that is equal to which of the following?

The demand curve any monopolist uses in making output decisions is:

A natural monopoly is a market where:

What is the name of the monopolist having a declining long-run average cost throughout the market?

A monopoly is:

The monopolist's demand curve is:

Monopoly is a market structure characterized by a:

Which barrier to entry results in the creation of a natural monopoly?