Question 1

Figure 10-10
 
-Refer to Figure 10-10.Compared to a perfectly competitive market,consumer surplus is lower in a monopoly by an amount equal to the
A) area FHE.
B) area FGE.
C) area P₁P₂EF.
D) area P₁P₂GF.

Accepted Answer

In a monopoly, the price is higher and the quantity is lower compared to a perfectly competitive market. The consumer surplus is reduced by the area representing the difference in price and quantity, which is area P₁P₂EF.

Question 2

Figure 10-10
 
-Refer to Figure 10-10.The deadweight loss due to a monopoly is represented by the area
A) FHE.
B) FGE.
C) GEH.
D) FQ₁Q₂E.

Accepted Answer

The deadweight loss due to a monopoly is represented by the area FHE. This is because the monopoly restricts output to Q₁, which is less than the competitive output of Q₂, resulting in a loss of consumer surplus (area FGE) and producer surplus (area GEH).

Question 3

Market power refers to
A) the ability of consumers to dictate what products should be produced.
B) the ability of a firm to advertise its product and succeed in selling more output.
C) the ability of a firm to sell at a lower price than rival sellers.
D) the ability of a firm to charge a price higher than the marginal cost of production.

Accepted Answer

Market power refers to the ability of a firm to raise the market price of its product above the marginal cost of production. Option A is incorrect as consumers do not dictate what products should be produced; they respond to products that are produced. Option B is incorrect because advertising does not necessarily result in successful sales. Option C is incorrect as selling at a lower price does not necessarily give a firm market power.

Question 4

Table 10-4
 $\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per } \
\text { Dose }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$ Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the economically efficient output level?
A) 5 units
B) 6 units
C) 7 units
D) 8 units

Accepted Answer

The answer of Table 10-4
 \(\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per...

Question 5

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.Which of the following statements comparing the conditions in the industry under both market structures is true?
A) A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good.
B) A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good.
C) A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
D) A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

Accepted Answer

In a perfectly competitive industry, firms compete with each other, driving the price down to the lowest possible point while maximizing production. In contrast, a monopoly has control over the market and can charge higher prices to maximize profits. Since there is no competition to drive the price down, the monopoly has the ability to restrict production to achieve higher prices. Therefore, a monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

Question 6

Table 10-4
 $\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per } \
\text { Dose }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$ Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the amount of Shakti's profit?
A) $68
B) $72
C) $124
D) $192

Accepted Answer

The correct answer is A because the profit is the difference between the total revenue and the total cost of production. The total revenue is the price per dose multiplied by the quantity demanded. The total cost of production is given in the table. The profit is the difference between the total revenue and the total cost of production. For example, at a price of $80 per dose, the total revenue is $0, and the total cost of production is $80. The profit is -$80. At a price of $72 per dose, the total revenue is $72, and the total cost of production is $82. The profit is -$10. At a price of $64 per dose, the total revenue is $128, and the total cost of production is $88. The profit is $40. At a price of $56 per dose, the total revenue is $168, and the total cost of production is $100. The profit is $68. At a price of $48 per dose, the total revenue is $192, and the total cost of production is $124. The profit is $68. At a price of $40 per dose, the total revenue is $200, and the total cost of production is $164. The profit is $36. At a price of $32 per dose, the total revenue is $192, and the total cost of production is $208. The profit is -$16. At a price of $24 per dose, the total revenue is $168, and the total cost of production is $268. The profit is -$100. At a price of $16 per dose, the total revenue is $128, and the total cost of production is $340. The profit is -$212.

Question 7

Figure 10-11
  In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.Suppose the local government imposes a $2.50 per month tax on cable companies.What happens to the price charged by the cable company following the imposition of this tax?
A) The price rises from PM to (PM + $2.50).
B) The price rises from PM but it increases by an amount less than $2.50.
C) The price rises from PM but it increases by an amount greater than $2.50 to reflect the monopoly's markup.
D) The price remains at PM.

Accepted Answer

The answer of Figure 10-11
  In 2011, Verizon was...

Question 8

Which of the following statements is consistent with the views of Joseph Schumpeter?
A) Research and development by competitive firms is responsible for most technological changes.
B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development.
C) Enforcement of antitrust laws is necessary to promote competition among firms.
D) A lack of competition discourages firms from developing new technologies.

Accepted Answer

Joseph Schumpeter believed that firms with market power are better able to invest in research and development, which leads to technological innovation and economic growth. He also argued that monopolies may emerge as a result of successful innovation by entrepreneurial firms, but they are ultimately temporary and will be displaced by new innovators. Therefore, Schumpeter's views were more favorable towards market power than towards competition.

Question 9

The most profitable price for a monopolist is
A) the highest price a consumer is willing to pay for the monopolist's product.
B) the price at which demand is unit elastic.
C) a price that maximizes the quantity sold.
D) found where the profit-maximizing quantity hits the demand curve.

Accepted Answer

The most profitable price for a monopolist is found where the profit-maximizing quantity hits the demand curve. This means that the monopolist should set their price at the point where the marginal revenue equals marginal cost, which is the point where the profit is maximized. It is not necessarily the highest price a consumer is willing to pay or a price that maximizes the quantity sold, as these factors may not result in maximizing profits for the monopolist. Additionally, demand being unit elastic is only one possible factor to consider when determining the profit-maximizing price.

Question 10

Figure 10-10
 
-Refer to Figure 10-10.What is the area that represents producer surplus under a monopoly?
A) the triangle 0P₂E
B) the triangle 0P₃H
C) the area 0P₁FH
D) the rectangle P₁P₃HF

Accepted Answer

Producer surplus under a monopoly is represented by the area above the supply curve (or marginal cost curve) and below the price level set by the monopoly. In this case, it is the area 0P₁FH.

Question 11

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?
A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions.
B) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized.
C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus.
D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Accepted Answer

Under perfect competition, firms are price takers and produce at a level where marginal cost equals marginal revenue, leading to economic surplus maximization. However, under monopoly conditions, the firm produces at a level where marginal cost equals marginal revenue, leading to a smaller output level and higher prices, resulting in a deadweight loss and a smaller economic surplus compared to perfect competition. Therefore, economic surplus is maximized under perfect competition and minimized with a deadweight loss under monopoly conditions.

Question 12

The size of a deadweight loss in a market is reduced by
A) government legislating a ceiling price.
B) government legislating a price floor.
C) market price being close to marginal cost.
D) creative destruction.

Accepted Answer

A deadweight loss occurs when the market price is set above the marginal cost of production, resulting in a reduction in welfare for society as a whole. When the market price is close to marginal cost, the deadweight loss is minimized as the goods are being produced at a socially efficient level. Therefore, option C is the best choice. A and B are incorrect because the government intervention in the form of price controls tends to increase the deadweight loss. D (creative destruction) refers to the process of innovation that destroys old industries and creates new ones, and while it can help stimulate economic growth, it does not directly impact the deadweight loss in a market.

Question 13

Table 10-4
 $\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per } \
\text { Dose }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$ Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is Shakti's profit-maximizing output?
A) 4 units
B) 5 units
C) 6 units
D) 7 units

Accepted Answer

The answer of Table 10-4
 \(\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per...

Question 14

Figure 10-11
  In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.Following the entry of Verizon,the subscription price falls from PM to PC.What is the increase in consumer surplus as a result of this change?
A) the area A + B + C
B) the area B + C
C) the area D + F
D) the area B + C + D

Accepted Answer

The answer of Figure 10-11
  In 2011, Verizon was...

Question 15

Table 10-4
 $\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per } \
\text { Dose }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$ Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the amount of the deadweight loss generated by Shakti when it produces the monopoly output?
A) $124
B) $42
C) $36
D) $12

Accepted Answer

The answer of Table 10-4
 \(\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price per...

Question 16

A market economy benefits from market power
A) if the majority of the population are entrepreneurs.
B) if firms with market power do research and development with the profits earned.
C) if market power gets so bad the government creates public enterprises.
D) under no circumstances.

Accepted Answer

Firms with market power can use their profits to invest in research and development, leading to innovation and productivity growth in the economy. This can ultimately benefit consumers through the introduction of new and improved products or services. However, if market power becomes too concentrated, it can lead to reduced competition, barriers to entry for new firms, and ultimately harm consumers.

Question 17

Figure 10-11
  In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?
A) The deadweight loss of area D is converted to consumer surplus.
B) The deadweight loss of area C+D is converted to consumer surplus
C) The deadweight loss of area D is converted to producer surplus.
D) The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus.

Accepted Answer

The deadweight loss of area D is converted to consumer surplus when Verizon enters the market, as competition typically reduces prices and increases consumer surplus.

Question 18

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.As a result of this change
A) price will be higher, output will be lower, and the deadweight loss will be eliminated.
B) consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency.
C) price will be higher, consumer surplus will be greater, and output will be greater.
D) consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Accepted Answer

When an industry moves from perfect competition to monopoly, the price will increase while output will decrease, leading to a reduction in economic efficiency. Consumer surplus will be smaller as consumers pay higher prices, while the monopoly gains producer surplus. The deadweight loss will not necessarily be eliminated, as the monopoly may continue to produce at a level below the optimal point.

Question 19

Firms do not have market power in which of the following market structures?
A) perfect competition only
B) perfect competition and monopolistic competition
C) oligopoly
D) monopoly

Accepted Answer

In perfect competition, there are numerous small firms in the industry, and no single firm has enough market power to affect the price of the product or service. Therefore, firms in perfect competition do not have market power. In all other market structures (monopolistic competition, oligopoly, and monopoly), firms have some degree of market power.

Question 20

Figure 10-10
 
-Refer to Figure 10-10.What is the area that represents consumer surplus under a monopoly?
A) the triangle P₀P₁F
B) the triangle P₀P₂E
C) the area P₁P₂EF
D) the rectangle P₁P₃HF

Accepted Answer

Under a monopoly, the consumer surplus is represented by the triangle P₀P₁F, which is the difference between the maximum price consumers are willing to pay (P₀) and the actual price charged by the monopolist (P₁), multiplied by the quantity purchased (Q).

Quiz 10: Monopoly and Antitrust Policy

Figure 10-10 -Refer to Figure 10-10.Compared to a perfectly competitive market,consumer surplus is lower in a monopoly by an amount equal to the

Figure 10-10 -Refer to Figure 10-10.The deadweight loss due to a monopoly is represented by the area

Market power refers to

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.Which of the following statements comparing the conditions in the industry under both market structures is true?

Which of the following statements is consistent with the views of Joseph Schumpeter?

The most profitable price for a monopolist is

Figure 10-10 -Refer to Figure 10-10.What is the area that represents producer surplus under a monopoly?

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

The size of a deadweight loss in a market is reduced by

A market economy benefits from market power

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.As a result of this change

Firms do not have market power in which of the following market structures?

Figure 10-10 -Refer to Figure 10-10.What is the area that represents consumer surplus under a monopoly?