Question 1

Figure 9-I
 
-Monopoly profits cannot persist in the long run, because there are barriers to entry.

Accepted Answer

False

Question 2

Figure 9-I
 
-In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Accepted Answer

Average cost pricing regulation does not require a subsidy, but rather sets the price at the average cost of production in order to prevent the natural monopolist from charging a price that exceeds the cost and earning excessive profits.

Question 3

Figure 9-I
 
-A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive.

Accepted Answer

This is a defining characteristic of a monopoly market structure.

Question 4

Figure 9-I
 
-A price-discriminating monopoly firm will tend to charge a higher price to customers with a greater willingness to pay than it does to customers with a lower willingness to pay.

Accepted Answer

This is the basic principle of price discrimination - to charge higher prices to customers with a higher willingness to pay.

Question 5

Figure 9-I
 
-The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Accepted Answer

This statement is true, as both a monopolist and a perfect competitor will maximize profits where marginal revenue equals marginal cost.

Question 6

Figure 9-I
 
-Monopolists, unlike perfectly competitive firms, can continue to earn positive economic profits over time.

Accepted Answer

Monopolists have the ability to control prices and limit competition, allowing them to earn positive economic profits over time. Perfectly competitive firms, on the other hand, typically earn zero economic profits in the long run due to competition driving prices down to the minimum level necessary to cover costs.

Question 7

Figure 9-I
 
-The demand curve faced by a monopolist is the same as the marginal revenue curve.

Accepted Answer

The answer of Figure 9-I
 
-The demand curve faced by...

Question 8

Figure 9-I
 
-A profit-maximizing monopolist will choose to operate along the inelastic portion of its demand curve.

Accepted Answer

The answer of Figure 9-I
 
-A profit-maximizing monopolist will choose...

Question 9

Figure 9-I
 
-Control of a scarce resource or input can serve as an entry barrier.

Accepted Answer

When a company has control over a scarce resource, it can limit the access of competitors to that resource, creating a barrier to entry.

Question 10

Figure 9-I
 
-Monopoly firms, which are provided a subsidy equal to their losses and subject to marginal cost-pricing regulation, have little incentive to minimize costs.

Accepted Answer

Monopoly firms that receive a subsidy equal to their losses and are subject to marginal cost-pricing regulation have little incentive to minimize costs, as they are not bearing any of the costs themselves. Therefore, they may not operate efficiently or seek to produce at the lowest possible cost.

Question 11

Figure 9-I
 
-A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.

Accepted Answer

This statement accurately describes the concept of welfare loss in a monopolistic market.

Question 12

Figure 9-I
 
-A monopolistic firm is a:
A)price taker that faces the market supply curve.
B)price taker that faces the market demand curve.
C)price maker that faces the market supply curve.
D)price maker that faces the market demand curve.

Accepted Answer

A monopolistic firm has market power and can therefore set its own price, making it a price maker. It faces the market demand curve, but has some ability to influence it through product differentiation or marketing.

Question 13

Figure 9-I
 
-In order for a firm to be able to price discriminate it must not be a price taker, there must be different demand from different groups of consumers, and there must be an ability to prevent resale.

Accepted Answer

These are the three basic conditions required for a firm to be able to price discriminate.

Question 14

Figure 9-I
 
-A natural monopolist will voluntarily choose to produce at the point of allocative efficiency.

Accepted Answer

A natural monopolist will not choose to produce at the point of allocative efficiency because they have the ability to set prices higher than marginal cost, resulting in higher profits. Therefore, they will produce where marginal revenue equals marginal cost, which will result in a higher price and lower quantity than the allocatively efficient point.

Question 15

Figure 9-I
 
-A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.

Accepted Answer

This is the definition of a natural monopoly.

Question 16

Figure 9-I
 
-Monopoly is at the other end of the spectrum from ____.
A)monopolistic competition
B)perfect competition
C)oligopoly
D)none of the above

Accepted Answer

Monopoly is the opposite of perfect competition, where there are many small firms competing against each other with no one having significant market power. In a monopoly, there is only one firm with complete control over the market, which is the opposite of perfect competition.

Question 17

Figure 9-I
 
-A monopoly firm can sell as much output as it wants at whatever price it sets.

Accepted Answer

Although a monopoly firm has market power and can set prices, it cannot sell as much output as it wants. The firm is still constrained by the market demand for its product, which will decrease as the firm raises its price. Therefore, the firm must consider the relationship between price and quantity demanded in order to maximize its profits.

Question 18

Figure 9-I
 
-One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Accepted Answer

Average cost pricing regulation sets the price at the average cost of production, including both fixed and variable costs. This means that if a natural monopoly can decrease their costs, they will not see an increase in profits, as the regulator sets the price they are allowed to charge. Therefore, there is little incentive for the firm to minimize their production costs, which can lead to inefficiencies and higher prices for consumers.

Question 19

Figure 9-I
 
-The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

Accepted Answer

The welfare loss from monopoly is a real loss to society as a whole, as it represents a reduction in overall economic efficiency and consumer surplus. The transfer from consumers to producers results in a reduction in total surplus, which is an economic loss.

Question 20

Figure 9-I
 
-Monopolies will tend to produce a greater quantity and charge higher prices than perfectly competitive industries.

Accepted Answer

The answer of Figure 9-I
 
-Monopolies will tend to produce...

Quiz 8: Monopoly

Figure 9-I -Monopoly profits cannot persist in the long run, because there are barriers to entry.

Figure 9-I -In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Figure 9-I -A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive.

Figure 9-I -A price-discriminating monopoly firm will tend to charge a higher price to customers with a greater willingness to pay than it does to customers with a lower willingness to pay.

Figure 9-I -The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Figure 9-I -Monopolists, unlike perfectly competitive firms, can continue to earn positive economic profits over time.

Figure 9-I -The demand curve faced by a monopolist is the same as the marginal revenue curve.

Figure 9-I -A profit-maximizing monopolist will choose to operate along the inelastic portion of its demand curve.

Figure 9-I -Control of a scarce resource or input can serve as an entry barrier.

Figure 9-I -Monopoly firms, which are provided a subsidy equal to their losses and subject to marginal cost-pricing regulation, have little incentive to minimize costs.

Figure 9-I -A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.

Figure 9-I -A monopolistic firm is a:

Figure 9-I -In order for a firm to be able to price discriminate it must not be a price taker, there must be different demand from different groups of consumers, and there must be an ability to prevent resale.

Figure 9-I -A natural monopolist will voluntarily choose to produce at the point of allocative efficiency.

Figure 9-I -A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.

Figure 9-I -Monopoly is at the other end of the spectrum from ____.

Figure 9-I -A monopoly firm can sell as much output as it wants at whatever price it sets.

Figure 9-I -One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Figure 9-I -The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

Figure 9-I -Monopolies will tend to produce a greater quantity and charge higher prices than perfectly competitive industries.