Question 1

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 charge a price higher than the marginal cost of production. This means that the firm has the ability to control the market price, often resulting in higher profits for the firm at the expense of consumers.

Question 2

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 15-11 shows the cable television market in Upstate New York.
-Refer to Figure 15-11.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  In 2011,Verizon was granted permission to...

Question 3

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 15-11 shows the cable television market in Upstate New York.
-Refer to Figure 15-11.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 answer of  In 2011,Verizon was granted permission to...

Question 4

Figure 15-10 
-Refer to Figure 15-10.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. This restriction leads to a higher price (P1) than the competitive price (P2), and a loss of consumer surplus (area FGE) and producer surplus (area GEH).

Question 5

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

Schumpeter believed that monopolies and firms with market power were more likely to invest in research and development because they could expect higher profits and had the financial resources to commit funds to such endeavors. He also believed that the creative destruction caused by monopolies was necessary for innovation and technological advancement. Therefore, choice B is consistent with his views. The other choices do not accurately reflect his beliefs.

Question 6

Figure 15-10 
-Refer to Figure 15-10.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 consumer surplus is reduced by the area P1P2EF, which represents the loss in consumer surplus due to the higher price and lower quantity produced compared to a perfectly competitive market.

Question 7

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 15-11 shows the cable television market in Upstate New York.
-Refer to Figure 15-11.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  In 2011,Verizon was granted permission to...

Question 8

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.What is the economically efficient output level?
A)5 units
B)6 units
C)7 units
D)8 units

Accepted Answer

The answer of 
 \[\begin{array} { | c | c...

Question 9

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.What is Shakti's profit-maximizing output?
A)4 units
B)5 units
C)6 units
D)7 units

Accepted Answer

The answer of 
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Question 10

Assume a hypothetical case where an industry begins as perfectly competitive 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 a firm becomes a monopoly, it can manipulate the market and charge a higher price. This results in a decrease in consumer surplus and an increase in producer surplus. However, since the monopoly restricts output to maximize profits, there is a reduction in economic efficiency and deadweight loss. Therefore, choice B is the best answer as it accurately describes the impact of a monopoly.

Question 11

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.What is the amount of Shakti's profit?
A)$68
B)$72
C)$124
D)$192

Accepted Answer

The answer of 
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Question 12

Assume a hypothetical case where an industry begins as perfectly competitive 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, there are numerous firms competing to produce the same good, which results in a price that is equal to the marginal cost of production. In contrast, a monopoly firm has complete control over the market and can set a price that maximizes its profits, which is typically higher than the price in a perfectly competitive market. Additionally, since a monopoly has no close competitors, it has no need to advertise extensively. As a result, a monopoly will produce less and charge a higher price than a perfectly competitive industry producing the same good.

Question 13

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

When the market price is close to the marginal cost, the deadweight loss is reduced as it indicates that the market is efficient and producing goods at a relatively low cost. This reduces the gap between the consumer's willingness to pay and the producer's willingness to sell, resulting in fewer lost gains from trade. A government legislating a ceiling price or a price floor can lead to a deadweight loss, as it interferes with the market's ability to reach equilibrium. Creative destruction is a concept related to innovation and entrepreneurship and is not directly related to reducing deadweight loss in a market.

Question 14

Figure 15-10 
-Refer to Figure 15-10.What is the area that represents producer surplus under a monopoly?
A)the triangle 0P2E
B)the triangle 0P3H
C)the trapezium 0P1FH
D)the rectangle P1P3HF

Accepted Answer

In a monopoly market, producer surplus is represented by the area above the marginal cost curve (MC curve) and below the monopolist's price. In the given figure, the area that represents producer surplus is the trapezium 0P1FH, as it is above the MC curve (P1E) and below the monopolist's price (P1P3). The other options (A, B, and D) do not include the entire producer surplus area.

Question 15

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

Perfect competition is characterized by a large number of firms, homogeneous products, ease of entry and exit, and no barriers to entry. In such a market structure, no individual firm can influence the market price, and hence, has no market power.

Question 16

Figure 15-10 
-Refer to Figure 15-10.What is the area that represents consumer surplus under a monopoly?
A)the triangle P0P1F
B)the triangle P0P2E
C)the trapezium P1P2EF
D)the rectangle P1P3HF

Accepted Answer

Under a monopoly, the price charged is higher than the competitive price, resulting in a loss of consumer surplus. The area that represents consumer surplus under a monopoly is the triangle P0P1F, which is the difference between the maximum amount that consumers are willing to pay (P0F) and the price they actually pay (P1F). Therefore, the correct answer is A.

Question 17

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, if they use the profits earned for research and development, can stimulate innovation, create new products, and improve existing ones, benefiting the entire economy. However, if market power gets so bad that the government creates public enterprises, it indicates a failure of the market to allocate resources efficiently, leading to negative consequences for the economy. The other options are not directly related to the benefits of market power for a market economy.

Question 18

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)the price for which marginal revenue equals marginal cost.

Accepted Answer

The most profitable price for a monopolist is the point where marginal revenue equals marginal cost, as it allows the monopolist to maximize their profits. At any other price point, the monopolist would either be producing below their profit-maximizing level and missing out on potential revenue, or producing above their profit-maximizing level and incurring unnecessary costs.

Question 19

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.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 
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Question 20

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

Economic surplus is maximized under perfectly competitive conditions because both consumer and producer surplus are maximized. In a monopoly, producer surplus increases due to the ability to charge higher prices, but consumer surplus decreases as a result of higher prices and reduced output. This leads to a decrease in economic surplus overall and the presence of a deadweight loss.

Quiz 15: Monopoly and Antitrust Policy

Market power refers to

Figure 15-10 -Refer to Figure 15-10.The deadweight loss due to a monopoly is represented by the area

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

Figure 15-10 -Refer to Figure 15-10.Compared to a perfectly competitive market,consumer surplus is lower in a monopoly by an amount equal to the

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

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

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

Figure 15-10 -Refer to Figure 15-10.What is the area that represents producer surplus under a monopoly?

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

Figure 15-10 -Refer to Figure 15-10.What is the area that represents consumer surplus under a monopoly?

A market economy benefits from market power

The most profitable price for a monopolist is

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?