Question 1

Anything that prevents new firms from competing on an equal basis with existing firms in an industry is called a barrier to entry.

Accepted Answer

This is the definition of a barrier to entry.

Question 2

Patent laws
A) reduce incentive to innovate by restricting market entry
B) reduce incentive to innovate by making it difficult to use the patented innovation
C) increase incentive to innovate by restricting entry into a market
D) increase incentive to innovate by giving a firm permanent and exclusive production rights
E) give a firm the right to provide a wide variety of goods or services

Accepted Answer

C

Question 3

Which of the following would probably not be considered a natural monopoly?
A) a municipal water company
B) the local telephone industry
C) the cable television industry
D) natural gas and electric companies
E) the automobile industry

Accepted Answer

The automobile industry does not typically exhibit the characteristics of a natural monopoly, as there are usually numerous firms competing for market share in the industry. Natural monopolies arise when one firm can provide goods or services to an entire market at a lower cost per unit than any potential competitor. The other choices (municipal water company, local telephone industry, cable television industry, natural gas and electric companies) are more likely to be considered natural monopolies due to their high fixed costs, significant barriers to entry, and the economies of scale they enjoy.

Question 4

U.S. patent laws establish property rights for inventors of new products
A) forever
B) until a superior invention comes along
C) for 3 years
D) for 10 years
E) for 20 years

Accepted Answer

U.S. patent laws establish property rights for inventors for a period of 20 years from the date of filing the patent application. After the allotted time, the rights to the invention become public domain, meaning anyone can use, make, or sell the invention without seeking permission or paying royalties to the original inventor.

Question 5

In the monopoly market structure, new firms
A) cannot profitably enter the industry, even in the long run
B) may freely enter and leave the industry in both the short run and the long run
C) may freely enter and leave the industry in the long run only
D) may freely enter and leave the industry in the short run only
E) have no incentive to enter the industry, even if economic profits are present

Accepted Answer

In a monopoly market structure, there are significant barriers to entry, which prevent new firms from entering the industry. These barriers can include high startup costs, legal restrictions, and economies of scale that allow existing firms to produce output at a lower cost than new entrants. As a result, new firms cannot profitably enter the industry, even in the long run.

Question 6

Which of the following is not considered a barrier to entry?
A) patents
B) government licenses
C) economies of scale
D) diseconomies of scale
E) control over essential resources

Accepted Answer

Diseconomies of scale are not considered a barrier to entry as they refer to a situation where a firm's costs increase as its output increases beyond a certain point, which can actually create opportunities for new firms to enter and produce at a smaller scale with lower costs. The other options listed are all commonly considered as barriers to entry, as they can limit the ability of new firms to enter and compete in a market.

Question 7

Patent laws promote technical progress in all of the following ways except one. Which is the exception?
A) They allow other firms to copy successful products as soon as they are marketed.
B) They prevent duplication of inventions.
C) They provide a stimulus to innovation.
D) They provide the inventor with a temporary monopoly.
E) They increase a firm's incentive to incur the up-front costs of developing new products.

Accepted Answer

Patent laws do not allow other firms to copy successful products as soon as they are marketed. Instead, they provide the inventor with a temporary monopoly, which encourages innovation by allowing the inventor to profit from their invention without competition for a set period. This in turn creates a greater incentive for firms to incur the up-front costs of developing new products, leading to technical progress. Additionally, patent laws prevent duplication of inventions, further promoting technical progress.

Question 8

Which of the following could not bar entry into an industry?
A) economies of scale
B) diseconomies of scale
C) patents
D) licenses
E) one firm's control of essential resources

Accepted Answer

Diseconomies of scale refers to the increase in costs as a company becomes too large, which may limit its ability to enter an industry. However, economies of scale (A), patents (C), licenses (D), and one firm's control of essential resources (E) can all serve as barriers to entry.

Question 9

Which of the following is true of monopoly?
A) There are no barriers to entry.
B) The firm is a price taker.
C) There are no close substitutes for the product being produced.
D) There are many firms in the industry.
E) The firm faces a horizontal demand curve.

Accepted Answer

Monopoly occurs when there is only one firm in the industry producing a good or service that has no close substitutes. This lack of competition gives the monopoly firm control over the price of its product, and there are barriers to entry that prevent new firms from entering the market and competing away the monopoly's profits. None of the other options describe the characteristics of a monopoly.

Question 10

Which of the following is true?
A) Patents reduce a firm's incentive to develop new products.
B) Patents are given for new works of art or literature.
C) Patents give a permanent exclusive right to produce a new good.
D) Patents give a temporary exclusive right to produce a new good.
E) Patents guarantee economic profits.

Accepted Answer

Patents give a temporary exclusive right to produce a new good. This means that for a limited period of time, usually 20 years from the date of filing, the holder of the patent has the exclusive right to produce and sell the invention. After the patent expires, the invention becomes part of the public domain, and anyone can produce and sell it without the need for permission or payment to the original patent holder. This temporary monopoly is intended to provide an incentive for inventors and firms to develop new products and bring them to market.

Question 11

Willie Stand obtains a patent on his new invention, the bipod. After twenty years,
A) he can renew his patent
B) new entrants will begin bipod production if price exceeds average variable cost
C) new entrants will drive up the price of the bipod
D) Willie will eventually earn no more than a normal profit
E) Willie will continue to earn a positive economic profit, because entry will not affect the price of bipods

Accepted Answer

After twenty years, Willie's patent will expire and competitors will enter the market with their own versions of the bipod, driving down the price and reducing Willie's profits to a normal level, where he earns just enough to cover his costs and earn a normal profit. It is unlikely that he will be able to continue earning a positive economic profit once competitors enter the market.

Question 12

A natural monopoly is based on economies of scale.

Accepted Answer

A natural monopoly occurs when a single firm can produce at a lower cost than any competitor due to economies of scale. This creates a barrier to entry for new companies trying to enter the market, allowing the natural monopoly to maintain its dominance.

Question 13

Which of the following could be true of perfect competition but not of monopoly?
A) The government licenses production of the good to a few firms.
B) The government grants a patent for the good.
C) A firm can earn economic profit in the long run.
D) If price falls below average variable cost, it pays to shut down.
E) There are no barriers to entry.

Accepted Answer

Perfect competition assumes that there are no barriers to entry, meaning any firm can enter the market and compete on an equal playing field. In a monopolistic market, there are usually barriers to entry that prevent new firms from entering and competing with the incumbent monopoly.

Question 14

A monopolist is
A) one of a large number of small firms that produce a homogeneous good
B) one of a small number of large firms that produce a differentiated good
C) a single seller of a product with many close substitutes
D) one of a small number of large firms that produce a homogeneous good
E) a single seller of a product with no close substitutes

Accepted Answer

A monopolist is a single seller of a product with no close substitutes, meaning it has complete market power and can set its own price. This is different from a monopolistic competition (B), oligopoly (D), or perfect competition (A) where there are multiple firms competing in the market. Choice C describes a situation where there are close substitutes, which would make it more like monopolistic competition rather than monopoly.

Question 15

Which of the following describes the market structure of monopoly?
A) many firms with some control over price, and considerable product differentiation
B) many firms with no control over price, producing identical products with no differentiation
C) a few firms with some control over price, producing similar products which are close substitutes
D) a few firms with no control over price, producing highly differentiated products
E) a single firm producing all of the output for the industry

Accepted Answer

A monopoly is a market structure characterized by a single firm producing all of the output for the industry. This firm has complete control over the price and supply of the product, and there are no close substitutes available. Therefore, consumers have no choice but to buy from the monopoly firm, which has the ability to charge a price that maximizes its profits.

Question 16

Which of the following prevents potential competitors from entering a monopolist's market?
A) legal restrictions
B) diseconomies of scale
C) product differentiation
D) stable market demand
E) rising marginal cost

Accepted Answer

Legal restrictions such as patents or licenses can prevent potential competitors from entering a monopolist's market by giving the monopolist exclusive rights to produce or sell a particular good or service.

Question 17

Patents stimulate investment
A) by giving inventors an incentive to incur up-front costs of developing new products
B) by giving tax breaks to inventors
C) by guaranteeing a profit from new products
D) by lowering interest rates
E) through government payments that cover costs of research and development

Accepted Answer

Patents provide inventors with a period of exclusivity to their invention, allowing them to recoup their investment in developing new products. This exclusivity encourages inventors to take on the risky and costly process of researching and developing new products, knowing that they will have a limited time to profit from their invention. This incentivizes investment in innovation and can lead to economic growth.

Question 18

A natural monopoly results when a firm has
A) a license
B) a patent
C) official approval to produce a product
D) decreasing average costs over the range of market demand
E) exclusive use of a natural resource

Accepted Answer

A natural monopoly results when a firm has decreasing average costs over the range of market demand, meaning that the firm can produce the entire output at a lower cost than any potential competitor. This may occur due to economies of scale or network effects, making it difficult for new firms to enter the market and compete. The other options listed may contribute to creating monopolies in certain circumstances but are not the defining factors for a natural monopoly.

Question 19

Natural monopolies form when
A) small firms merge to form larger firms
B) one firm has control over the entire supply of a basic input required to produce the product
C) one firm's monopoly position is created and enforced by the government
D) one firm receives patent protection for certain basic production processes
E) long-run average cost declines as a firm expands output

Accepted Answer

The answer of Natural monopolies form when
A) small firms merge...

Question 20

Innovation is the process of turning an invention into a marketable product.

Accepted Answer

Innovation involves taking an idea or invention and bringing it to market, making it viable and useful to consumers. It involves not only the development of the product, but also the marketing, distribution, and sales efforts necessary to make it successful in the marketplace.

Quiz 9: A: Monopoly

Anything that prevents new firms from competing on an equal basis with existing firms in an industry is called a barrier to entry.

Patent laws

Which of the following would probably not be considered a natural monopoly?

U.S. patent laws establish property rights for inventors of new products

In the monopoly market structure, new firms

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

Patent laws promote technical progress in all of the following ways except one. Which is the exception?

Which of the following could not bar entry into an industry?

Which of the following is true of monopoly?

Which of the following is true?

Willie Stand obtains a patent on his new invention, the bipod. After twenty years,

A natural monopoly is based on economies of scale.

Which of the following could be true of perfect competition but not of monopoly?

A monopolist is

Which of the following describes the market structure of monopoly?

Which of the following prevents potential competitors from entering a monopolist's market?

Patents stimulate investment

A natural monopoly results when a firm has

Natural monopolies form when

Innovation is the process of turning an invention into a marketable product.