Chapter 15 Monopoly

Test A
1

Which of the following statements about a firms market pricing of its product is true? a. Both competitive firms and monopolies are price makers. b. Both competitive firms and monopolies are price takers. c. A competitive firm is a price taker and a monopoly is a price maker. d. A competitive firm is a price maker and a monopoly is a price taker. AN W!"# c. A competitive firm is a price taker and a monopoly is a price maker. $%&!# ' (!%1#) !*$+,N#1 ,B-!*$+.!# 1 "AN),'#%
/

A monopolys marginal cost will most likely a. e0ceed its marginal revenue. b. be less than average fi0ed cost. c. be less than the market price of its goods. d. e1ual average total cost. AN W!"# c. be less than the market price of its goods. $%&!# ' (!%1#) !*$+,N#1 ,B-!*$+.!# 1 "AN),'#%
2

A fundamental source of monopoly market power arises from a. availability of 3free4 natural resources5 such as water or air. b. perfectly elastic demand. c. perfectly inelastic demand. d. barriers to entry. AN W!"# d. barriers to entry. $%&!# ' (!%1#) !*$+,N#1 ,B-!*$+.!# 1 "AN),'#%
6

$he defining characteristic of a natural monopoly is a. economies of scale over the relevant range of output. b. diseconomies of scale over the relevant range of output. c. marginal cost is 78shaped over the relevant range of output. d. marginal cost is constant over the relevant range of output. AN W!"# a. economies of scale over the relevant range of output. $%&!# ' (!%1#) !*$+,N#1 ,B-!*$+.!# 1 "AN),'#%
9

Authors are allowed to be monopolists in the sale of their books in order to a. satisfy literary advocacy groups that e0ercise their lobbying power. b. encourage authors to write more and better books. c. correct for the negative e0ternalities that the internet and television impose. d. promote a society that thinks for themselves and learns from whichever books they please. AN W!"# b. encourage authors to write more and better books. $%&!# ' (!%1#) !*$+,N#1 ,B-!*$+.!# 1 "AN),'#%
:

+f a monopolist faces a downward8sloping market demand curve5 its a. marginal revenue is always less than the price of the units it sells. b. marginal revenue is greater than the price of the units it sells. c. average revenue is always less than marginal revenue. d. average revenue is less than the price of its product. AN W!"# a. marginal revenue is always less than the price of the units it sells. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%

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1:2

1:6 *hapter 19='onopoly

$he monopolists profit8ma0imi?ing 1uantity of output is where a. average cost e1uals marginal revenue. b. marginal cost e1uals marginal revenue. c. price e1uals marginal revenue. d. All of the above are correct. AN W!"# b. marginal cost e1uals marginal revenue. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
@

A monopolist is a price a. taker5 and therefore has no demand curve. b. taker5 and therefore has no supply curve. c. setter5 and therefore has no demand curve. d. setter5 and therefore has no supply curve. AN W!"# d. setter5 and therefore has no supply curve. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
A

Bor a monopoly firm5 which of the following e1ualities is true? a. price C average revenue b. price C marginal cost c. price C marginal revenue d. All of the above are correct. AN W!"# a. price C average revenue $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#% $he figure reflects the cost and revenue structure for a monopoly firm.

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*hapter 19='onopoly 1:9

According to the figure5 a profit8ma0imi?ing monopoly would have total revenues e1ual to a. &D E1. b. &1 E2. c. &/ E6. d. &2 E/. AN W!"# d. &2 E/. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
11

According to the figure5 a profit8ma0imi?ing monopoly would have average revenues of a. &D. b. &1. c. &/. d. &2. AN W!"# d. &2. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
1/

What happens to the price and 1uantity sold of a drug when its patent runs out? FiG $he price will fall. FiiG $he price will e1uilibrate to marginal cost. FiiiG $he 1uantity sold will rise. a. FiG and FiiG b. FiiG and FiiiG c. FiG and FiiiG d. FiG and FiiG and FiiiG AN W!"# d. FiG and FiiG and FiiiG $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
12

$he economic inefficiency of a monopolist can be measured by the a. deadweight loss. b. e0cess profit generated by monopoly firms. c. poor 1uality of service offered by monopoly firms. d. number of consumers who are unable to purchase the product because of its high price. AN W!"# a. deadweight loss. $%&!# ' (!%1#) !*$+,N#2 ,B-!*$+.!# 2 "AN),'#%
16

*onsider a profit8ma0imi?ing monopoly pricing under the following conditions# $he profit8ma0imi?ing price charged for goods produced is H1:. $he intersection of the marginal revenue and marginal cost curves occurs where output is 1D units and marginal cost is H@. $he socially efficient level of production is 16 units. $he demand curve and marginal cost curves are linear. What is the deadweight loss? a. H@ b. H1: c. H6@ d. None of the above is correct. AN W!"# b. H1: $%&!# ' (!%1#) !*$+,N#2 ,B-!*$+.!# 2 "AN),'#%
19

Bor a monopoly market5 total surplus can be defined as the value of the good to the a. producers minus the cost incurred by consumers. b. producers plus the cost incurred by consumers. c. consumers minus the cost of making the good. d. consumers plus the cost of making the good. AN W!"# c. consumers minus the cost of making the good. $%&!# ' (!%1#) !*$+,N#2 ,B-!*$+.!# 2 "AN),'#%

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1:: *hapter 19='onopoly

$he inefficiency of monopolies is created by a deadweight loss due to the fact that a. consumers who still buy the product at the high price are worse8off. b. consumers buy fewer units at the price the monopoly sets. c. high monopoly prices take money from consumers pockets and put it in the pocket of the monopoly owners. d. All of the above are correct. AN W!"# b. consumers buy fewer units at the price the monopoly sets. $%&!# ' (!%1#) !*$+,N#2 ,B-!*$+.!# 2 "AN),'#%
1>

uppose that a firm has a monopoly on the production of a prescription drug5 regulating them on the basis of cost has problems because a. it does not provide an incentive for the monopolist to reduce its cost. b. a monopolist is still able to generate e0cessive economic profits. c. a monopolists costs5 by definition5 are higher than costs of perfectly competitive firms. d. All of the above are correct. AN W!"# a. it does not provide an incentive for the monopolist to reduce its cost. $%&!# ' (!%1#) !*$+,N#6 ,B-!*$+.!# 6 "AN),'#%
1@

$he legislation passed by *ongress in 1@AD to reduce the market power of large and powerful 3trusts4 is called the a. *layton Act. b. 16th Amendment. c. herman Act. d. None of the above is correct. AN W!"# c. herman Act. $%&!# ' (!%1#) !*$+,N#6 ,B-!*$+.!# 6 "AN),'#%
1A

+f regulators re1uire a monopoly to set price e1ual to average total cost a. consumer surplus is ma0imi?ed. b. total social welfare is ma0imi?ed. c. Both a and b are correct. d. Neither a nor b is correct. AN W!"# d. Neither a nor b is correct. $%&!# ' (!%1# * !*$+,N#6 ,B-!*$+.!# 6 "AN),'#%
/D

ince natural monopolies have a declining average cost curve5 regulating natural monopolies by setting price e1ual to marginal cost would a. ma0imi?e consumer surplus. b. cause the monopolist to operate at a loss. c. ma0imi?e producer surplus. d. None of the above is correct. AN W!"# b. cause the monopolist to operate at a loss. $%&!# ' (!%1#) !*$+,N#6 ,B-!*$+.!# 6 "AN),'#%
/1

A perfectly price8discriminating monopolist is able to a. produce a level of output consistent with optimal social well8being5 but not ma0imi?e profit. b. e0ercise illegal preferences over the gender of its employees. c. ma0imi?e profit and produce a level of output more consistent with optimal social well8being. d. do none of the above. AN W!"# c. ma0imi?e profit and produce a level of output more consistent with optimal social well8being. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# 9 "AN),'#%

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*hapter 19='onopoly 1:>

When a monopolist can price discriminate perfectly then a. the price effect dominates the output effect on monopoly revenue5 so profits fall. b. consumer surplus and deadweight losses are transformed into monopoly profits. c. consumer surplus is increased. d. deadweight loss is increased. AN W!"# b. consumer surplus and deadweight losses are transformed into monopoly profits. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# 9 "AN),'#%
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+n theory5 perfect price discrimination increases a. the monopolists profits. b. consumer surplus. c. deadweight loss. d. All of the above are correct. AN W!"# a. the monopolists profits. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# 9 "AN),'#%
/6

Birms may be prevented from price discrimination5 if a. there are large fluctuations in the price of raw materials. b. buyers can arbitrage. c. firms have high fi0ed costs. d. All of the above are correct. AN W!"# b. buyers can arbitrage. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# 9 "AN),'#%
/9

,&!* often holds oil production below capacity in an effort to a. compel consumers to search for oil substitutes. b. compel consumers to conserve oil. c. keep prices above the competitive level. d. create a shift in the demand for oil. AN W!"# c. keep prices above the competitive level. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# / "AN),'#%

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AN W!"# c. A competitive firm is a price taker and a monopoly is a price maker. !*$+,N#1 ,B-!*$+.!# 1 "AN),'#% AN W!"# c. be less than the market price of its goods. !*$+,N#1 ,B-!*$+.!# 1 "AN),'#% AN W!"# d. barriers to entry. !*$+,N#1 ,B-!*$+.!# 1 "AN),'#% AN W!"# a. economies of scale over the relevant range of output. !*$+,N#1 ,B-!*$+.!# 1 "AN),'#% AN W!"# b. encourage authors to write more and better books. !*$+,N#1 ,B-!*$+.!# 1 "AN),'#% AN W!"# a. marginal revenue is always less than the price of the units it sells. !*$+,N#/ ,B-!*$+.!# / "AN),'#%

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AN W!"# b. marginal cost e1uals marginal revenue. $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
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AN W!"# d. setter5 and therefore has no supply curve. !*$+,N#/ ,B-!*$+.!# / "AN),'#% AN W!"# a. price C average revenue !*$+,N#/ ,B-!*$+.!# / "AN),'#% AN W!"# d. &2 E/. !*$+,N#/ ,B-!*$+.!# / "AN),'#% AN W!"# d. &2. !*$+,N#/ ,B-!*$+.!# / "AN),'#%

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AN W!"# d. FiG and FiiG and FiiiG $%&!# ' (!%1#) !*$+,N#/ ,B-!*$+.!# / "AN),'#%
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AN W!"# a. deadweight loss. !*$+,N#2 ,B-!*$+.!# 2 "AN),'#% AN W!"# b. H1: !*$+,N#2 ,B-!*$+.!# 2 "AN),'#% AN W!"# c. consumers minus the cost of making the good.

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!*$+,N#2 ,B-!*$+.!# 2 "AN),'#% AN W!"# b. consumers buy fewer units at the price the monopoly sets. !*$+,N#2 ,B-!*$+.!# 2 "AN),'#% AN W!"# a. it does not provide an incentive for the monopolist to reduce its cost. !*$+,N#6 ,B-!*$+.!# 6 "AN),'#% AN W!"# c. herman Act. !*$+,N#6 ,B-!*$+.!# 6 "AN),'#% AN W!"# d. Neither a nor b is correct. !*$+,N#6 ,B-!*$+.!# 6 "AN),'#% AN W!"# b. cause the monopolist to operate at a loss. !*$+,N#6 ,B-!*$+.!# 6 "AN),'#%

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AN W!"# c. ma0imi?e profit and produce a level of output more consistent with optimal social well8 being. $%&!# ' (!%1#) !*$+,N#9 ,B-!*$+.!# 9 "AN),'#%
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AN W!"# b. consumer surplus and deadweight losses are transformed into monopoly profits. !*$+,N#9 ,B-!*$+.!# 9 "AN),'#% AN W!"# a. the monopolists profits. !*$+,N#9 ,B-!*$+.!# 9 "AN),'#% AN W!"# b. buyers can arbitrage. !*$+,N#9 ,B-!*$+.!# 9 "AN),'#% AN W!"# c. keep prices above the competitive level. !*$+,N#9 ,B-!*$+.!# / "AN),'#%

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