Microeconomic Exam #2

38 Questions  I  By Hcarmikel
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Economics Quizzes & Trivia
Chapter 9 Monopoly

  
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  • 1. 
    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


  • 2. 
    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.


  • 3. 
    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.


  • 4. 
    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


  • 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


  • 6. 
    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


  • 7. 
    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


  • 8. 
    The demand curve a monopolist uses in making an output decision is
    • A. 

      The same as the demand curve facing a perfectly competitive firm

    • B. 

      Vertical because there are no close substitutes for its product

    • C. 

      Horizontal because there are no close substitutes for its product

    • D. 

      The same as the market demand curve

    • E. 

      Perfectly inelastic


  • 9. 
    Which of the following is true of marginal revenue for a monopolist that charges a single price
    • A. 

      P = MR because there are no close substitutes for the monopolist's product.

    • B. 

      P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.

    • C. 

      P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.

    • D. 

      AR = MR because there are no close substitutes for the monopolist's product.

    • E. 

      P = MR only at the profit-maximizing quantity.


  • 10. 
    The demand curve facing a single-price monopolist
    • A. 

      Is the same as its average revenue curve

    • B. 

      Is the same as its marginal revenue curve

    • C. 

      Is the same as the perfect competitor's demand curve

    • D. 

      Lies above its average revenue curve


  • 11. 
    Suppose that a monopolist must choose between two points on its demand curve: it can sell 100 units for $3 each, or it can sell 140 units for $2 each. Which of the following is true?
    • A. 

      The monopolist is facing elastic demand.

    • B. 

      The monopolist is facing unit elastic demand

    • C. 

      The monopolist is facing inelastic demand.

    • D. 

      The monopolist is facing perfectly elastic demand

    • E. 

      The elasticity of demand cannot be determined with the information given.


  • 12. 
    A profit-maximizing monopolist
    • A. 

      Never produces on the inelastic portion of the demand curve because it can increase profit by increasing output

    • B. 

      Never produces on the inelastic portion of the demand curve because marginal revenue exceeds marginal cost

    • C. 

      Always produces on the inelastic portion of the demand curve

    • D. 

      Never produces on the elastic portion of the demand curve because there are no substitutes for the good it produces

    • E. 

      Never produces on the inelastic portion of the demand curve because marginal revenue is negative there


  • 13. 
    A profit-maximizing monopolist never produces along the _____ portion of the demand curve because marginal revenue is _____ there.
    • A. 

      Elastic; positive

    • B. 

      Elastic; negative

    • C. 

      Inelastic; negative

    • D. 

      Inelastic; positive

    • E. 

      Inelastic; zero


  • 14. 
    Negative marginal revenue means that
    • A. 

      The firm is maximizing its economic profit

    • B. 

      The firm is maximizing its total revenue

    • C. 

      Total revenue is increasing at an increasing rate as output increases

    • D. 

      Total revenue is increasing at a decreasing rate as output increases

    • E. 

      Total revenue is decreasing as output increases


  • 15. 
     As a monopolist increases the quantity of output produced, what happens to price (P) and marginal revenue (MR)?
    • A. 

      Both P and MR remain constant

    • B. 

      P is constant, but MR decreases

    • C. 

      Both P and MR decrease, but P falls faster than MR

    • D. 

      P decreases, but MR is constant

    • E. 

      Both P and MR decrease, but MR falls faster than P


  • 16. 
    For a nondiscriminating monopolist, describe the relationship between market price (P), average revenue (AR), and marginal revenue (MR).
    • A. 

      P = AR = MR

    • B. 

      P > AR = MR

    • C. 

      P = AR > MR

    • D. 

      P > AR > MR

    • E. 

      P = AR < MR


  • 17. 
    Which of the following is not true of monopolists?
    • A. 

      A.The entry of new firms is not a major concern.

    • B. 

      B.Monopolists seek to maximize profits.

    • C. 

      C.Monopolists can charge any price they want and make a profit.

    • D. 

      D.Monopolists can choose any point on the market demand curve.

    • E. 

      E.Monopolists can raise price more than 10 percent.


  • 18. 
    Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly
    • A. 

      Price equals marginal cost.

    • B. 

      Price is greater than marginal cost.

    • C. 

      Marginal revenue equals marginal cost

    • D. 

      Marginal revenue is less than marginal cost.

    • E. 

      Marginal revenue is greater than average revenue.


  • 19. 
    A monopolist
    • A. 

      Can charge whatever price it wants

    • B. 

      Charges more than almost any consumer is willing to pay

    • C. 

      Is constrained by marginal cost in setting price

    • D. 

      Is constrained by demand in setting price

    • E. 

      Always earns an economic profit


  • 20. 
    A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
    • A. 

      Raise price and lower output.

    • B. 

      Lower price and lower output.

    • C. 

      Raise price and raise output.

    • D. 

      Lower price and raise output.

    • E. 

      Lower output but leave price unchanged.


  • 21. 
    Irving R. Associates is granted a patent for a new product for which there are no close substitutes. Which of the following must be true at the profit-maximizing quantity?
    • A. 

      Price is equal to marginal cost.

    • B. 

      Average revenue is equal to marginal cost.

    • C. 

      Marginal revenue is positive.

    • D. 

      Marginal revenue is less than marginal cost.

    • E. 

      Price is greater than average revenue.


  • 22. 
    One likely result of monopoly power is
    • A. 

      A wide variety of substitute products from which consumers can choose

    • B. 

      An elimination of barriers to industry entry

    • C. 

      A decline in government regulation

    • D. 

      A higher price than would exist in a competitive industry

    • E. 

      An improvement in allocative efficiency


  • 23. 
    If marginal cost is positive, which of the following is true?
    • A. 

      A monopolist always produces on the inelastic portion of the firm's demand curve.

    • B. 

      A monopolist always produces on the inelastic portion of the market demand curve.

    • C. 

      A monopolist always produces on the elastic portion of the market demand curve.

    • D. 

      A monopolist always produces on the unit elastic portion of the market demand curve.

    • E. 

      The presence of a monopolist increases the elasticity of demand.


  • 24. 
    Suppose a monopolist cannot price discriminate. To maximize profit, it will
    • A. 

      Always produce in the inelastic range of its demand curve

    • B. 

      Never produce in the elastic range of its demand curve

    • C. 

      Never produce in the inelastic range of its demand curve

    • D. 

      Never produce in the elastic range of its marginal cost curve

    • E. 

      Produce in the elastic range of the marginal revenue curve


  • 25. 
    In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will
    • A. 

      Lower price to expand revenue possibilities

    • B. 

      Restrict output to extract a higher price from customers

    • C. 

      Maintain the current price if profit is still positive

    • D. 

      Increase plant size to lower marginal cost

    • E. 

      Decrease plant size to lower marginal cost


  • 26. 
    Suppose the only professional hockey team within 500 miles is the Salt Lake City Slappers team. If the State of Utah imposes a profits tax on sports teams, the Slappers will
    • A. 

      Raise ticket prices

    • B. 

      Lower ticket prices to boost sales

    • C. 

      Maintain ticket prices and suffer a loss in profits

    • D. 

      Expand the number of home hockey games

    • E. 

      Reduce the number of home hockey games


  • 27. 
    A profit-maximizing monopolist produces an output level at which
    • A. 

      Marginal revenue is the greatest distance from marginal cost

    • B. 

      Price is less than marginal cost

    • C. 

      The value to society of the last unit produced equals marginal cost

    • D. 

      Marginal revenue equals marginal cost

    • E. 

      Consumers wish to purchase less than what is produced because of high monopoly prices


  • 28. 
    In the short run, a monopolist will always shut down when
    • A. 

      Total cost is greater than total revenue at all output levels

    • B. 

      Total variable cost is greater than fixed cost

    • C. 

      Total revenue is greater than total variable cost at all output levels

    • D. 

      Fixed cost is greater than total revenue at all output levels

    • E. 

      Total variable cost is greater than total revenue at all output levels


  • 29. 
    A monopolist has no supply curve because
    • A. 

      As demand changes, each output level can be consistent with more than one profit-maximizing price

    • B. 

      Monopolists tend to restrict output

    • C. 

      Monopolists have no marginal cost curve

    • D. 

      Monopolists can charge any price they want

    • E. 

      As demand changes, the firm's profit-maximizing choice of output may change


  • 30. 
    Barriers to entry
    • A. 

      Prevent monopolies from earning profit in the long run

    • B. 

      Prevent monopolies from earning profit in the short run

    • C. 

      May allow monopolies to earn profit in the long run

    • D. 

      Prevent government from regulating a monopoly

    • E. 

      Prevent a natural monopoly from raising its price


  • 31. 
    Firms can earn economic profits even in the long run if
    • A. 

      They charge the highest price possible

    • B. 

      There is a cost-reducing technological change

    • C. 

      There are significant barriers to entry

    • D. 

      Marginal revenue equals marginal cost

    • E. 

      Price is less than average variable cost at all rates of output


  • 32. 
    An important difference between a perfectly competitive firm and a monopolist is that
    • A. 

      The perfectly competitive firm tends to be larger

    • B. 

      Only the monopolist attempts to maximize profit

    • C. 

      Only the perfectly competitive firm maximizes profit

    • D. 

      The perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve

    • E. 

      Only the monopolist maximizes profit at the quantity where marginal cost equals marginal revenue


  • 33. 
    Nondiscriminating monopoly is similar to perfect competition in that
    • A. 

      They have the same level of barriers to entry

    • B. 

      They have a similar number of firms in the industry

    • C. 

      The demand curve facing the firm is perfectly elastic for both

    • D. 

      Price equals marginal revenue for both

    • E. 

      Price equals average revenue for both


  • 34. 
    Compared to the productive efficiency of a perfectly competitive firm, a monopolist tends to be
    • A. 

      Very efficient because it charges a higher price

    • B. 

      More efficient because it produces greater output

    • C. 

      Inefficient

    • D. 

      Equally efficient, as it also produces where MR = MC

    • E. 

      Very efficient because it conserves resources by producing less output


  • 35. 
    If a perfectly competitive industry is monopolized, consumer surplus
    • A. 

      Can be expected to decrease

    • B. 

      Will usually remain constant

    • C. 

      Can be expected to increase

    • D. 

      Drops from a high value to zero

    • E. 

      Increases from zero to a high value


  • 36. 
    The welfare loss of monopoly is also called
    • A. 

      Converted consumer surplus

    • B. 

      Deadweight loss

    • C. 

      Economic profit under monopoly

    • D. 

      Producer surplus

    • E. 

      Contestable profit


  • 37. 
    For which of the following products would price discrimination be easiest?
    • A. 

      Orange juice

    • B. 

      Diamonds

    • C. 

      Compact disks

    • D. 

      Haircuts

    • E. 

      Gasoline


  • 38. 
    Which of the following is a major criticism of a monopoly as a cause of allocative inefficiency?
    • A. 

      A monopolist fails to expand output to the level where the consumers' evaluation of an additional unit is just equal to its opportunity cost

    • B. 

      A monopolist has no incentive to produce efficiently, because even if it pays no attention to the costs of production, it will be guaranteed an economic profit

    • C. 

      A monopolist will always make profits therefore providing an incentive to keep prices at the level that maximizes consumer surplus

    • D. 

      A monopolist has an advantage because it can purchase the resources in a competitive market

    • E. 

      Consumer surplus would no longer be equal to producer surplus


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