MicroEconomic Exam #2
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Chapter 9 Monopoly
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.
- 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.
- 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.
- 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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