Quiz: Monopoly In Microeconomics
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You might only know about the word “monopoly” from the popular boardgame which is famous for making families and friends question their loyalty to one another, but the term refers to one person or firm’s exclusive control of the supply or trade in a particular commodity or service. What can you tell us about monopolies in relation to the world of microeconomics? Let’s find out!
- 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.
- 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.
- 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.
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.
- 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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