A Monopoly In Microeconomics Knowledge Quiz!
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This is a knowledge quiz about monopoly in microeconomics. 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.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 non-discriminating 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
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