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
Correct Answer
E. A single seller of a product with no close substitutesExplanation
A monopolist is a single seller of a product with no close substitutes. This means that the monopolist has exclusive control over the supply of a particular product or service, with no other similar alternatives available in the market. As a result, the monopolist has significant market power and can dictate the price and quantity of the product, leading to potential exploitation of consumers and reduced competition.Rate this question:
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- 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.
Correct Answer
C. There are no close substitutes for the product being produced.Explanation
In a monopoly, there are no close substitutes for the product being produced. This means that consumers do not have alternative options that are similar to the monopolized product. As a result, the monopolistic firm has a significant amount of market power and can control the price and quantity of the product without facing much competition. This lack of substitutes allows the firm to maintain its dominance in the market and potentially earn high profits.Rate this question:
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- 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.
Correct Answer
E. There are no barriers to entry.Explanation
In perfect competition, there are no barriers to entry, meaning that new firms can easily enter the market and compete with existing firms. This is not true in a monopoly, where there is only one firm in the market and there are significant barriers to entry, such as high start-up costs, exclusive licenses, or patents. Therefore, the absence of barriers to entry is a characteristic of perfect competition, but not of a monopoly.Rate this question:
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- 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
Correct Answer
A. Legal restrictionsExplanation
Legal restrictions prevent potential competitors from entering a monopolist's market. This means that the monopolist has exclusive rights or privileges granted by the government, such as patents or licenses, that make it difficult or impossible for other companies to enter the market and compete with them. These legal barriers create a barrier to entry and give the monopolist control over the market, allowing them to maintain their monopoly power.Rate this question:
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- 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
Correct Answer
A. Cannot profitably enter the industry, even in the long runExplanation
In a monopoly market structure, there is only one firm that controls the entire market. This firm has significant barriers to entry, such as high start-up costs, exclusive access to resources, or legal restrictions. As a result, new firms cannot enter the industry and compete with the monopoly firm, even in the long run. The monopoly firm has established such a strong market position that it can continue to generate profits without facing any competition. Therefore, the correct answer is that new firms cannot profitably enter the industry, even in the long run.Rate this question:
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- 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
Correct Answer
E. Long-run average cost declines as a firm expands outputExplanation
Natural monopolies form when long-run average cost declines as a firm expands output. This means that as a firm increases its production, its average cost of producing each unit decreases. This can occur due to economies of scale, where the firm benefits from lower costs per unit as it operates at a larger scale. As a result, the firm becomes more efficient and can offer lower prices compared to smaller firms, making it difficult for competitors to enter the market and compete effectively.Rate this question:
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- 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
Correct Answer
D. Decreasing average costs over the range of market demandExplanation
A natural monopoly occurs when a firm is able to achieve decreasing average costs over the range of market demand. This means that as the firm produces more and more units of a product, the average cost of production decreases. This can be due to economies of scale, where the firm benefits from cost savings as it operates at a larger scale. As a result, the firm is able to produce and sell its product at a lower cost than any potential competitors, making it the most efficient and cost-effective option in the market.Rate this question:
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- 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
Correct Answer
D. The same as the market demand curveExplanation
The correct answer is "the same as the market demand curve." A monopolist is the sole producer in the market, so its demand curve is the same as the market demand curve. This means that the monopolist faces the entire market demand for its product and has the ability to set the price based on the quantity it decides to produce.Rate this question:
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- 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.
Correct Answer
B. P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.Explanation
This answer is correct because a monopolist faces a downward-sloping demand curve, meaning that in order to sell an additional unit, the monopolist must lower the price for all units sold. As a result, the marginal revenue (MR) generated from selling an additional unit will be less than the price (P) charged for that unit. Therefore, P > MR.Rate this question:
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- 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
Correct Answer
A. Is the same as its average revenue curveExplanation
The demand curve facing a single-price monopolist is the same as its average revenue curve because a monopolist is the sole seller in the market and has control over the price. The monopolist faces the entire market demand curve and can set the price at any level. The average revenue curve represents the revenue per unit of output, which is equal to the price for a monopolist. Therefore, the demand curve and average revenue curve are the same for a monopolist.Rate this question:
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- 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.
Correct Answer
C. The monopolist is facing inelastic demand.Explanation
The monopolist is facing inelastic demand because the price decreases from $3 to $2, but the quantity demanded only increases from 100 units to 140 units. This suggests that the percentage change in quantity demanded is smaller than the percentage change in price, indicating inelastic demand.Rate this question:
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- 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
Correct Answer
E. Never produces on the inelastic portion of the demand curve because marginal revenue is negative thereExplanation
A profit-maximizing monopolist never produces on the inelastic portion of the demand curve because marginal revenue is negative there. This means that for each additional unit sold, the monopolist's total revenue decreases. To maximize profit, the monopolist would produce at a level where marginal revenue equals marginal cost. However, since marginal revenue is negative on the inelastic portion of the demand curve, producing there would result in a loss rather than a profit. Therefore, the monopolist avoids producing on the inelastic portion of the demand curve.Rate this question:
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- 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
Correct Answer
C. Inelastic; negativeExplanation
A profit-maximizing monopolist never produces along the inelastic portion of the demand curve because marginal revenue is negative there. This is because when demand is inelastic, a decrease in price does not lead to a significant increase in quantity demanded. As a result, the monopolist would have to lower the price significantly to sell more units, causing the marginal revenue to be negative. To maximize profit, the monopolist focuses on producing where marginal revenue is positive, typically along the elastic portion of the demand curve.Rate this question:
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- 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
Correct Answer
E. Total revenue is decreasing as output increasesExplanation
When marginal revenue is negative, it means that each additional unit of output is generating less revenue than the previous unit. This indicates that total revenue is decreasing as output increases. As the firm produces more goods or services, the additional revenue generated from each unit sold is not enough to compensate for the decrease in price or demand. This suggests that the firm is facing diminishing returns or a decline in market demand, resulting in a decrease in total revenue.Rate this question:
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- 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
Correct Answer
E. Both P and MR decrease, but MR falls faster than PExplanation
As a monopolist increases the quantity of output produced, both price (P) and marginal revenue (MR) decrease. However, MR falls faster than P. This is because as the monopolist increases production, they have to lower the price in order to sell more units. As a result, the decrease in price is greater than the decrease in marginal revenue, leading to MR falling faster than P. This is a characteristic of monopoly power, where the monopolist has the ability to set prices higher than their marginal revenue.Rate this question:
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- 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
Correct Answer
C. P = AR > MRExplanation
In the case of a non-discriminating monopolist, the relationship between market price (P), average revenue (AR), and marginal revenue (MR) is that the market price and average revenue are equal, while marginal revenue is less than average revenue. This means that the monopolist is able to set the market price, and since they are the only supplier in the market, they can charge a price higher than the marginal revenue. As a result, the monopolist's average revenue is equal to the market price, but the marginal revenue is lower due to the diminishing returns of selling additional units.Rate this question:
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- 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.
Correct Answer
A. A.The entry of new firms is not a major concern.Explanation
Monopolists are typically not concerned about the entry of new firms because they have a dominant position in the market with no direct competition. This allows them to have more control over pricing and profits. However, it is important to note that while the entry of new firms may not be a major concern, it does not mean that monopolists completely ignore it. They may still take measures to deter or limit the entry of new competitors to maintain their monopoly power.Rate this question:
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- 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.
Correct Answer
C. Marginal revenue equals marginal costExplanation
At the profit-maximizing quantity, both a perfectly competitive firm and a monopoly aim to maximize their profits. In order to do so, they both set their output level where marginal revenue equals marginal cost. This is because at this point, the additional revenue generated from selling one more unit is equal to the additional cost incurred in producing that unit. By setting their output at this point, they can maximize their profits by avoiding any additional costs that would outweigh the revenue gained.Rate this question:
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- 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
Correct Answer
D. Is constrained by demand in setting priceExplanation
A monopolist is constrained by demand in setting price because they have market power and are the sole provider of a particular good or service. They can charge higher prices than in a competitive market, but they still need to consider the demand for their product. If they set a price that is too high, consumers may choose not to purchase their product, resulting in a decrease in demand and potentially lower profits. Therefore, the monopolist must consider the demand elasticity and set a price that maximizes their profits while still attracting customers.Rate this question:
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- 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.
Correct Answer
A. Raise price and lower output.Explanation
The monopolist should raise price and lower output in order to increase profit. This is because the marginal revenue is less than the marginal cost at the current level of output, indicating that the firm is not maximizing its profit. By raising the price, the monopolist can increase its revenue per unit sold, while lowering the output helps to reduce the costs associated with producing additional units. This combination allows the firm to increase its profit by improving the balance between revenue and cost.Rate this question:
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- 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.
Correct Answer
C. Marginal revenue is positive.Explanation
In order for Irving R. Associates to maximize profit, the marginal revenue must be positive. This means that for each additional unit sold, the revenue generated is greater than the cost of producing that unit. This is because if the marginal revenue were negative, it would mean that the revenue generated from selling an additional unit is less than the cost of producing it, resulting in a decrease in profit. Therefore, in order to maximize profit, the marginal revenue must be positive.Rate this question:
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- 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
Correct Answer
D. A higher price than would exist in a competitive industryExplanation
Monopoly power refers to a situation where a single firm has control over a particular market or industry. In such a scenario, the firm has the ability to set prices higher than what would exist in a competitive industry. This is because monopolies face limited or no competition, allowing them to charge higher prices and earn greater profits. Without competition, consumers have fewer options and are forced to pay the higher prices set by the monopoly. Therefore, the likely result of monopoly power is a higher price than what would be seen in a competitive market.Rate this question:
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- 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.
Correct Answer
C. A monopolist always produces on the elastic portion of the market demand curve.Explanation
A monopolist always produces on the elastic portion of the market demand curve because if the marginal cost is positive, it means that the cost of producing an additional unit of output is increasing. In order to maximize profits, the monopolist will produce at a level where the marginal cost is equal to the marginal revenue. This occurs at the elastic portion of the demand curve, where a small change in price leads to a relatively larger change in quantity demanded. By producing at this point, the monopolist can charge a higher price and still sell a significant quantity of goods, maximizing their profits.Rate this question:
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- 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
Correct Answer
C. Never produce in the inelastic range of its demand curveExplanation
A monopolist that cannot price discriminate will never produce in the inelastic range of its demand curve because in this range, the demand is relatively insensitive to price changes. This means that even if the monopolist increases the price, the quantity demanded will not decrease significantly, resulting in a smaller change in total revenue. To maximize profit, the monopolist needs to produce where marginal revenue equals marginal cost. Producing in the inelastic range would result in a lower marginal revenue, which would not be optimal for profit maximization.Rate this question:
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- 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
Correct Answer
B. Restrict output to extract a higher price from customersExplanation
When a profit-maximizing monopolist faces an increase in marginal cost, it will choose to restrict its output in order to extract a higher price from customers. By reducing the quantity supplied, the monopolist can create artificial scarcity, which allows them to charge a higher price for their product. This strategy helps the monopolist maintain or even increase their profit despite the increase in costs. By limiting the availability of the product, the monopolist can create a sense of exclusivity and higher demand, enabling them to charge a premium price.Rate this question:
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- 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
Correct Answer
A. Raise ticket pricesExplanation
The correct answer is raise ticket prices. If the State of Utah imposes a profits tax on sports teams, the Slappers will likely increase ticket prices in order to offset the additional tax burden and maintain their profitability. By raising ticket prices, they can generate more revenue to compensate for the tax and ensure that their profits are not significantly impacted.Rate this question:
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- 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
Correct Answer
D. Marginal revenue equals marginal costExplanation
The correct answer is that a profit-maximizing monopolist produces an output level at which marginal revenue equals marginal cost. This means that the additional revenue generated from selling one more unit of output is equal to the additional cost incurred in producing that unit. At this level of output, the monopolist is maximizing its profit because it is neither underproducing (where marginal revenue is greater than marginal cost) nor overproducing (where marginal cost is greater than marginal revenue).Rate this question:
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- 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
Correct Answer
E. Total variable cost is greater than total revenue at all output levelsExplanation
In the short run, a monopolist will always shut down when total variable cost is greater than total revenue at all output levels. This means that the cost of producing each additional unit of output exceeds the revenue generated from selling that unit. As a result, the monopolist is unable to cover its variable costs and would incur losses by continuing to produce. Therefore, it is more profitable for the monopolist to shut down operations in the short run rather than continuing to operate at a loss.Rate this question:
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- 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
Correct Answer
D. Monopolists can charge any price they wantExplanation
Monopolists can charge any price they want because they have sole control over the market. Unlike in a competitive market where prices are determined by supply and demand, a monopolist can set the price based on their own profit-maximizing objectives. They have the power to manipulate prices without the constraint of competition, allowing them to charge higher prices and earn higher profits. This lack of competition eliminates the need for a supply curve, as the monopolist can simply choose the price that maximizes their profits.Rate this question:
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- 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
Correct Answer
C. May allow monopolies to earn profit in the long runExplanation
Barriers to entry refer to obstacles or conditions that make it difficult for new firms to enter a market and compete with existing monopolies. These barriers can include high start-up costs, economies of scale, legal restrictions, or exclusive access to resources. By preventing new competitors from entering the market, monopolies can maintain their market power and continue earning profits in the long run. Therefore, the correct answer is that barriers to entry may allow monopolies to earn profit in the long run.Rate this question:
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- 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
Correct Answer
C. There are significant barriers to entryExplanation
Firms can earn economic profits even in the long run if there are significant barriers to entry. These barriers can prevent new firms from entering the market and competing with existing firms. As a result, the existing firms can maintain their market power and charge higher prices, leading to economic profits. These barriers can include legal restrictions, high start-up costs, patents, and exclusive access to resources or distribution channels.Rate this question:
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- 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
Correct Answer
D. The perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curveExplanation
The correct answer is that the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve. In a perfectly competitive market, there are many buyers and sellers, and each firm is a price taker, meaning it has no control over the price and faces a horizontal demand curve. On the other hand, a monopolist is the sole seller in the market and has control over the price, allowing them to set a higher price and face a downward-sloping demand curve.Rate this question:
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- 33.
Non-discriminating 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
Correct Answer
E. Price equals average revenue for bothExplanation
Non-discriminating monopoly is similar to perfect competition in that the price equals average revenue for both. In both market structures, the price charged by the firm is equal to the average revenue it receives per unit of output. This means that each unit sold contributes the same amount to total revenue. However, it is important to note that there are other differences between non-discriminating monopoly and perfect competition, such as barriers to entry and the number of firms in the industry.Rate this question:
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- 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
Correct Answer
B. More efficient because it produces greater outputExplanation
A monopolist tends to be more efficient because it produces greater output. In a perfectly competitive market, firms produce at the point where price equals marginal cost (P=MC), which leads to allocative efficiency. However, monopolists have market power and can set their own price, which allows them to produce at a level where marginal revenue equals marginal cost (MR=MC). This means that monopolists can produce at a higher level of output compared to perfectly competitive firms, resulting in a higher level of productive efficiency.Rate this question:
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- 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
Correct Answer
C. Can be expected to increaseExplanation
In a perfectly competitive industry, there is a large number of buyers and sellers, resulting in a situation where no individual buyer or seller can influence the market price. This leads to consumer surplus, which is the difference between the price consumers are willing to pay and the actual market price they pay. When a perfectly competitive industry is monopolized, the monopolist gains control over the market and can increase the price above the competitive level. This decrease in competition leads to a decrease in consumer surplus. Therefore, when a perfectly competitive industry is monopolized, consumer surplus can be expected to increase as it returns to its competitive level.Rate this question:
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- 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
Correct Answer
B. Deadweight lossExplanation
Deadweight loss refers to the economic inefficiency caused by a monopoly. It occurs when the monopoly restricts output and raises prices, resulting in a loss of consumer surplus and a decrease in overall welfare. This loss is caused by the reduction in consumer choices, higher prices, and a decrease in total output compared to a perfectly competitive market. Deadweight loss represents the loss of potential gains from trade and is a key concept in understanding the negative impacts of monopolies on society.Rate this question:
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- 37.
For which of the following products would price discrimination be easiest?
- A.
Orange juice
- B.
Diamonds
- C.
Compact disks
- D.
Haircuts
- E.
Gasoline
Correct Answer
D. HaircutsExplanation
Price discrimination is easiest for products that have low production costs and high variability in consumer willingness to pay. Haircuts meet these criteria as they can be provided at a relatively low cost and consumers have different preferences and budgets for haircuts. Hair salons can easily offer different prices based on factors such as location, stylist experience, and additional services, allowing them to engage in price discrimination. This is in contrast to products like orange juice, diamonds, compact disks, and gasoline, which have more standardized prices and less room for differentiation.Rate this question:
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- 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
Correct Answer
A. A monopolist fails to expand output to the level where the consumers' evaluation of an additional unit is just equal to its opportunity costExplanation
A major criticism of a monopoly as a cause of allocative inefficiency is that a monopolist fails to expand output to the level where the consumers' evaluation of an additional unit is just equal to its opportunity cost. This means that the monopolist does not produce enough to satisfy consumer demand and maximize overall welfare. By restricting output, the monopolist can charge higher prices and earn more profit, but this comes at the expense of consumer surplus and overall economic efficiency.Rate this question:
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