Monopoly Market Structure

38 Questions | Total Attempts: 106

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Monopoly Market Structure

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Questions and Answers
  • 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. 
    • 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. 
    • 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