Monopoly Market Structure

1. An important difference between a perfectly competitive firm and a monopolist is that

The perfectly competitive firm tends to be larger

Only the monopolist attempts to maximize profit

Only the perfectly competitive firm maximizes profit

The perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve

Only the monopolist maximizes profit at the quantity where marginal cost equals marginal revenue

2. Which of the following is true of monopoly?

There are no barriers to entry.

The firm is a price taker.

There are no close substitutes for the product being produced.

There are many firms in the industry.

The firm faces a horizontal demand curve.

3. The welfare loss of monopoly is also called

Converted consumer surplus

Deadweight loss

Economic profit under monopoly

Producer surplus

Contestable profit

4. Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly

Price equals marginal cost.

Price is greater than marginal cost.

Marginal revenue equals marginal cost

Marginal revenue is less than marginal cost.

Marginal revenue is greater than average revenue.

5. Which of the following could be true of perfect competition but not of monopoly?

The government licenses production of the good to a few firms.

The government grants a patent for the good.

A firm can earn economic profit in the long run.

If price falls below average variable cost, it pays to shut down.

There are no barriers to entry.

6. 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

Raise ticket prices

Lower ticket prices to boost sales

Maintain ticket prices and suffer a loss in profits

Expand the number of home hockey games

Reduce the number of home hockey games

7. Negative marginal revenue means that

The firm is maximizing its economic profit

The firm is maximizing its total revenue

Total revenue is increasing at an increasing rate as output increases

Total revenue is increasing at a decreasing rate as output increases

Total revenue is decreasing as output increases

8. One likely result of monopoly power is

A wide variety of substitute products from which consumers can choose

An elimination of barriers to industry entry

A decline in government regulation

A higher price than would exist in a competitive industry

An improvement in allocative efficiency

9. A monopolist is

One of a large number of small firms that produce a homogeneous good

One of a small number of large firms that produce a differentiated good

A single seller of a product with many close substitutes

One of a small number of large firms that produce a homogeneous good

A single seller of a product with no close substitutes

10. Which of the following prevents potential competitors from entering a monopolist's market?

Legal restrictions

Diseconomies of scale

Product differentiation

Stable market demand

Rising marginal cost

11. In the monopoly market structure, new firms

Cannot profitably enter the industry, even in the long run

May freely enter and leave the industry in both the short run and the long run

May freely enter and leave the industry in the long run only

May freely enter and leave the industry in the short run only

Have no incentive to enter the industry, even if economic profits are present

12. A profit-maximizing monopolist produces an output level at which

Marginal revenue is the greatest distance from marginal cost

Price is less than marginal cost

The value to society of the last unit produced equals marginal cost

Marginal revenue equals marginal cost

Consumers wish to purchase less than what is produced because of high monopoly prices

13. A profit-maximizing monopolist never produces along the _____ portion of the demand curve because marginal revenue is _____ there.

Elastic; positive

Elastic; negative

Inelastic; negative

Inelastic; positive

Inelastic; zero

14. In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

Lower price to expand revenue possibilities

Restrict output to extract a higher price from customers

Maintain the current price if profit is still positive

Increase plant size to lower marginal cost

Decrease plant size to lower marginal cost

15. Which of the following is true of marginal revenue for a monopolist that charges a single price

P = MR because there are no close substitutes for the monopolist's product.

P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.

P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.

AR = MR because there are no close substitutes for the monopolist's product.

P = MR only at the profit-maximizing quantity.

16. Barriers to entry

Prevent monopolies from earning profit in the long run

Prevent monopolies from earning profit in the short run

May allow monopolies to earn profit in the long run

Prevent government from regulating a monopoly

Prevent a natural monopoly from raising its price

17. The demand curve a monopolist uses in making an output decision is

The same as the demand curve facing a perfectly competitive firm

Vertical because there are no close substitutes for its product

Horizontal because there are no close substitutes for its product

The same as the market demand curve

Perfectly inelastic

18. 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?

Raise price and lower output.

Lower price and lower output.

Raise price and raise output.

Lower price and raise output.

Lower output but leave price unchanged.

19. If marginal cost is positive, which of the following is true?

A monopolist always produces on the inelastic portion of the firm's demand curve.

A monopolist always produces on the inelastic portion of the market demand curve.

A monopolist always produces on the elastic portion of the market demand curve.

A monopolist always produces on the unit elastic portion of the market demand curve.

The presence of a monopolist increases the elasticity of demand.

20. For a nondiscriminating monopolist, describe the relationship between market price (P), average revenue (AR), and marginal revenue (MR).

P = AR = MR

P > AR = MR

P = AR > MR

P > AR > MR

P = AR < MR

21. 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?

The monopolist is facing elastic demand.

The monopolist is facing unit elastic demand

The monopolist is facing inelastic demand.

The monopolist is facing perfectly elastic demand

The elasticity of demand cannot be determined with the information given.

22. As a monopolist increases the quantity of output produced, what happens to price (P) and marginal revenue (MR)?

Both P and MR remain constant

P is constant, but MR decreases

Both P and MR decrease, but P falls faster than MR

P decreases, but MR is constant

Both P and MR decrease, but MR falls faster than P

23. In the short run, a monopolist will always shut down when

Total cost is greater than total revenue at all output levels

Total variable cost is greater than fixed cost

Total revenue is greater than total variable cost at all output levels

Fixed cost is greater than total revenue at all output levels

Total variable cost is greater than total revenue at all output levels

24. For which of the following products would price discrimination be easiest?

Orange juice

Diamonds

Compact disks

Haircuts

Gasoline

25. Which of the following is a major criticism of a monopoly as a cause of allocative inefficiency?

A monopolist will always make profits therefore providing an incentive to keep prices at the level that maximizes consumer surplus

A monopolist has an advantage because it can purchase the resources in a competitive market

Consumer surplus would no longer be equal to producer surplus

26. Firms can earn economic profits even in the long run if

They charge the highest price possible

There is a cost-reducing technological change

There are significant barriers to entry

Marginal revenue equals marginal cost

Price is less than average variable cost at all rates of output

27. If a perfectly competitive industry is monopolized, consumer surplus

Can be expected to decrease

Will usually remain constant

Can be expected to increase

Drops from a high value to zero

Increases from zero to a high value

28. Natural monopolies form when

Small firms merge to form larger firms

One firm has control over the entire supply of a basic input required to produce the product

One firm's monopoly position is created and enforced by the government

One firm receives patent protection for certain basic production processes

Long-run average cost declines as a firm expands output

29. A natural monopoly results when a firm has

A license

A patent

Official approval to produce a product

Decreasing average costs over the range of market demand

Exclusive use of a natural resource

30. The demand curve facing a single-price monopolist

Is the same as its average revenue curve

Is the same as its marginal revenue curve

Is the same as the perfect competitor's demand curve

Lies above its average revenue curve

31. A monopolist has no supply curve because

As demand changes, each output level can be consistent with more than one profit-maximizing price

Monopolists tend to restrict output

Monopolists have no marginal cost curve

Monopolists can charge any price they want

As demand changes, the firm's profit-maximizing choice of output may change

32. Which of the following is not true of monopolists?

A.The entry of new firms is not a major concern.

B.Monopolists seek to maximize profits.

C.Monopolists can charge any price they want and make a profit.

D.Monopolists can choose any point on the market demand curve.

E.Monopolists can raise price more than 10 percent.

33. Suppose a monopolist cannot price discriminate. To maximize profit, it will

Always produce in the inelastic range of its demand curve

Never produce in the elastic range of its demand curve

Never produce in the inelastic range of its demand curve

Never produce in the elastic range of its marginal cost curve

Produce in the elastic range of the marginal revenue curve

34. Nondiscriminating monopoly is similar to perfect competition in that

They have the same level of barriers to entry

They have a similar number of firms in the industry

The demand curve facing the firm is perfectly elastic for both

Price equals marginal revenue for both

Price equals average revenue for both

35. A profit-maximizing monopolist

Never produces on the inelastic portion of the demand curve because it can increase profit by increasing output

Never produces on the inelastic portion of the demand curve because marginal revenue exceeds marginal cost

Always produces on the inelastic portion of the demand curve

Never produces on the elastic portion of the demand curve because there are no substitutes for the good it produces

Never produces on the inelastic portion of the demand curve because marginal revenue is negative there

36. 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?

Price is equal to marginal cost.

Average revenue is equal to marginal cost.

Marginal revenue is positive.

Marginal revenue is less than marginal cost.

Price is greater than average revenue.