question
1. A perfectly competitive firm produces where
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price
answer
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
question
2. A monopoly
a. can set the price it charges for its output and earn unlimited profits.
b. takes the market price as given and earns small but positive profits.
c. can set the price it charges for its output but faces a downward-sloping demand curve so it
cannot earn unlimited profits.
d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.
a. can set the price it charges for its output and earn unlimited profits.
b. takes the market price as given and earns small but positive profits.
c. can set the price it charges for its output but faces a downward-sloping demand curve so it
cannot earn unlimited profits.
d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.
answer
c. can set the price it charges for its output but faces a downward-sloping demand curve so it
cannot earn unlimited profits.
cannot earn unlimited profits.
question
3. A monopoly can earn positive profits because it
a. can sell unlimited quantities at any price it chooses.
b. takes the market price as given and can sell unlimited quantities.
c. can set the price it charges for its output but faces a horizontal demand curve.
d. can maintain a price such that total revenues will exceed total costs.
a. can sell unlimited quantities at any price it chooses.
b. takes the market price as given and can sell unlimited quantities.
c. can set the price it charges for its output but faces a horizontal demand curve.
d. can maintain a price such that total revenues will exceed total costs.
answer
d. can maintain a price such that total revenues will exceed total costs.
question
4. Which of the following is not a characteristic of a monopoly?
a. barriers to entry
b. one seller
c. one buyer
d. a product without close substitute
a. barriers to entry
b. one seller
c. one buyer
d. a product without close substitute
answer
c. one buyer
question
5. A benefit of a monopoly is
a. lower prices.
b. a wide variety of similar products.
c. decreasing long-run average total costs.
d. greater creativity by authors who can copyright their novels.
a. lower prices.
b. a wide variety of similar products.
c. decreasing long-run average total costs.
d. greater creativity by authors who can copyright their novels.
answer
d. greater creativity by authors who can copyright their novels.
question
6. Which of the following statements is not correct?
a. Consumers will likely benefit in the form of lower prices from buying a product made by a
natural monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something
that benefits society such as medical research.
a. Consumers will likely benefit in the form of lower prices from buying a product made by a
natural monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something
that benefits society such as medical research.
answer
c. Monopolists typically produce larger quantities of output than competitive firms.
question
11. Which of the following statements is (are) true of a monopoly?
I. A monopoly has the ability to set the price of its product at whatever level it desires.
II. A monopoly's total revenue will always increase when it increases the price of its product.
III. The more a monopoly increases output, the higher the profits.
a. only
b. only
c. and (ii) only
d. and (iii) only
I. A monopoly has the ability to set the price of its product at whatever level it desires.
II. A monopoly's total revenue will always increase when it increases the price of its product.
III. The more a monopoly increases output, the higher the profits.
a. only
b. only
c. and (ii) only
d. and (iii) only
answer
a
question
Because a monopolist is the sole producer in its market, it can necessarily alter the price of its
good
I. without affecting the quantity sold.
II. without affecting its average total cost.
III. by adjusting the quantity it supplies to the market.
a. (ii) only
b. (iii) only
c. and (ii) only
d. and (iii) only
good
I. without affecting the quantity sold.
II. without affecting its average total cost.
III. by adjusting the quantity it supplies to the market.
a. (ii) only
b. (iii) only
c. and (ii) only
d. and (iii) only
answer
b. (iii) only
question
Which of the following is not a difference between monopolies and perfectly competitive
markets?
a. Monopolies can earn profits in the long run while perfectly competitive firms break even.
b. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a
price equal to marginal cost.
c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
d. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
markets?
a. Monopolies can earn profits in the long run while perfectly competitive firms break even.
b. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a
price equal to marginal cost.
c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
d. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
answer
c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
question
The price effect describes the situation when a monopolist lowers the price of output and, all
else equal, total revenue
a. increases.
b. decreases.
c. is unchanged.
d. is maximized.
else equal, total revenue
a. increases.
b. decreases.
c. is unchanged.
d. is maximized.
answer
b. decreases.
question
Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal
to $12. How much total profit is the firm earning at this price?
a. $5
b. $25
c. $50
d. $140
to $12. How much total profit is the firm earning at this price?
a. $5
b. $25
c. $50
d. $140
answer
c. $50
question
The economic inefficiency of a monopolist can be measured by the
a. deadweight loss.
b. value of the unrealized trades that could be made if the monopolist produced the socially-efficient output.
c. area above marginal cost but beneath demand from the monopoly output to the socially-efficient output.
d. All of the above are correct.
a. deadweight loss.
b. value of the unrealized trades that could be made if the monopolist produced the socially-efficient output.
c. area above marginal cost but beneath demand from the monopoly output to the socially-efficient output.
d. All of the above are correct.
answer
d. All of the above are correct.
question
The practice of selling the same goods to different customers at different prices, but with the
same marginal cost, is known as
a. price segregation.
b. price discrimination.
c. arbitrage.
d. monopoly pricing.
same marginal cost, is known as
a. price segregation.
b. price discrimination.
c. arbitrage.
d. monopoly pricing.
answer
b. price discrimination
question
Perfect price discrimination describes a situation in which the monopolist
a. knows the exact willingness to pay of each of its customers.
b. charges exactly two different prices to exactly two different groups of customers.
c. maximizes consumer surplus.
d. experiences a zero economic profit.
a. knows the exact willingness to pay of each of its customers.
b. charges exactly two different prices to exactly two different groups of customers.
c. maximizes consumer surplus.
d. experiences a zero economic profit.
answer
a. knows the exact willingness to pay of each of its customers.
question
Which of the following is the preferred strategy for the government to follow to remedy the
inefficient allocation of resources associated with monopolies?
a. preventing mergers through antitrust laws
b. regulating the prices that monopolies can charge
c. doing nothing
d. None of the above strategies is preferred. Each is a viable strategy.
inefficient allocation of resources associated with monopolies?
a. preventing mergers through antitrust laws
b. regulating the prices that monopolies can charge
c. doing nothing
d. None of the above strategies is preferred. Each is a viable strategy.
answer
d. None of the above strategies is preferred. Each is a viable strategy.
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