question
A monopoly may earn positive economic profits in the long run if:
a) there are barriers to entry in the market.
b) demand in a monopoly market is perfectly elastic.
c) it faces a kinked demand curve.
d) it operates with constant returns to scale.
e) it operates with an optimal plant size.
a) there are barriers to entry in the market.
b) demand in a monopoly market is perfectly elastic.
c) it faces a kinked demand curve.
d) it operates with constant returns to scale.
e) it operates with an optimal plant size.
answer
A
question
A market is considered a pure monopoly when:
a) all firms in the market sell homogeneous goods.
b) there is a single buyer for the goods produced in the market.
c) the firm produces a good that has imperfect substitutes.
d) a single firm produces a good that has no close substitutes.
e) there are low entry barriers in the market.
a) all firms in the market sell homogeneous goods.
b) there is a single buyer for the goods produced in the market.
c) the firm produces a good that has imperfect substitutes.
d) a single firm produces a good that has no close substitutes.
e) there are low entry barriers in the market.
answer
D
question
Which of the following is true of pure monopolies?
a) Monopolies may earn positive economic profits in the long run.
b) Monopolies produce output that is greater than the competitive level.
c) Monopolies produce products that have a high marginal cost but a low fixed cost.
d) Monopolies reduce economic welfare by selling a homogeneous good
e) none of the above
a) Monopolies may earn positive economic profits in the long run.
b) Monopolies produce output that is greater than the competitive level.
c) Monopolies produce products that have a high marginal cost but a low fixed cost.
d) Monopolies reduce economic welfare by selling a homogeneous good
e) none of the above
answer
A
question
A monopolist produces and sells 400 units at a price of $40 per unit. The monopolist's marginal cost is equal to $15 and average cost is equal to $23. The monopolist's profit is:
a) $6,800.
b) $8,000.
c) $10,000.
d) $16,000.
e) None of these are correct.
a) $6,800.
b) $8,000.
c) $10,000.
d) $16,000.
e) None of these are correct.
answer
A
Profit= Revenue - Cost------> 16000-9200= 6800
Revenue: P x Q= 400($40)=16000
Cost= 400($23)=9200
Profit= Revenue - Cost------> 16000-9200= 6800
Revenue: P x Q= 400($40)=16000
Cost= 400($23)=9200
question
Which of the following does not contribute to the existence of monopoly power?
a) A continuously decreasing long-run average cost curve
b) The possession of a patent
c) The control of essential inputs in the production process
d) A pure cost or quality advantage
e) A relatively inelastic market demand curve
a) A continuously decreasing long-run average cost curve
b) The possession of a patent
c) The control of essential inputs in the production process
d) A pure cost or quality advantage
e) A relatively inelastic market demand curve
answer
E
question
Industry demand is given by P = 200 - .4Q. The long-run industry costs are such that: LAC = LMC = $80. Based on this information, which of the following is true?
a) If the market is a pure monopoly, the price of the good will be $140.
b) If the market is perfectly competitive, 300 units of the good will be supplied.
c) If the market is perfectly competitive, the price of the good will be $100.
d) If the market is a pure monopoly, 200 units of the good will be produced.
e) both a) and b) are correct
a) If the market is a pure monopoly, the price of the good will be $140.
b) If the market is perfectly competitive, 300 units of the good will be supplied.
c) If the market is perfectly competitive, the price of the good will be $100.
d) If the market is a pure monopoly, 200 units of the good will be produced.
e) both a) and b) are correct
answer
E
question
Which of the following is true of a profit-maximizing competitive firm in the short run?
a) The firm produces at the point where price is equal to marginal cost.
b) The firm produces at the point where average cost is at its minimum point.
c) The demand curve faced by each firm in the industry is downward sloping.
d) The firm always makes a zero economic profit.
e) The firm suffers a deadweight loss.
a) The firm produces at the point where price is equal to marginal cost.
b) The firm produces at the point where average cost is at its minimum point.
c) The demand curve faced by each firm in the industry is downward sloping.
d) The firm always makes a zero economic profit.
e) The firm suffers a deadweight loss.
answer
A
question
Which of the following is true of a pure monopoly?
a) A pure monopoly can raise the market price indefinitely.
b) A pure monopoly is typically more efficient than other firms in the market.
c) A pure monopoly faces a horizontal demand curve.
d) A pure monopoly restricts output below the competitive level.
e) A pure monopoly produces at the level where price equals marginal cost.
a) A pure monopoly can raise the market price indefinitely.
b) A pure monopoly is typically more efficient than other firms in the market.
c) A pure monopoly faces a horizontal demand curve.
d) A pure monopoly restricts output below the competitive level.
e) A pure monopoly produces at the level where price equals marginal cost.
answer
D
question
A monopolist maximizes profit by producing:
a) on the inelastic portion of the demand curve
b) at the level where average cost is minimized
c) at the point where the cost of producing the last unit of output equals price.
d) at the output level where marginal revenue equals marginal cost
e) at the level where the deadweight loss is minimized.
a) on the inelastic portion of the demand curve
b) at the level where average cost is minimized
c) at the point where the cost of producing the last unit of output equals price.
d) at the output level where marginal revenue equals marginal cost
e) at the level where the deadweight loss is minimized.
answer
D
question
Compared to a perfectly competitive industry, a monopolist will generally produce:
a) a greater level of output at a lower price.
b) a greater level of output at a higher price.
c) a smaller level of output a lower price.
d) a smaller level of output at a higher price.
e) roughly the same level of output but at a higher price.
a) a greater level of output at a lower price.
b) a greater level of output at a higher price.
c) a smaller level of output a lower price.
d) a smaller level of output at a higher price.
e) roughly the same level of output but at a higher price.
answer
D
question
The basic objective of a cartel is to:
a) maximize profit for the largest, most influential members.
b) increase the total consumer surplus in the market.
c) produce the highest output level possible.
d) secure monopoly profits for its members.
e) successfully practice price discrimination in the market.
a) maximize profit for the largest, most influential members.
b) increase the total consumer surplus in the market.
c) produce the highest output level possible.
d) secure monopoly profits for its members.
e) successfully practice price discrimination in the market.
answer
D
question
Cartels are inherently unstable because individual members:
a) face horizontal demand curves.
b) tend to produce above their quotas.
c) are culturally and politically heterogeneous.
d) produce highly differentiated products.
e) have a low elasticity of supply.
a) face horizontal demand curves.
b) tend to produce above their quotas.
c) are culturally and politically heterogeneous.
d) produce highly differentiated products.
e) have a low elasticity of supply.
answer
B
question
Which of the following is likely to take place if regulators split a natural monopoly into two smaller firms?
a) The number of firms in the market will increase but the market price will be unchanged.
b) The output in the industry will increase.
c) The cost of production in the industry will increase.
d) The market demand curve will become flatter.
e) The total industry profits will increase.
a) The number of firms in the market will increase but the market price will be unchanged.
b) The output in the industry will increase.
c) The cost of production in the industry will increase.
d) The market demand curve will become flatter.
e) The total industry profits will increase.
answer
C
question
Which of the following is a characteristic of a firm that is a natural monopoly?
a) The firm's average costs decline over all levels of output.
b) The firm's elasticity of supply is very low.
c) The firm does not incur any sunk costs.
d) The firm faces a horizontal demand curve.
e) The firm makes zero economic profit.
a) The firm's average costs decline over all levels of output.
b) The firm's elasticity of supply is very low.
c) The firm does not incur any sunk costs.
d) The firm faces a horizontal demand curve.
e) The firm makes zero economic profit.
answer
A
question
If the regulator institutes average-cost pricing in a natural monopoly market, then:
a) the firm makes zero economic profit.
b) the firm has an incentive to produce at minimum cost.
c) the marginal benefit to the consumer is less than the marginal cost to the firm.
d) firms in the market will produce at an efficient level.
e) consumer surplus in the market is maximized.
a) the firm makes zero economic profit.
b) the firm has an incentive to produce at minimum cost.
c) the marginal benefit to the consumer is less than the marginal cost to the firm.
d) firms in the market will produce at an efficient level.
e) consumer surplus in the market is maximized.
answer
A
question
If the regulator institutes marginal-cost pricing in the market, then:
a) MC = AC.
b) P = AC.
c) MR = MC.
d) P = MC > AC.
e) P = MC < AC.
a) MC = AC.
b) P = AC.
c) MR = MC.
d) P = MC > AC.
e) P = MC < AC.
answer
E
question
Which of the following is a criticism of average-cost pricing as a regulatory response to a natural monopoly?
a) With average-cost pricing, the output produced is smaller than the efficient level of output.
b) Firms that practice average-cost pricing suffer persistent losses.
c) Imperfect information about the firm's costs reduces the effectiveness of average-cost pricing.
d) Under average-cost pricing, the market price is lower than the efficient price.
e) both a) and c) are correct
a) With average-cost pricing, the output produced is smaller than the efficient level of output.
b) Firms that practice average-cost pricing suffer persistent losses.
c) Imperfect information about the firm's costs reduces the effectiveness of average-cost pricing.
d) Under average-cost pricing, the market price is lower than the efficient price.
e) both a) and c) are correct
answer
E
question
Which of the following is the best example of product differentiation?
a) A cookie manufacturer introduces a new variant of cookies for Halloween.
b) A firm that sells printers starts a new manufacturing unit to manufacture printer cartridges.
c) A firm that produces laptops introduces a new line of tablet personal computers.
d) A leading women's fashion house introduces a line of men's clothing.
e) A supermarket introduces a range of pre-packaged salads.
a) A cookie manufacturer introduces a new variant of cookies for Halloween.
b) A firm that sells printers starts a new manufacturing unit to manufacture printer cartridges.
c) A firm that produces laptops introduces a new line of tablet personal computers.
d) A leading women's fashion house introduces a line of men's clothing.
e) A supermarket introduces a range of pre-packaged salads.
answer
A
question
Unlike perfectly competitive markets, monopolistically competitive markets:
a) have significant barriers to entry.
b) face declining average costs at all levels of output.
c) have fewer firms.
d) produce differentiated products.
e) both b) and d) are correct
a) have significant barriers to entry.
b) face declining average costs at all levels of output.
c) have fewer firms.
d) produce differentiated products.
e) both b) and d) are correct
answer
D
question
The profit margins for fast food firms like Wendy's have fallen because of an increase in competition from similar fast-food chains and microwaveable food available in supermarkets. Based on this information, which of the following is true?
a) The elasticity of demand for Wendy's fast food is relatively inelastic.
b) Wendy's operates as a monopoly firm in the fast-food market.
c) The fast-food market is monopolistically competitive.
d) Wendy's fast food is an inferior good for most consumers.
e) There are strategic entry barriers in the fast-food market.
a) The elasticity of demand for Wendy's fast food is relatively inelastic.
b) Wendy's operates as a monopoly firm in the fast-food market.
c) The fast-food market is monopolistically competitive.
d) Wendy's fast food is an inferior good for most consumers.
e) There are strategic entry barriers in the fast-food market.
answer
C
question
Which of the following, if true, would be an example of a monopolistically competitive industry?
a) In the utilities industry, average cost declines over all levels of output.
b) In the automobile industry, fixed costs as well as variable costs are high.
c) In the retail trade industry, a large number of firms provide similar, but not identical, products.
d) The market for basic office supplies (pencils, paper, and clips) is served by scores of online suppliers.
e) In the pharmaceuticals industry, the entire market is served by a small number of large firms.
a) In the utilities industry, average cost declines over all levels of output.
b) In the automobile industry, fixed costs as well as variable costs are high.
c) In the retail trade industry, a large number of firms provide similar, but not identical, products.
d) The market for basic office supplies (pencils, paper, and clips) is served by scores of online suppliers.
e) In the pharmaceuticals industry, the entire market is served by a small number of large firms.
answer
C
question
In the long run, monopolistically competitive firms:
a) earn zero economic profit.
b) face perfectly elastic demand curves.
c) tend to standardize their products.
d) produce output at minimum marginal cost.
e) merge and form a few dominant firms to maximize profit.
a) earn zero economic profit.
b) face perfectly elastic demand curves.
c) tend to standardize their products.
d) produce output at minimum marginal cost.
e) merge and form a few dominant firms to maximize profit.
answer
A
question
The demand curve faced by individual firms under monopolistic competition is:
a) perfectly elastic.
b) perfectly inelastic.
c) downward-sloping.
d) upward-sloping.
e) the same as the market demand curve.
a) perfectly elastic.
b) perfectly inelastic.
c) downward-sloping.
d) upward-sloping.
e) the same as the market demand curve.
answer
C
question
In comparing monopolistic competition to perfect competition, the major difference lies in:
a) the number of firms in each industry.
b) the typical firm size in each industry.
c) the degree of entry barriers in each industry.
d) the demand curves faced by individual firms in each industry.
e) the long-run profits of firms in each industry.
a) the number of firms in each industry.
b) the typical firm size in each industry.
c) the degree of entry barriers in each industry.
d) the demand curves faced by individual firms in each industry.
e) the long-run profits of firms in each industry.
answer
D
question
In the long run, the economic profit earned by a firm under monopolistic competition:
a) is positive because firms produce with excess capacity.
b) is zero because of price wars among a small number of firms.
c) is zero because of free entry and exit possibilities in the market.
d) is positive because of advertising and product differentiation by the firms.
e) is positive because of collusive behavior between firms.
a) is positive because firms produce with excess capacity.
b) is zero because of price wars among a small number of firms.
c) is zero because of free entry and exit possibilities in the market.
d) is positive because of advertising and product differentiation by the firms.
e) is positive because of collusive behavior between firms.
answer
C
question
The demand curve for a monopolistically competitive firm slopes downward because:
a) the demand for the product drops to zero after a slight price increase.
b) competing firms produce differentiated products.
c) there is a very little brand loyalty towards a single firm's product.
d) customers are not influenced by advertising.
e) buyers are not sensitive to changes in the price of the product.
a) the demand for the product drops to zero after a slight price increase.
b) competing firms produce differentiated products.
c) there is a very little brand loyalty towards a single firm's product.
d) customers are not influenced by advertising.
e) buyers are not sensitive to changes in the price of the product.
answer
B
question
Unlike a pure monopoly firm, a monopolistically competitive firm:
a) makes a positive economic profit in the long-run.
b) faces downward sloping demand curve.
c) have no entry barriers to protect it from new entrants.
d) produces a standardized good or service.
e) produces at the level where marginal revenue equals marginal cost.
a) makes a positive economic profit in the long-run.
b) faces downward sloping demand curve.
c) have no entry barriers to protect it from new entrants.
d) produces a standardized good or service.
e) produces at the level where marginal revenue equals marginal cost.
answer
C
question
Which of the following is true in the long run under monopolistic competition?
a) P = MC.
b) P = AC.
c) P > AC > MC.
d) Price > AC = MC.
e) MR > MC.
a) P = MC.
b) P = AC.
c) P > AC > MC.
d) Price > AC = MC.
e) MR > MC.
answer
B
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