question
Identify a distinguishing feature of a monopoly.
a. There are no barriers to entry in a monopolized market.
b. A monopolist is a price taker.
c. There are no close substitutes for a monopolist's product.
d. There are many firms in a monopolized industry.
e. A monopolist faces a horizontal demand curve.
a. There are no barriers to entry in a monopolized market.
b. A monopolist is a price taker.
c. There are no close substitutes for a monopolist's product.
d. There are many firms in a monopolized industry.
e. A monopolist faces a horizontal demand curve.
answer
c. There are no close substitutes for a monopolist's product.
question
Which of these is likely to be true of perfect competition but not of monopoly?
a. A firm can produce a good only if government licenses authorize it to produce the good.
b. A firm can sell a good in the market only if the government grants a patent to the firm.
c. A firm can earn economic profit in the long run.
d. A firm can shut down in the short run only if the price charged by it exceeds the average variable cost of production.
e. A firm can face competition from new entrants into the market in the long run.
a. A firm can produce a good only if government licenses authorize it to produce the good.
b. A firm can sell a good in the market only if the government grants a patent to the firm.
c. A firm can earn economic profit in the long run.
d. A firm can shut down in the short run only if the price charged by it exceeds the average variable cost of production.
e. A firm can face competition from new entrants into the market in the long run.
answer
e. A firm can face competition from new entrants into the market in the long run.
question
For a monopolist, average revenue is _____
a. equal to marginal revenue at all output levels.
b. greater than price at all output levels.
c. less than price at all output levels.
d. represented by a horizontal curve at all output levels.
e. more than marginal revenue at all output levels.
a. equal to marginal revenue at all output levels.
b. greater than price at all output levels.
c. less than price at all output levels.
d. represented by a horizontal curve at all output levels.
e. more than marginal revenue at all output levels.
answer
e. more than marginal revenue at all output levels.
question
As a monopolist increases the quantity of output produced, _____
a. both price and marginal revenue remain constant.
b. price remains constant, but marginal revenue decreases.
c. price decreases, but marginal revenue remains constant.
d. both price and marginal revenue decrease, but price falls faster than marginal revenue.
e. both price and marginal revenue decrease, but marginal revenue falls faster than price.
a. both price and marginal revenue remain constant.
b. price remains constant, but marginal revenue decreases.
c. price decreases, but marginal revenue remains constant.
d. both price and marginal revenue decrease, but price falls faster than marginal revenue.
e. both price and marginal revenue decrease, but marginal revenue falls faster than price.
answer
e. both price and marginal revenue decrease, but marginal revenue falls faster than price.
question
Suppose a monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each or sell 140 units for $2 each. Which of the following is true?
a. The demand for the monopolist's product is price elastic for the given range of output.
b. The demand for the monopolist's product is unit elastic for the given range of output.
c. The demand for the monopolist's product is price inelastic for the given range of output.
d. The monopolist is facing a horizontal supply curve.
e. The monopolist is facing an upward-rising demand curve.
a. The demand for the monopolist's product is price elastic for the given range of output.
b. The demand for the monopolist's product is unit elastic for the given range of output.
c. The demand for the monopolist's product is price inelastic for the given range of output.
d. The monopolist is facing a horizontal supply curve.
e. The monopolist is facing an upward-rising demand curve.
answer
c. The demand for the monopolist's product is price inelastic for the given range of output.
question
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be concluded about the firm's marginal revenue for this output level?
a. Marginal revenue is equal to $500.
b. Marginal revenue is more than $10.
c. Marginal revenue is equal to $10.
d. Marginal revenue is less than $10 but more than zero. e. Marginal revenue is zero.
a. Marginal revenue is equal to $500.
b. Marginal revenue is more than $10.
c. Marginal revenue is equal to $10.
d. Marginal revenue is less than $10 but more than zero. e. Marginal revenue is zero.
answer
d. Marginal revenue is less than $10 but more than zero.
question
Which of the following equations describes the relationship between market price (P), average revenue (AR), and marginal revenue (MR) for a non-discriminating monopolist?
a. P = AR = MR
b. P > AR = MR
c. P = AR > MR
d. P > AR > MR
e. P = AR < MR
a. P = AR = MR
b. P > AR = MR
c. P = AR > MR
d. P > AR > MR
e. P = AR < MR
answer
c. P = AR > MR
question
Refer to Exhibit 9.3, which shows the cost and revenue curves for a non-discriminating monopolist. The profit- maximizing output and price for the monopolist are _____
a. 90 units and $18, respectively.
b. 1,500 units and $24, respectively.
c. 1,700 units and $22, respectively.
d. 1,100 units and $28, respectively.
e. 1,500 units and $22, respectively.
a. 90 units and $18, respectively.
b. 1,500 units and $24, respectively.
c. 1,700 units and $22, respectively.
d. 1,100 units and $28, respectively.
e. 1,500 units and $22, respectively.
answer
d. 1,100 units and $28, respectively.
question
Refer to Exhibit 9.3, which shows the cost and revenue curves for a non-discriminating monopolist. The total revenue earned by the profit-maximizing monopolist at the profit-maximizing output is _____
a. $16,200.
b. $36,000.
c. $39,600.
d. $30,800.
e. $31,000.
a. $16,200.
b. $36,000.
c. $39,600.
d. $30,800.
e. $31,000.
answer
d. $30,800.
question
Refer to Exhibit 9.3, which shows the cost and revenue curves for a non-discriminating monopolist. The total cost incurred by the monopolist for producing the profit-maximizing output is _____
a. $16,500.
b. $24,200.
c. $16,200.
d. $19,800.
e. $30,800.
a. $16,500.
b. $24,200.
c. $16,200.
d. $19,800.
e. $30,800.
answer
d. $19,800.
question
Refer to Exhibit 9.3, which shows the cost and revenue curves for a non-price discriminating monopolist. At the profit-maximizing output, the non-price discriminating monopolist is earning a profit of _____
a. $6,200.
b. $13,320.
c. $11,000.
d. $15,200.
e. $0.
a. $6,200.
b. $13,320.
c. $11,000.
d. $15,200.
e. $0.
answer
c. $11,000.
question
Refer to Exhibit 9.4, which shows the total cost and total revenue curves for a monopolist. The profit-maximizing output for the monopolist is _____
a. 1 unit. b. 2 units. c. 3 units. d. 4 units. e. 5 units.
a. 1 unit. b. 2 units. c. 3 units. d. 4 units. e. 5 units.
answer
c. 3 units
question
A profit-maximizing monopolist that produces in the short run will _____
a. choose the output level where marginal revenue exceeds marginal cost by the largest amount.
b. increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
c. choose the output level where average total cost is at its minimum.
d. increase price as long as average revenue exceeds average total cost.
e. choose the output level where average revenue exceeds average total cost by the largest amount.
a. choose the output level where marginal revenue exceeds marginal cost by the largest amount.
b. increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
c. choose the output level where average total cost is at its minimum.
d. increase price as long as average revenue exceeds average total cost.
e. choose the output level where average revenue exceeds average total cost by the largest amount.
answer
b. increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
question
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. total revenue is greater than fixed cost at all output levels.
e. total variable cost is greater than total revenue at all output levels.
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. total revenue is greater than fixed cost at all output levels.
e. total variable cost is greater than total revenue at all output levels.
answer
e. total variable cost is greater than total revenue at all output levels.
question
Barriers to entry _____
a. cause monopolies to experience diseconomies of scale 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 the government from regulating a monopoly.
e. prevent a natural monopoly from raising its price.
a. cause monopolies to experience diseconomies of scale 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 the government from regulating a monopoly.
e. prevent a natural monopoly from raising its price.
answer
c. may allow monopolies to earn profit in the long run.
question
Unlike perfectly competitive firms, monopolists _____
a. earn positive short-run economic profit even if price is less than average variable cost at all rates of output. b. sell any quantity of output at any price they choose.
c. earn long-run economic profits.
d. reduce the sales of firms in other industries through advertising.
e. face a perfectly elastic demand curve.
a. earn positive short-run economic profit even if price is less than average variable cost at all rates of output. b. sell any quantity of output at any price they choose.
c. earn long-run economic profits.
d. reduce the sales of firms in other industries through advertising.
e. face a perfectly elastic demand curve.
answer
c. earn long-run economic profits.
question
Which of these is a key difference between a perfectly competitive firm and a monopolist that does not practice price discrimination?
a. The marginal cost curve is U-shaped for a perfectly competitive firm but not for a monopolist.
b. Price is equal to average revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
c. Price is equal to marginal revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
d. The average revenue curve is the demand curve for a perfectly competitive firm but not for a monopolist.
e. A monopolist aims to maximize profits, while a perfectly competitive firm tries to maximize total revenue.
a. The marginal cost curve is U-shaped for a perfectly competitive firm but not for a monopolist.
b. Price is equal to average revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
c. Price is equal to marginal revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
d. The average revenue curve is the demand curve for a perfectly competitive firm but not for a monopolist.
e. A monopolist aims to maximize profits, while a perfectly competitive firm tries to maximize total revenue.
answer
c. Price is equal to marginal revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
question
Which of these is a similarity between a monopolist that does not practice price discrimination and a perfectly competitive firm?
a. The firms face the same amount of competition from new entrants into the market. b. The firms have an equal number of rivals.
c. The firms face perfectly price-elastic demand curves.
d. Price equals marginal revenue at all output rates for both types of firms.
e. Price equals average revenue at all output rates for both types of firms
a. The firms face the same amount of competition from new entrants into the market. b. The firms have an equal number of rivals.
c. The firms face perfectly price-elastic demand curves.
d. Price equals marginal revenue at all output rates for both types of firms.
e. Price equals average revenue at all output rates for both types of firms
answer
e. Price equals average revenue at all output rates for both types of firms
question
A monopoly is the _____ supplier in the market, but there are _____ demanders.
a. only; many
b. only; a few
c. only; only one
d. one of the many; only one e. one of the many; a few
a. only; many
b. only; a few
c. only; only one
d. one of the many; only one e. one of the many; a few
answer
a. only; many
question
Patents stimulate investment _____
a. by giving inventors an incentive to incur the up-front costs of developing new products.
b. by giving tax breaks to inventors and researchers.
c. by guaranteeing an economic profit to a firm from the sale of a new product.
d. by lowering interest rates on loans taken for developing a new product.
e. by covering the total cost of research and development incurred by a start-up firm.
a. by giving inventors an incentive to incur the up-front costs of developing new products.
b. by giving tax breaks to inventors and researchers.
c. by guaranteeing an economic profit to a firm from the sale of a new product.
d. by lowering interest rates on loans taken for developing a new product.
e. by covering the total cost of research and development incurred by a start-up firm.
answer
a. by giving inventors an incentive to incur the up-front costs of developing new products.
question
The term "monopolistic competition" _____
a. is an alternate expression for monopoly.
b. is used to describe perfect competition that has strong entry barriers.
c. denotes an industry characterized by one seller of many differentiated products. d. denotes an industry characterized by many sellers of homogeneous products.
e. denotes an industry characterized by many sellers of differentiated products.
a. is an alternate expression for monopoly.
b. is used to describe perfect competition that has strong entry barriers.
c. denotes an industry characterized by one seller of many differentiated products. d. denotes an industry characterized by many sellers of homogeneous products.
e. denotes an industry characterized by many sellers of differentiated products.
answer
e. denotes an industry characterized by many sellers of differentiated products.
question
FlyHigh Travel Agency, a monopolistic competitor, offers services that are differentiated from the services of other producers in the industry. This implies that it _____
a. faces a perfectly elastic demand curve.
b. is a price taker.
c. has some control over the price it charges.
d. faces a perfectly inelastic demand curve.
e. produces a product with no close substitutes.
a. faces a perfectly elastic demand curve.
b. is a price taker.
c. has some control over the price it charges.
d. faces a perfectly inelastic demand curve.
e. produces a product with no close substitutes.
answer
c. has some control over the price it charges.
question
If a monopolistically competitive firm raises its price, it _____
a. earns a higher economic profit.
b. loses some, but not all, of its customers.
c. shuts down.
d. has to pay higher taxes.
e. gains customers.
a. earns a higher economic profit.
b. loses some, but not all, of its customers.
c. shuts down.
d. has to pay higher taxes.
e. gains customers.
answer
b. loses some, but not all, of its customers.
question
All of the following are examples of product differentiation, except one. Which of the following is the exception? a. developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks"
b. manufacturing a car that minimizes outside noise more than other cars do
c. lowering the price of a good for a special sale
d. providing movies and special meals on airline flights
e. making sodium-free, caffeine-free colas
b. manufacturing a car that minimizes outside noise more than other cars do
c. lowering the price of a good for a special sale
d. providing movies and special meals on airline flights
e. making sodium-free, caffeine-free colas
answer
c. lowering the price of a good for a special sale
question
Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor's profit-maximizing level of output is _____
a. 75 units.
b. 100 units.
c. 125 units.
d. 150 units.
e. 137.5 units.
a. 75 units.
b. 100 units.
c. 125 units.
d. 150 units.
e. 137.5 units.
answer
c. 125 units.
question
Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The price that the monopolistic competitor will charge at the profit-maximizing level of output is _____
a. $2. b. $4. c. $8. d. $9. e. $10.
a. $2. b. $4. c. $8. d. $9. e. $10.
answer
e. $10.
question
Exhibit 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the long run, _____
a. new technology will lower average total costs and increase profits for the firm.
b. firms will exit this market, causing economic profit to increase.
c. product differentiation will lead to an increase in profits earned by the firm.
d. new firms will enter the market, driving economic profit to zero.
e. firms will produce 15 units of output.
a. new technology will lower average total costs and increase profits for the firm.
b. firms will exit this market, causing economic profit to increase.
c. product differentiation will lead to an increase in profits earned by the firm.
d. new firms will enter the market, driving economic profit to zero.
e. firms will produce 15 units of output.
answer
d. new firms will enter the market, driving economic profit to zero.
question
Exhibit 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____
a. $5,320. b. $5,700. c. $4,750. d. $8,120. e. $8,100.
a. $5,320. b. $5,700. c. $4,750. d. $8,120. e. $8,100.
answer
b. $5,700.
question
Exhibit 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit- maximizing output level, the total cost incurred by the firm is approximately _____
a. $5,700. b. $5,320. c. $4,750. d. $4,940. e. $8,100.
a. $5,700. b. $5,320. c. $4,750. d. $4,940. e. $8,100.
answer
d. $4,940.
question
Exhibit 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit- maximizing output level, the firm is _____
a. earning an economic profit of $760.
b. earning an economic profit of $950.
c. earning zero economic profit.
d. earning an economic profit of $990.
e. suffering a loss of $1,000.
a. earning an economic profit of $760.
b. earning an economic profit of $950.
c. earning zero economic profit.
d. earning an economic profit of $990.
e. suffering a loss of $1,000.
answer
a. earning an economic profit of $760.
question
Suppose a monopolistically competitive firm is producing at an output level where marginal revenue is less than marginal cost. This firm should _____quantity and _____ price to increase profit or reduce losses.
a. increase, increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
e. increase; not change
a. increase, increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
e. increase; not change
answer
c. decrease; increase
question
Suppose a monopolistically competitive firm is in long-run equilibrium. The firm's demand curve is tangent to its average cost curve at Q = 25. Average cost is minimized at Q = 35, where average cost is $50. Which of the following is true?
a. This firm maximizes profit at an output level of 25 units.
b. This firm maximizes profit at an output level of 35 units.
c. This firm maximizes profit at an output level lower than 25 units. d. This firm maximizes profit at an output level greater than 35 units.
e. This firm incurs an economic loss in the long run.
a. This firm maximizes profit at an output level of 25 units.
b. This firm maximizes profit at an output level of 35 units.
c. This firm maximizes profit at an output level lower than 25 units. d. This firm maximizes profit at an output level greater than 35 units.
e. This firm incurs an economic loss in the long run.
answer
a. This firm maximizes profit at an output level of 25 units.
question
Because of the ease of entry of new firms into monopolistically competitive markets in the long run, existing firms in these markets _____
a. produce at the lowest average total cost.
b. charge a price equal to marginal cost.
c. earn no economic profit in the long run.
d. take advantage of economies of scope.
e. earn no economic profit in the short run.
a. produce at the lowest average total cost.
b. charge a price equal to marginal cost.
c. earn no economic profit in the long run.
d. take advantage of economies of scope.
e. earn no economic profit in the short run.
answer
c. earn no economic profit in the long run.
question
Which of the following characteristics does perfect competition share with monopolistic competition? a. price-taking firms
b. zero long-run economic profit
c. homogeneous products
d. strong barriers to entry
e. economies of scale in production
b. zero long-run economic profit
c. homogeneous products
d. strong barriers to entry
e. economies of scale in production
answer
b. zero long-run economic profit
question
A rise in the demand for restaurant meals is likely to _____ in the long run.
a. increase losses for each restaurant
b. lower the price of restaurant meals
c. decrease the number of restaurants
d. increase the number of restaurants in the industry e. increase the economic profit earned by restaurants
a. increase losses for each restaurant
b. lower the price of restaurant meals
c. decrease the number of restaurants
d. increase the number of restaurants in the industry e. increase the economic profit earned by restaurants
answer
d. increase the number of restaurants in the industry e. increase the economic profit earned by restaurants
question
Which of the following is true of firms in monopolistic competition and perfect competition?
a. Firms face a horizontal demand curve.
b. Price exceeds marginal revenue.
c. Firms can enter and leave the industry with relative ease.
d. Price exceeds marginal cost. e. Products are differentiated.
a. Firms face a horizontal demand curve.
b. Price exceeds marginal revenue.
c. Firms can enter and leave the industry with relative ease.
d. Price exceeds marginal cost. e. Products are differentiated.
answer
c. Firms can enter and leave the industry with relative ease.
question
Which of the following is most likely produced in a monopolistically competitive market?
a. soybeans
b. automobiles
c. fast food
d. oil
e. wheat
a. soybeans
b. automobiles
c. fast food
d. oil
e. wheat
answer
c. fast food
question
A common feature of monopolistic competition, pure monopoly, and perfect competition is that _____
a. entry is free in each market structure.
b. producers in each market structure earn economic profit in the long run.
c. producers in each market structure sell differentiated products.
d. firms in these market structures act as price takers.
e. the profit-maximizing condition in each market is the same.
a. entry is free in each market structure.
b. producers in each market structure earn economic profit in the long run.
c. producers in each market structure sell differentiated products.
d. firms in these market structures act as price takers.
e. the profit-maximizing condition in each market is the same.
answer
e. the profit-maximizing condition in each market is the same.
question
Private goods are _____
a. rival and nonexclusive.
b. exclusive and nonrival.
c. rival and exclusive.
d. nonrival and exclusive.
e. nonrival and nonexclusive.
a. rival and nonexclusive.
b. exclusive and nonrival.
c. rival and exclusive.
d. nonrival and exclusive.
e. nonrival and nonexclusive.
answer
c. rival and exclusive.
question
A golf course or a swimming pool in a resort that is not crowded is an example of a(n) _____
a. private good.
b. natural monopoly.
c. open-access good.
d. public good.
e. quasi-private good.
a. private good.
b. natural monopoly.
c. open-access good.
d. public good.
e. quasi-private good.
answer
b. natural monopoly.
question
Which of the following is an example of a good that is nonrival and nonexclusive in consumption?
a. televisions
b. haircuts
c. pizza
d. national defense
e. tickets to a rock concert
a. televisions
b. haircuts
c. pizza
d. national defense
e. tickets to a rock concert
answer
d. national defense
question
A good that is open-access is _____
a. rival and nonexclusive.
b. exclusive and nonrival.
c. rival and exclusive.
d. nonrival and exclusive.
e. nonrival and nonexclusive.
a. rival and nonexclusive.
b. exclusive and nonrival.
c. rival and exclusive.
d. nonrival and exclusive.
e. nonrival and nonexclusive.
answer
a. rival and nonexclusive.
question
Refer to Exhibit 16.1. In Box C, a good that is rival and nonexclusive is _____
a. private.
b. a natural monopoly.
c. open-access.
d. public.
e. a free-rider.
a. private.
b. a natural monopoly.
c. open-access.
d. public.
e. a free-rider.
answer
c. open-access.
question
Refer to Exhibit 16.1. In Box D, a good that is nonrival and nonexclusive is _____
a. private.
b. a natural monopoly.
c. open-access.
d. public.
e. a free-rider.
a. private.
b. a natural monopoly.
c. open-access.
d. public.
e. a free-rider.
answer
d. public
question
The efficient quantity of a public good produced is _____
a. determined by the intersection of the market demand curve and the marginal cost curve.
b. achieved where the sum of marginal valuations equals the sum of marginal costs.
c. determined by the intersection of the market demand and market supply curves.
d. achieved where marginal revenue product equals marginal factor cost.
e. achieved at the minimum point of the average total cost curve.
a. determined by the intersection of the market demand curve and the marginal cost curve.
b. achieved where the sum of marginal valuations equals the sum of marginal costs.
c. determined by the intersection of the market demand and market supply curves.
d. achieved where marginal revenue product equals marginal factor cost.
e. achieved at the minimum point of the average total cost curve.
answer
a. determined by the intersection of the market demand curve and the marginal cost curve.
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