Practice Exam #9

A patent or copyright is a barrier to entry based on:
A) large economies of scale as output increases
B) widespread network externalities
C) government action to protect a producer
D) ownership of a key necessary raw material

Total revenues increase as output increases along sections of the demand curve that are:
A) price inelastic
B) upward sloping
C) downward sloping
D) price elastic

For a natural monopoly to exist: A) a firm must have a government-imposed barrier
B) a firm's long run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level
C) a firm's long run average cost curve must exhibit economies of scale throughout the relevant range of market demand
D) a firm must continually buy up its rivals

Why does a monopoly cause a deadweight loss?
A) because it appropriates a portion of consumer surplus for itself
B) because it increases producer surplus at the expense of consumer surplus
C) because it does not produce some output for which demand exceeds supply
D) because it does not produce some output for which marginal benefit exceeds marginal cost

Perfect price discrimination:
A) is not efficient
B) requires each customer to pay exactly his or her willingness to pay
C) maximizes consumer surplus
D) minimizes producer surplus

If a firm could practice perfect price discrimination, it would:
A) allow resale of its product
B) charge a price based on the quantity of a product bought
C) use odd pricing
D) charge every buyer a different price

Which of the following is important in determining the extent of competition in an industry?
A) the minimum efficient scale of production relative to market demand
B) whether or not the industry product is differentiated or standardized
C) the minimum level of short run average total costs of production
D) the level of market demand for the industry's product

A profit maximizing monopoly's price is:
A) lower than the price that would prevail if the industry is perfectly competitive
B) not consistently related to price that would prevail if the market is perfectly competitive
C) the same as the price that would prevail if the industry is perfectly competitive
D) higher than the price that would prevail if the industry is perfectly competitive

For a monopoly, a negative marginal revenue implies:
A) total revenues are increasing
B) that the demand is perfectly price elastic
C) the price effect is larger than the quantity effect
D) that the demand is price elastic

Compared to perfect competition, the consumer surplus in a monopoly:
A) is higher because price is higher and output is the same
B) is unchanged because price and output are the same
C) is lower because price is higher and output is lower
D) is eliminated

Which of the following are necessary condition(s) for successful price discrimination?
I. zero transaction cost
II. a perfectly competitive market structure
III. an imperfectly competitive market structure
IV. at least two different markets with different price elasticities of demand
V. at least two different markets with different price elasticities of supply
A) I and III only
B) I, II, and IV only
C) I, III, IV and V only
D) III and IV only

If a monopolist practices perfect price discrimination then,
A) consumer surplus will be zero
B) consumers surplus will be equal to the deadweight loss
C) the firm will break even in the long run
D) producer surplus will equal consumer surplus

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?
A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions
B) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price-takers. Under monopoly conditions, economic surplus is equal to producer surplus
C) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions economic surplus is minimized
D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions economic surplus is less than under perfect competition and there is a deadweight loss

Compared to perfect competition, the consumer surplus in a monopoly:
A) is higher because price is higher and output is the same
B) is unchanged because price and output are the same
C) is eliminated
D) is lower because price is higher and output is lower

The monopolist's cost curves differ from those of a perfectly competitive firm in that:
A) average total cost and average variable costs are now equal
B) average total cost is now minimized where it crosses marginal cost
C) marginal cost is no longer equal to average variable cost
D) The cost curves are the same for a firm regardless of market structure

Which of the following is important in determining the extent of competition in an industry?
A) the level of market demand for the industry's product
B) whether or not the industry product is differentiated or standardized
C) the minimum efficient scale of production relative to market demand
D) the minimum level of short run average total costs of production

In evaluating the degree of economic efficiency in a market, we can state that the size of the deadweight loss in a market will be smaller:
A) the smaller the difference between marginal cost and average total cost
B) the greater the difference between marginal cost and average revenue
C) the greater the difference between marginal cost and price
D) the smaller the difference between marginal cost and price

Which of the following is true for a firm with a downward-sloping demand curve for its product?
A) Price equals average revenue but is greater than marginal revenue
B) Price equals average revenue but is less than marginal revenue
C) Price, average revenue, and marginal revenue are all equal
D) Price, average revenue, and marginal revenue are all different

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for this?
A) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie
B) because the markup on movie popcorn is very high and movie theatres do not want to forego this source of revenue
C) because the demand for popcorn is very high relative to the demand for movie admissions
D) because it is easier to limit resale in movie admissions but not in popcorn

Insurance companies typically charge women lower prices than men for automobile insurance. Is this an example of price discrimination?
A) No, because there are too many insurance companies for any one company to have market power
A firm must possess market power in order to practice price discrimination
B) No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women
C) Yes, because the costs of selling insurance to men and women are the same
D) Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men

With perfect price discrimination there is:
A) an increase in consumer surplus
B) no deadweight loss
C) one single price
D) no producer surplus

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
A) Each maximizes profits by producing a quantity for which price equals marginal cost
B) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost
C) Each must lower its price to sell more output
D) Each sets a price for its product that will maximize its revenue