Question 1

Which of the following statements best describes a monopoly?

Accepted Answer

A)   Price exceeds marginal cost.
B)   Average revenue equals marginal revenue.
C)   Output is greater than the socially efficient level.
D)   Average revenue is equal to average cost.

Question 2

Which of the following can serve as a barrier to entry?

Accepted Answer

A)   legal restrictions
B)   specialization and division of labour
C)   shortage of resources
D)   the law of supply

Question 3

What is a natural monopoly characterized by?

Accepted Answer

A)   economies of scale over the relevant range of demand
B)   economic losses at all output levels in an industry with production by a single seller
C)   crucial patents being held by a single firm in an industry
D)   diseconomies of scale over the relevant range of demand

Question 4

Under what circumstances will a price-discriminating monopolist tend to charge a higher price to senior citizens?

Accepted Answer

A)   If it believes senior citizen demand is more inelastic than other demanders.
B)   If it believes senior citizen demand is more elastic than other demanders.
C)   If it believes senior citizen demand is unit elastic.
D)   If it believes senior citizen demand is graphically represented by a horizontal curve.

Question 5

A patent gives a firm a monopoly in the production of the patented good. While monopoly profits provide an incentive for firms to innovate, the monopoly power imposes a cost on consumers. Why do consumers bear a cost from that monopoly? Is the cost to consumers greater than the profits earned by the monopolist?

Accepted Answer

Consumers bear a cost because monopolist...

Question 6

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Accepted Answer

A) True 
 B)False

Question 7

When is a natural monopoly likely to arise?

Accepted Answer

A)   when a firm controls a crucial input to production
B)   when economies of scale exist over the relevant range of demand
C)   when the government restricts entry through licensing
D)   when patents provide protection of intellectual property

Question 8

At a given output level, when can a monopolist earn a profit?

Accepted Answer

A)   only if the height of the marginal revenue curve at the output produced exceeds the height of the marginal cost curve at that output
B)   only if the height of the demand curve at the output produced exceeds the height of the marginal revenue curve at that output
C)   only if the height of the demand curve at the output produced exceeds the height of the average total cost curve at that output
D)   only if the slope of the total revenue curve exceeds the slope of the total cost curve

Question 9

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

Accepted Answer

A)   To sell more units, a monopolist must increase the price on all units sold.
B)   To sell more units, a monopolist must lower the price of some units that could otherwise have been sold at a higher price.
C)   When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
D)   As a monopolist expands output, its average total cost declines.

Question 10

The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. How was this market power obtained?

Accepted Answer

A)   through control of a scarce resource
B)   through illegal means
C)   through government licensing
D)   through patent protection

Question 11

A monopoly firm is charging the maximum price the market will bear at a level of output where MC equals $10 and is increasing, MR equals $10, and average variable cost equals $9. To maximize profits, what action should the firm take?

Accepted Answer

A)   Increase both output and price.
B)   It should not change either the output or the price.
C)   Increase output but decrease the price.
D)   Decrease output and increase the price.

Question 12

Why does a monopoly arise?

Accepted Answer

A)   because of diseconomies of scale
B)   because entry to an industry is blocked
C)   because of elastic demand
D)   because firms are greedy

Question 13

Why is a monopoly inefficient?

Accepted Answer

A)   because the cost of increased production is less than the value that society places on it
B)   because price exceeds marginal revenue
C)   because consumers are forced to pay higher prices for products
D)   because firms are able to earn economic profits

Question 14

Which of the following is NOT a limitation that regulators face when they implement average cost pricing?

Accepted Answer

A)   Decisions are political and often influenced by special interests.
B)   Firms do not cover their opportunity costs for all resources.
C)   The accurate calculation of a firm's costs is difficult.
D)   Average cost pricing provides little or no incentive for firms to keep costs down.

Question 15

One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Accepted Answer

A) True 
 B)False

Question 16

Breakfast cereal comes in different size boxes. The large boxes cost more than the small boxes, but on a per unit basis, they cost less. What is this likely due to?

Accepted Answer

A)   increasing returns to scale
B)   price discrimination
C)   marginal cost pricing
D)   positive externalities

Question 17

What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?

Accepted Answer

When demand is inelastic, quantity deman...

Question 18

Which of the following is an example of price discrimination?

Accepted Answer

A)   charging different prices to different groups on the basis of differing abilities to pay
B)   consumer bargain hunting
C)   charging different prices to different groups on the basis of production cost differences
D)   consumers paying a price in excess of the producer's marginal cost

Question 19

TABLE 9-2
 
-Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

Accepted Answer

A)   $5
B)   $7
C)   $8
D)   $10

Question 20

The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Exam 9: Monopoly

One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Correct Answer
verified

The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Correct Answer
verified

Which of the following is an example of price discrimination?

Correct Answer
verified

What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?

Correct Answer
verified
When demand is inelastic, quantity deman...
View Answer

Why is a monopoly inefficient?

Correct Answer
verified

When is a natural monopoly likely to arise?

Correct Answer
verified

At a given output level, when can a monopolist earn a profit?

Correct Answer
verified

A monopoly firm is charging the maximum price the market will bear at a level of output where MC equals $10 and is increasing, MR equals $10, and average variable cost equals $9. To maximize profits, what action should the firm take?

Correct Answer
verified

Correct Answer
verified
Consumers bear a cost because monopolist...
View Answer

The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. How was this market power obtained?

Correct Answer
verified

Which of the following is NOT a limitation that regulators face when they implement average cost pricing?

Correct Answer
verified

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Correct Answer
verified

Breakfast cereal comes in different size boxes. The large boxes cost more than the small boxes, but on a per unit basis, they cost less. What is this likely due to?

Correct Answer
verified

Which of the following statements best describes a monopoly?

Correct Answer
verified

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

Correct Answer
verified

What is a natural monopoly characterized by?

Correct Answer
verified

Why does a monopoly arise?

Correct Answer
verified

Which of the following can serve as a barrier to entry?

Correct Answer
verified

Under what circumstances will a price-discriminating monopolist tend to charge a higher price to senior citizens?

Correct Answer
verified

TABLE 9-2 -Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

Correct Answer
verified

Exam 9: Monopoly

One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.

Correct AnswerverifiedShow Answer

The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.

Correct AnswerverifiedShow Answer

Which of the following is an example of price discrimination?

Correct AnswerverifiedShow Answer

What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?

Correct AnswerverifiedWhen demand is inelastic, quantity deman...View AnswerShow Answer

Why is a monopoly inefficient?

Correct AnswerverifiedShow Answer

When is a natural monopoly likely to arise?

Correct AnswerverifiedShow Answer

At a given output level, when can a monopolist earn a profit?

Correct AnswerverifiedShow Answer

A monopoly firm is charging the maximum price the market will bear at a level of output where MC equals $10 and is increasing, MR equals $10, and average variable cost equals $9. To maximize profits, what action should the firm take?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedConsumers bear a cost because monopolist...View AnswerShow Answer

The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. How was this market power obtained?

Correct AnswerverifiedShow Answer

Which of the following is NOT a limitation that regulators face when they implement average cost pricing?

Correct AnswerverifiedShow Answer

In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss.

Correct AnswerverifiedShow Answer

Breakfast cereal comes in different size boxes. The large boxes cost more than the small boxes, but on a per unit basis, they cost less. What is this likely due to?

Correct AnswerverifiedShow Answer

Which of the following statements best describes a monopoly?

Correct AnswerverifiedShow Answer

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?

Correct AnswerverifiedShow Answer

What is a natural monopoly characterized by?

Correct AnswerverifiedShow Answer

Why does a monopoly arise?

Correct AnswerverifiedShow Answer

Which of the following can serve as a barrier to entry?

Correct AnswerverifiedShow Answer

Under what circumstances will a price-discriminating monopolist tend to charge a higher price to senior citizens?

Correct AnswerverifiedShow Answer

TABLE 9-2 -Refer to Table 9-2. What is the marginal cost of the last unit produced at the profit-maximizing level of output?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When demand is inelastic, quantity deman...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Consumers bear a cost because monopolist...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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