Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
|
|
| 1. | A
government-created monopoly arises when a. | government spending in a certain industry gives rise to
monopoly power. | b. | the government exercises its market control by encouraging
competition among sellers. | c. | the government gives a firm the exclusive right to sell some
good or service. | d. | All of the above could qualify as government-created
monopolies. | | |
|
|
| 2. | Drug
companies are allowed to be monopolists in the drugs they discover in order to a. | allow drug
companies to charge a price that is equal to their marginal cost. | b. | discourage new
firms from entering the drug market. | c. | encourage research. | d. | All of the above
are correct. | | |
|
|
| 3. | In
view of what we know about the relationship between average total cost and marginal cost, the
marginal cost curve for this firm a. | must lie entirely above the average total cost
curve. | b. | must lie entirely below the average total cost
curve. | c. | must be upward sloping. | d. | does not
exist. | | |
|
|
| 4. | Additional firms often do not try to compete with a natural monopoly
because a. | they fear
retaliation in the form of pricing wars from the natural monopolist. | b. | they are unsure
of the size of the market in general. | c. | they know they cannot achieve the same low costs that the
monopolist enjoys. | d. | the natural monopoly doesn't make a huge
profit. | | |
|
|
| 5. | Which
of the following items is a primary source of barriers to entry? a. | The costs of
production make a single firm more efficient than a large number of firms. | b. | A single firm
hires all the people who have the management skills that are important in the
industry. | c. | Contracts among firms prohibit them from competing with one
another in the production and sale of certain products. | d. | All of the above
are correct. | | |
|
|
| 6. | Economists assume that monopolists behave as a. | cost
minimizers. | b. | profit maximizers. | c. | price
maximizers. | d. | All of the above are correct. | | |
|
|
| 7. | When
a monopolist increases the amount of output that it produces and sells, its average
revenue a. | increases and
its marginal revenue increases. | b. | increases and its marginal revenue
decreases. | c. | decreases and its marginal revenue
increases. | d. | decreases and its marginal revenue
decreases. | | |
|
|
| 8. | Marginal revenue can become negative for a. | both competitive
and monopoly firms. | b. | competitive firms, but not for monopoly
firms. | c. | monopoly firms, but not for competitive
firms. | d. | neither competitive nor monopoly
firms. | | |
|
|
|
The
figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer the
following questions.
Figure 15-2
|
|
| 9. | Refer
to Figure 15-2. If the monopoly firm is currently producing Q3 units of output, then a
decrease in output will necessarily cause profit to a. | remain
unchanged. | b. | decrease. | c. | increase as long
as the new level of output is at least Q2. | d. | increase as long
as the new level of output is at least Q1. | | |
|
|
| 10. | As a
monopolist increases the quantity of output it sells, the price consumers are willing to pay for the
good a. | is
unaffected. | b. | decreases. | c. | increases. | d. | There is not enough information given in answer the
question. | | |
|
|
| 11. | For a
monopolist, when does marginal revenue exceed average revenue? a. | never | b. | when output is less than the profit-maximizing level of
output | c. | when output is greater than the profit-maximizing level of
output | d. | when price is subject to the Law of
Demand | | |
|
|
| 12. | For a
monopoly firm, the level of output at which marginal revenue equals zero is also the level of output
at which a. | average revenue
is zero. | b. | profit is maximized. | c. | total revenue is
maximized. | d. | marginal cost is zero. | | |
|
|
| 13. | Competitive firms and monopolists differ in which of the following
ways? a. | A competitive
firm cannot choose its level of output; a monopolist chooses its level of
output. | b. | A competitive firm's short-run profit is always zero; a
monopolist can have a positive short-run profit. | c. | A competitive
firm's marginal revenue curve is horizontal; a monopolist's marginal revenue curve is downward
sloping. | d. | All of the above are correct. | | |
|
|
|
Refer
to the information below to answer the following questions.
Scenario 15-3
A monopoly firm
maximizes its profit by producing 500 units output (so Q = 500). At that level of output, its
marginal revenue is $30, its average revenue is $40, and its average total cost is $34.
|
|
| 14. | Refer
to Scenario 15-3. The firm's profit-maximizing price is a. | $30. | b. | between $30 and $34. | c. | between $34 and
$40. | d. | $40. | | |
|
|
| 15. | Economic well-being is generally measured by
(i) | total
surplus. | (ii) | the sum of consumer surplus and producer
surplus. | (iii) | marginal revenue to the producer minus the average cost to the
consumer. | | |
a. | (i) and
(ii) | b. | (ii) and
(iii) | c. | (i) and (iii) | d. | (ii)
only | | |
|
|
| 16. | Inefficiency arises from a monopoly because a. | the monopoly
firm earns an excessively large profit. | b. | some buyers will refrain from buying the good, due to the high
price. | c. | consumers who buy the goods feel
exploited. | d. | All of the above are correct. | | |
|
|
|
Refer
to the diagram below to answer the following questions.
Figure 15-6
|
|
| 17. | Refer
to Figure 15-6. The deadweight loss caused by a profit-maximizing monopoly amounts
to a. | $150. | b. | $200. | c. | $250. | d. | $300. | | |
|
|
| 18. | One
method used to control the ability of firms to capture monopoly profit in the United States is
through a. | government
purchase of products produced by monopolists. | b. | government
distribution of a monopolist's excess production. | c. | enforcement of
antitrust laws. | d. | regulation of firms in highly competitive
markets. | | |
|
|
| 19. | When
regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated
monopoly a. | will experience
a loss. | b. | will experience a price below average total
cost. | c. | may rely on a government subsidy to remain in
business. | d. | All of the above are correct. | | |
|
|
| 20. | The
legislation passed by Congress in 1890 to reduce the market power of large and powerful
"trusts" is called the a. | Morgan Act. | b. | Sherman
Act. | c. | Clayton
Act. | d. | 14th
Amendment. | | |
|
|
| 21. | Antitrust laws allow the government to a. | prevent
mergers. | b. | break up companies. | c. | promote
competition. | d. | All of the above are correct. | | |
|
|
| 22. | Government-run monopolies may lead to undesirable outcomes in the form
of a. | special interest
groups that attempt to block cost reductions. | b. | customers and
taxpayer losses when the monopoly operates inefficiently. | c. | the political
system as the only form of recourse for customers. | d. | All of the above
are correct. | | |
|
|
| 23. | For a
firm to price discriminate, it must a. | be a natural monopoly. | b. | be regulated by
the government. | c. | have some market power. | d. | None of the
above are correct. | | |
|
|
| 24. | Many
movie theaters allow discount tickets to be sold to senior citizens because a. | senior-citizen
laws mandate such discounts. | b. | efforts of goodwill show community respect and win loyal
patrons. | c. | the theaters are profit maximizers. | d. | senior citizens
usually comprise a solid portion of those who voice their opinions. | | |
|
|
| 25. | Price
discrimination explains why Ivy League universities often set rules that determine prices of
admission based on students' a. | age. | b. | financial resources. | c. | high school
GPA. | d. | sex. | | |
|