Question 1

Compared to the profit-maximizing equilibrium of a natural monopoly, a price cap regulation ________ price and ________ output.

Accepted Answer

A)  raises; decreases 
B)  lowers; increases 
C)  raises; increases 
D)  lowers; decreases 
A)  raises; decreases 
B)  lowers; increases 
C)  raises; increases 
D)  lowers; decreases

Question 2

Rent seeking through lobbying

Accepted Answer

A)  reduces deadweight loss. 
B)  uses up resources. 
C)  results in perfect price discrimination. 
D)  results in perfectly competitive industries. 
A)  reduces deadweight loss. 
B)  uses up resources. 
C)  results in perfect price discrimination. 
D)  results in perfectly competitive industries.

Question 3

Demand Schedule Facing a
Perfectly Price Discriminating Firm  
-Using the demand schedule in the above table, if the firm's marginal cost is constant at $3.00, output for a perfectly price discriminating monopolist is

Accepted Answer

A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units. 
A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units.

Question 4

Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by ________.

Accepted Answer

A)  shutting down 
B)  lowering its price and increasing its output 
C)  raising its price and decreasing its output 
D)  lowering its price and decreasing its output 
A)  shutting down 
B)  lowering its price and increasing its output 
C)  raising its price and decreasing its output 
D)  lowering its price and decreasing its output

Question 5

-Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue's demand and marginal revenue curves are illustrated in the figure above. The change in the total revenue from renting the 15th surfboard is

Accepted Answer

A)  $20. 
B)  $15. 
C)  $10. 
D)  $0. 
A)  $20. 
B)  $15. 
C)  $10. 
D)  $0.

Question 6

A key difference between a monopoly and a perfectly competitive firm is that the monopolist

Accepted Answer

A)  does not face fixed costs in the short run. 
B)  has a marginal revenue curve that lies below its demand curve. 
C)  has no marginal cost curve. 
D)  faces a perfectly elastic demand for its product. 
A)  does not face fixed costs in the short run. 
B)  has a marginal revenue curve that lies below its demand curve. 
C)  has no marginal cost curve. 
D)  faces a perfectly elastic demand for its product.

Question 7

-The above figure shows the demand and cost curves for a monopolist. What is the maximum economic profit this firm can make?

Accepted Answer

A)  zero 
B)  $400 
C)  $100 
D)  $200 
A)  zero 
B)  $400 
C)  $100 
D)  $200

Question 8

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then consumer surplus will be

Accepted Answer

A)  $0. 
B)  $8 million. 
C)  $9 million. 
D)  $16 million. 
A)  $0. 
B)  $8 million. 
C)  $9 million. 
D)  $16 million.

Question 9

Which of the following is NOT a characteristic of a monopoly?

Accepted Answer

A)  a single firm 
B)  no close substitutes for the product produced 
C)  barriers to entry 
D)  easy entry and exit 
A)  a single firm 
B)  no close substitutes for the product produced 
C)  barriers to entry 
D)  easy entry and exit

Question 10

Price cap regulation is a type of regulation that

Accepted Answer

A)  offers price subsidies to firms that comply with regulation guidelines. 
B)  is equivalent to rate of return. 
C)  sets the maximum price the firm can charge. 
D)  sets the minimum price the firm can charge. 
A)  offers price subsidies to firms that comply with regulation guidelines. 
B)  is equivalent to rate of return. 
C)  sets the maximum price the firm can charge. 
D)  sets the minimum price the firm can charge.

Question 11

If the regulator wants to avoid any deadweight loss in a natural monopoly market, the regulator has the firm set its price equal to its

Accepted Answer

A)  average fixed cost. 
B)  average total cost. 
C)  average variable cost. 
D)  marginal cost. 
A)  average fixed cost. 
B)  average total cost. 
C)  average variable cost. 
D)  marginal cost.

Question 12

-If the firm in the figure above is unregulated, the deadweight loss will be

Accepted Answer

A)  zero. 
B)  $100. 
C)  $200. 
D)  $400. 
A)  zero. 
B)  $100. 
C)  $200. 
D)  $400.

Question 13

A major difference between a single-price monopolist and a perfectly competitive firm is that the

Accepted Answer

A)  monopolist can maximize profit by setting the price of the output where demand is inelastic. 
B)  monopolist can always increase its profits by increasing the price of its output. 
C)  monopolist's marginal revenue is less than price. 
D)  monopolist is guaranteed to earn an economic profit. 
A)  monopolist can maximize profit by setting the price of the output where demand is inelastic. 
B)  monopolist can always increase its profits by increasing the price of its output. 
C)  monopolist's marginal revenue is less than price. 
D)  monopolist is guaranteed to earn an economic profit.

Question 14

-In the market depicted in the above figure, if a single-price monopoly maximizes its profit, which area shows the consumer surplus?

Accepted Answer

A)  area GHIL 
B)  area HIJ 
C)  area HJKG 
D)  area NFL 
A)  area GHIL 
B)  area HIJ 
C)  area HJKG 
D)  area NFL

Question 15

While smoking is on the decline in the United States, China is still puffing away madly. That's not because the government is eager to protect its citizens from the hazards of smoking. It's because China is eager to protect its own tobacco industry which is a state monopoly. How would entry of foreign companies into the tobacco market affect the economic profit of the state monopoly?

Accepted Answer

A)  Its economic profits would decrease because of increased competition. 
B)  Its economic profits would increase because of increased competition. 
C)  Its economic profits would decrease because of rent seeking activity. 
D)  Its economic profits would increase because of rent seeking activity. 
A)  Its economic profits would decrease because of increased competition. 
B)  Its economic profits would increase because of increased competition. 
C)  Its economic profits would decrease because of rent seeking activity. 
D)  Its economic profits would increase because of rent seeking activity.

Question 16

Which of the following is FALSE for a profit-maximizing single-price monopolist?

Accepted Answer

A)  P = MC 
B)  MC = MR 
C)  P > MR 
D)  None of the above because they are all true. 
A)  P = MC 
B)  MC = MR 
C)  P > MR 
D)  None of the above because they are all true.

Question 17

-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated according to an average cost pricing rule, it will serve ________ million households and set a price of ________ per household per month.

Accepted Answer

A)  1; $48 
B)  4; $12 
C)  2; $36 
D)  3; $24 
A)  1; $48 
B)  4; $12 
C)  2; $36 
D)  3; $24

Question 18

Explain how a single-price monopoly determines its output and price. Compare this process to how a perfectly competitive firm determines its output and price.

Accepted Answer

Single-price monopolies follow the same

Question 19

Which creates a larger deadweight loss, perfect competition or a single-price monopoly?

Accepted Answer

The single-price monopoly crea

Question 20

Compare the outcome in a market with a single-price monopoly to that in a perfectly competitive market.

Accepted Answer

The monopoly charges a higher price and

Exam 13: Monopoly

Compared to the profit-maximizing equilibrium of a natural monopoly, a price cap regulation ________ price and ________ output.

Rent seeking through lobbying

Demand Schedule Facing a Perfectly Price Discriminating Firm -Using the demand schedule in the above table, if the firm's marginal cost is constant at $3.00, output for a perfectly price discriminating monopolist is

Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by ________.

-Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue's demand and marginal revenue curves are illustrated in the figure above. The change in the total revenue from renting the 15th surfboard is

A key difference between a monopoly and a perfectly competitive firm is that the monopolist

-The above figure shows the demand and cost curves for a monopolist. What is the maximum economic profit this firm can make?

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then consumer surplus will be

Which of the following is NOT a characteristic of a monopoly?

Price cap regulation is a type of regulation that

If the regulator wants to avoid any deadweight loss in a natural monopoly market, the regulator has the firm set its price equal to its

-If the firm in the figure above is unregulated, the deadweight loss will be

A major difference between a single-price monopolist and a perfectly competitive firm is that the

-In the market depicted in the above figure, if a single-price monopoly maximizes its profit, which area shows the consumer surplus?

Which of the following is FALSE for a profit-maximizing single-price monopolist?

Explain how a single-price monopoly determines its output and price. Compare this process to how a perfectly competitive firm determines its output and price.

Which creates a larger deadweight loss, perfect competition or a single-price monopoly?

Compare the outcome in a market with a single-price monopoly to that in a perfectly competitive market.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

Compared to the profit-maximizing equilibrium of a natural monopoly, a price cap regulation price and output.