Question 1

A contestable market is a market in which there is no threat of competition for existing firms.

Accepted Answer

A) True 
 B)False

Question 2

Why might a water supply company be a monopoly? What about a cell phone company? Despite the similarities, why is only water supply provided by local governments?

Accepted Answer

There are large fixed costs involved in

Question 3

Economies of scale can be a barrier to entry when

Accepted Answer

A) many investors are required in order to start a new firm. 
B) potential entrants do not have the expertise to run a firm that does large-scale production. 
C) potential entrants do not realize their costs would fall if they would just make a little investment. 
D) it is realized that entry into the market will increase input prices. 
E) it takes a very large capital investment to get average costs as low as those of firms already in the industry. 
A) many investors are required in order to start a new firm. 
B) potential entrants do not have the expertise to run a firm that does large-scale production. 
C) potential entrants do not realize their costs would fall if they would just make a little investment. 
D) it is realized that entry into the market will increase input prices. 
E) it takes a very large capital investment to get average costs as low as those of firms already in the industry.

Question 4

Suppose you are a plumber and plumbers are not required to be licensed. A government official proposes to license plumbers, with practicing plumbers automatically receiving a license. Under the proposal, new plumbers would have to pass a test in order to receive a license. If the proposed law passes, you can expect

Accepted Answer

A) plumbing errors to become a thing of the past. 
B) much additional competition as new entry occurs. 
C) increased respect for your profession. 
D) greater market power and less competition. 
E) lower prices for plumbing services. 
A) plumbing errors to become a thing of the past. 
B) much additional competition as new entry occurs. 
C) increased respect for your profession. 
D) greater market power and less competition. 
E) lower prices for plumbing services.

Question 5

All of the following are true of a monopoly except

Accepted Answer

A) high barriers to entry exist. 
B) it has market power. 
C) it is a price maker. 
D) it is a single seller. 
E) there are many close substitutes for its product. 
A) high barriers to entry exist. 
B) it has market power. 
C) it is a price maker. 
D) it is a single seller. 
E) there are many close substitutes for its product.

Question 6

All of the following are used by firms or groups of firms to gain monopoly power except

Accepted Answer

A) buying sources of important inputs. 
B) mergers. 
C) creating a new patentable innovation. 
D) licensing. 
E) deregulation. 
A) buying sources of important inputs. 
B) mergers. 
C) creating a new patentable innovation. 
D) licensing. 
E) deregulation.

Question 7

For a monopoly with a straight-line demand curve, when demand is

Accepted Answer

A) unit-elastic, marginal revenue reaches its maximum. 
B) inelastic, marginal revenue is negative. 
C) elastic, marginal revenue is positive and increasing. 
D) elastic, marginal revenue is greater than demand. 
E) perfectly inelastic, marginal revenue equals demand. 
A) unit-elastic, marginal revenue reaches its maximum. 
B) inelastic, marginal revenue is negative. 
C) elastic, marginal revenue is positive and increasing. 
D) elastic, marginal revenue is greater than demand. 
E) perfectly inelastic, marginal revenue equals demand.

Question 8

A firm that can divide its consumers into two classes with different price elasticities of demand will charge a higher price to the group with the higher elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 9

For a monopoly to maximize profits, price must exceed marginal cost.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 10-10  
-Refer to Exhibit 10-10. Calculate the amount of consumer surplus transferred to the monopoly as compared with the efficient output and price.

Accepted Answer

$120
Monopoly price and output

Question 11

Exhibit 10-8  
-Refer to Exhibit 10-8. The competitive price and output level are illustrated by point

Accepted Answer

A) B. 
B) A. 
C) G. 
D) C. 
E) F. 
A) B. 
B) A. 
C) G. 
D) C. 
E) F.

Question 12

A natural monopoly exists when economies of scale are so large that only a single firm can survive.

Accepted Answer

A) True 
 B)False

Question 13

If a monopoly charges a price equal to its marginal cost, then it must be the case that the firm has

Accepted Answer

A) maximized profits. 
B) suffered a loss. 
C) made a profit that is less than the maximum level. 
D) suffered a loss that is less than the minimum level. 
E) made a profit or suffered a loss, depending on the cost structure. 
A) maximized profits. 
B) suffered a loss. 
C) made a profit that is less than the maximum level. 
D) suffered a loss that is less than the minimum level. 
E) made a profit or suffered a loss, depending on the cost structure.

Question 14

Suppose you observe that as output in the market increases, total revenue for the market declines. This would imply that

Accepted Answer

A) a monopoly would be unable to exercise market power in this market. 
B) the demand for this product is not completely inelastic. 
C) the market is not a monopoly. 
D) any type of firm in this market would be a price-taker. 
E) firms in this market have strong market power. 
A) a monopoly would be unable to exercise market power in this market. 
B) the demand for this product is not completely inelastic. 
C) the market is not a monopoly. 
D) any type of firm in this market would be a price-taker. 
E) firms in this market have strong market power.

Question 15

Monopolies transfer some of the potential consumer surplus from buyers to sellers.

Accepted Answer

A) True 
 B)False

Question 16

For a natural monopoly, the minimum efficient scale is

Accepted Answer

A) sometimes smaller and sometimes larger than the size of the market. 
B) larger than the size of the market. 
C) smaller than the size of the market. 
D) equal to the size of the market. 
E) zero. 
A) sometimes smaller and sometimes larger than the size of the market. 
B) larger than the size of the market. 
C) smaller than the size of the market. 
D) equal to the size of the market. 
E) zero.

Question 17

For a monopoly, the demand curve equals marginal revenue at each level of output.

Accepted Answer

A) True 
 B)False

Question 18

To maximize profits, both monopolies and competitive firms must produce at the point at which price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 19

Quantity discounts have the potential to ____ deadweight loss compared to the practice of charging a constant price for all output in a monopoly.

Accepted Answer

A) increase 
B) eliminate 
C) decrease 
D) not change 
E) increase and then decrease 
A) increase 
B) eliminate 
C) decrease 
D) not change 
E) increase and then decrease

Question 20

To maximize profits, a monopoly produces at ____ and a competitive firm produces at ____.

Accepted Answer

A) price equal to marginal cost; price equal to marginal cost 
B) price equal to average cost; price equal to marginal cost 
C) marginal revenue greater than marginal cost; price greater than marginal cost 
D) marginal revenue equal to marginal cost; price equal to marginal cost 
E) marginal revenue equal to average revenue; price greater than marginal revenue 
A) price equal to marginal cost; price equal to marginal cost 
B) price equal to average cost; price equal to marginal cost 
C) marginal revenue greater than marginal cost; price greater than marginal cost 
D) marginal revenue equal to marginal cost; price equal to marginal cost 
E) marginal revenue equal to average revenue; price greater than marginal revenue

Exam 10: Monopoly

A contestable market is a market in which there is no threat of competition for existing firms.

Why might a water supply company be a monopoly? What about a cell phone company? Despite the similarities, why is only water supply provided by local governments?

Economies of scale can be a barrier to entry when

All of the following are true of a monopoly except

All of the following are used by firms or groups of firms to gain monopoly power except

For a monopoly with a straight-line demand curve, when demand is

A firm that can divide its consumers into two classes with different price elasticities of demand will charge a higher price to the group with the higher elasticity of demand.

For a monopoly to maximize profits, price must exceed marginal cost.

Exhibit 10-10 -Refer to Exhibit 10-10. Calculate the amount of consumer surplus transferred to the monopoly as compared with the efficient output and price.

Exhibit 10-8 -Refer to Exhibit 10-8. The competitive price and output level are illustrated by point

A natural monopoly exists when economies of scale are so large that only a single firm can survive.

If a monopoly charges a price equal to its marginal cost, then it must be the case that the firm has

Suppose you observe that as output in the market increases, total revenue for the market declines. This would imply that

Monopolies transfer some of the potential consumer surplus from buyers to sellers.

For a natural monopoly, the minimum efficient scale is

For a monopoly, the demand curve equals marginal revenue at each level of output.

To maximize profits, both monopolies and competitive firms must produce at the point at which price equals marginal cost.

Quantity discounts have the potential to ____ deadweight loss compared to the practice of charging a constant price for all output in a monopoly.

To maximize profits, a monopoly produces at ____ and a competitive firm produces at ____.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

Filters

To maximize profits, a monopoly produces at and a competitive firm produces at .