Question 1

Network externalities exist when:

Accepted Answer

A)  set-up costs of production are high, keeping competitors out of the market. 
B)  the first firm to enter the market takes the greatest risk of failure. 
C)  marginal costs decline as production levels rise. 
D)  the greater use of a product increases the benefit of that product to everyone. 
A)  set-up costs of production are high, keeping competitors out of the market. 
B)  the first firm to enter the market takes the greatest risk of failure. 
C)  marginal costs decline as production levels rise. 
D)  the greater use of a product increases the benefit of that product to everyone.

Question 2

When you use a service like Facebook for free, it is likely that:

Accepted Answer

A)  you are both the customer and the product. 
B)  you are not the customer; you are the product. 
C)  the provider is almost invariably a nonprofit company. 
D)  the provider is almost never a nonprofit company. 
A)  you are both the customer and the product. 
B)  you are not the customer; you are the product. 
C)  the provider is almost invariably a nonprofit company. 
D)  the provider is almost never a nonprofit company.

Question 3

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would produce:

Accepted Answer

A)  0 units of output. 
B)  300 units of output. 
C)  500 units of output. 
D)  900 units of output. 
A)  0 units of output. 
B)  300 units of output. 
C)  500 units of output. 
D)  900 units of output.

Question 4

The demand curve for a monopolist is:

Accepted Answer

A)  perfectly elastic. 
B)  not relevant since the monopolist sets price. 
C)  the market demand curve. 
D)  perfectly inelastic. 
A)  perfectly elastic. 
B)  not relevant since the monopolist sets price. 
C)  the market demand curve. 
D)  perfectly inelastic.

Question 5

A profit-maximizing monopolist will always set price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

In monopolistic competition there:

Accepted Answer

A)  are only a few sellers. 
B)  is only one seller. 
C)  are many sellers. 
D)  is only one buyer. 
A)  are only a few sellers. 
B)  is only one seller. 
C)  are many sellers. 
D)  is only one buyer.

Question 7

Refer to the graph shown. The welfare cost of monopoly is given by:

Accepted Answer

A)  area A. 
B)  area B. 
C)  areas A and B. 
D)  areas C and D. 
A)  area A. 
B)  area B. 
C)  areas A and B. 
D)  areas C and D.

Question 8

Refer to the table shown, which shows the demand schedule for a firm that has a monopoly on the sale of computers in the country of Oz. If the monopolist is currently producing 400 computers per year and it seeks to maximize profit, it should: $$\begin{array} { | r | r | } 
\hline { \begin{array} { c } 
\text { Price df } \
\text { computer s(t) }
\end{array} } & \text { Quantity demanded per year } \
\hline 5,000 & 100 \
\hline 4,000 & 200 \
\hline 3,000 & 300 \
\hline 2,000 & 400 \
\hline 1,000 & 500 \
\hline
\end{array}$$

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  continue producing 400 units per year. 
D)  lower the price of computers. 
A)  increase output. 
B)  decrease output. 
C)  continue producing 400 units per year. 
D)  lower the price of computers.

Question 9

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Qd = 500 - 10P, the monopolist maximizes profit by producing:

Accepted Answer

A)  187.5 units of output. 
B)  250 units of output. 
C)  300 units of output. 
D)  500 units of output. 
A)  187.5 units of output. 
B)  250 units of output. 
C)  300 units of output. 
D)  500 units of output.

Question 10

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would:

Accepted Answer

A)  charge a price of $2. 
B)  charge a price of $3. 
C)  charge a price of $12.00. 
D)  stop producing. 
A)  charge a price of $2. 
B)  charge a price of $3. 
C)  charge a price of $12.00. 
D)  stop producing.

Question 11

Refer to the graph shown. If the government's goal is to eliminate the welfare costs of monopoly, it will:

Accepted Answer

A)  establish a price ceiling at P3. 
B)  establish a price ceiling at P2. 
C)  establish a price floor at P1. 
D)  not attempt to control price. 
A)  establish a price ceiling at P3. 
B)  establish a price ceiling at P2. 
C)  establish a price floor at P1. 
D)  not attempt to control price.

Question 12

If a natural monopoly faces a relatively inelastic consumer demand over the range of the production, it will have an incentive to:

Accepted Answer

A)  charge a low price. 
B)  charge a high price. 
C)  sell more. 
D)  advertise more. 
A)  charge a low price. 
B)  charge a high price. 
C)  sell more. 
D)  advertise more.

Question 13

Refer to the graph shown of a monopolistically competitive firm. If the firm maximizes profit, it will:

Accepted Answer

A)  produce 8,000 dresses per year. 
B)  produce 5,000 dresses per year. 
C)  produce 12,000 dresses per year. 
D)  go out of business because it cannot earn a profit. 
A)  produce 8,000 dresses per year. 
B)  produce 5,000 dresses per year. 
C)  produce 12,000 dresses per year. 
D)  go out of business because it cannot earn a profit.

Question 14

A profit-maximizing firm in a monopolistically competitive industry sells its product at a price:

Accepted Answer

A)  that exceeds average variable cost. 
B)  equal to average variable cost. 
C)  that exceeds marginal cost. 
D)  equal to marginal cost. 
A)  that exceeds average variable cost. 
B)  equal to average variable cost. 
C)  that exceeds marginal cost. 
D)  equal to marginal cost.

Question 15

Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it will:

Accepted Answer

A)  charge $45 per dress. 
B)  charge $78 per dress. 
C)  charge $85 per dress. 
D)  shut down because it cannot cover its opportunity costs. 
A)  charge $45 per dress. 
B)  charge $78 per dress. 
C)  charge $85 per dress. 
D)  shut down because it cannot cover its opportunity costs.

Question 16

Refer to the table shown, which shows the demand schedule for a firm that has a monopoly on the sale of computers in the country of Oz. If the firm were to set the price of computers at $2,000: $\begin{array}{c}
\begin{array}{|c|}
\hline \text { Price of computers }(\$)\
\hline 5,000 \
\hline 4,000 \
\hline 3,000 \
\hline 2,000 \
\hline 1,000 \
\hline
\end{array}
\begin{array}{c|}
\hline \text { Quantity demanded per year }\
\hline 100 \
\hline 200 \
\hline 300 \
\hline 400 \
\hline 500 \
\hline 
\end{array}
\end{array}$

Accepted Answer

A)  it would maximize profits. 
B)  marginal revenue would be negative. 
C)  the demand for computers would be elastic. 
D)  marginal revenue would be positive. 
A)  it would maximize profits. 
B)  marginal revenue would be negative. 
C)  the demand for computers would be elastic. 
D)  marginal revenue would be positive.

Question 17

Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product will be:

Accepted Answer

A)  $10. 
B)  $8. 
C)  $6. 
D)  $4. 
A)  $10. 
B)  $8. 
C)  $6. 
D)  $4.

Question 18

Refer to the graph shown. The profit-maximizing monopolist would be:

Accepted Answer

A)  earning accounting but not economic profits. 
B)  sustaining a loss. 
C)  making zero economic profits. 
D)  making economic profits. 
A)  earning accounting but not economic profits. 
B)  sustaining a loss. 
C)  making zero economic profits. 
D)  making economic profits.

Question 19

Refer to the graph shown. If this monopolist were forced to set price equal to average cost, it would charge a price of:

Accepted Answer

A)  $2. 
B)  $3. 
C)  $8. 
D)  $12. 
A)  $2. 
B)  $3. 
C)  $8. 
D)  $12.

Question 20

Refer to the graph shown. Assuming that the monopoly maximizes profit, the social cost of monopoly will be:

Accepted Answer

A)  $10,000 per day. 
B)  $20,000 per day. 
C)  $40,000 per day. 
D)  zero. 
A)  $10,000 per day. 
B)  $20,000 per day. 
C)  $40,000 per day. 
D)  zero.

Exam 14: Monopoly and Monopolistic Competition

Network externalities exist when:

When you use a service like Facebook for free, it is likely that:

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would produce:

The demand curve for a monopolist is:

A profit-maximizing monopolist will always set price equal to marginal cost.

In monopolistic competition there:

Refer to the graph shown. The welfare cost of monopoly is given by:

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Qd = 500 - 10P, the monopolist maximizes profit by producing:

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would:

Refer to the graph shown. If the government's goal is to eliminate the welfare costs of monopoly, it will:

If a natural monopoly faces a relatively inelastic consumer demand over the range of the production, it will have an incentive to:

Refer to the graph shown of a monopolistically competitive firm. If the firm maximizes profit, it will:

A profit-maximizing firm in a monopolistically competitive industry sells its product at a price:

Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it will:

Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product will be:

Refer to the graph shown. The profit-maximizing monopolist would be:

Refer to the graph shown. If this monopolist were forced to set price equal to average cost, it would charge a price of:

Refer to the graph shown. Assuming that the monopoly maximizes profit, the social cost of monopoly will be:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Filters

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Q_d = 500 - 10P, the monopolist maximizes profit by producing: