Question 1

A monopoly firm's demand curve

Accepted Answer

A)  is the same as the market demand curve. 
B)  is perfectly inelastic. 
C)  is more inelastic than the demand curve for the product. 
D)  is inelastic at high prices and elastic at lower prices. 
A)  is the same as the market demand curve. 
B)  is perfectly inelastic. 
C)  is more inelastic than the demand curve for the product. 
D)  is inelastic at high prices and elastic at lower prices.

Question 2

BHP Billiton is a Canadian company that owns mines in Canada that

Accepted Answer

A)  produce nickel. After World War II, BHP Billiton began to compete with another Canadian firm, the International Nickel Company. This competition eventually ended International Nickel's monopoly in this market. 
B)  produce bauxite, the mineral needed to produce aluminum. BHP Billiton began to mine bauxite after World War II. This competition eventually ended the Aluminum Company of America (ALCO
A) 's monopoly in this market. 
C)  produce coal. Until World War II, BHP Billiton had a monopoly on coal in Canada. 
D)  produce diamonds. 
A)  produce nickel. After World War II, BHP Billiton began to compete with another Canadian firm, the International Nickel Company. This competition eventually ended International Nickel's monopoly in this market. 
B)  produce bauxite, the mineral needed to produce aluminum. BHP Billiton began to mine bauxite after World War II. This competition eventually ended the Aluminum Company of America (ALCO
A) 's monopoly in this market. 
C)  produce coal. Until World War II, BHP Billiton had a monopoly on coal in Canada. 
D)  produce diamonds.

Question 3

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each. What is the value of the Herfindahl-Hirschman Index?

Accepted Answer

A)  2,500 
B)  3,150 
C)  8,100 
D)  10,000 
A)  2,500 
B)  3,150 
C)  8,100 
D)  10,000

Question 4

Identify the type of merger in each of the following situations and indicate how the post-merger concentration ratio for the industry is affected.
a. A steel company merges with a coal and iron ore mining company.b. Staples, a retailer of office supplies, acquires Office Depot, another retailer of office supplies.c. An oil company merges with pipeline, shipping, and railroad companies as well as refineries and gas stations.

Accepted Answer

a. This would be a vertical merger; the

Question 5

If you own the only bookstore in a small town, do you have a monopoly?

Accepted Answer

Because consumers in your town could buy

Question 6

The only firms that do not have market power are

Accepted Answer

A)  firms in industries with low barriers to entry. 
B)  firms that do not advertise their products. 
C)  firms in perfectly competitive markets. 
D)  firms that sell identical products. 
A)  firms in industries with low barriers to entry. 
B)  firms that do not advertise their products. 
C)  firms in perfectly competitive markets. 
D)  firms that sell identical products.

Question 7

The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because

Accepted Answer

A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite. 
A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite.

Question 8

To maximize profit a monopolist will produce where

Accepted Answer

A)  marginal revenue is equal to marginal cost. 
B)  demand for its product is unit elastic. 
C)  revenue per unit is maximized. 
D)  average total cost is equal to average revenue. 
A)  marginal revenue is equal to marginal cost. 
B)  demand for its product is unit elastic. 
C)  revenue per unit is maximized. 
D)  average total cost is equal to average revenue.

Question 9

Figure 15-5  
-Refer to Figure 15-5. If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should

Accepted Answer

A)  continue to produce because the price is greater than average variable cost. 
B)  shut down because the price is greater than marginal cost. 
C)  shut down because the price is less than average total cost. 
D)  continue to produce because a monopolist always earns a profit. 
A)  continue to produce because the price is greater than average variable cost. 
B)  shut down because the price is greater than marginal cost. 
C)  shut down because the price is less than average total cost. 
D)  continue to produce because a monopolist always earns a profit.

Question 10

Unlike a perfect competitor, a monopolist faces the market demand curve.

Accepted Answer

A) True 
 B)False

Question 11

Natural monopolies in the United States are generally regulated by

Accepted Answer

A)  the Federal Trade Commission. 
B)  the Department of Justice. 
C)  local or state regulatory commissions. 
D)  the Department of Commerce. 
A)  the Federal Trade Commission. 
B)  the Department of Justice. 
C)  local or state regulatory commissions. 
D)  the Department of Commerce.

Question 12

A monopolist's profit-maximizing price and output correspond to the point on a graph

Accepted Answer

A)  where average total cost is minimized. 
B)  where total costs are the smallest relative to price. 
C)  where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. 
D)  where price is as high as possible. 
A)  where average total cost is minimized. 
B)  where total costs are the smallest relative to price. 
C)  where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. 
D)  where price is as high as possible.

Question 13

Figure 15-17   Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 15-17. The dean of the college argues: "I think the course should be priced to maximize the profit the college earns, so these funds can be used to pay some other expenses." Which price should the dean favor?

Accepted Answer

A)  $0 
B)  $40 
C)  $88 
D)  $150 
A)  $0 
B)  $40 
C)  $88 
D)  $150

Question 14

The first important law regulating monopolies in the United States was

Accepted Answer

A)  the Grant Act, which was passed in 1890. 
B)  the Clayton Act, which was passed in 1890. 
C)  the Sherman Act, which was passed in 1890. 
D)  the Federal Trade Commission Act, which was passed in 1914. 
A)  the Grant Act, which was passed in 1890. 
B)  the Clayton Act, which was passed in 1890. 
C)  the Sherman Act, which was passed in 1890. 
D)  the Federal Trade Commission Act, which was passed in 1914.

Question 15

Figure 15-17   Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 15-17. You are a member of a student government and are asked to recommend a price for the course and you argue: "I think the college should charge a price so that it just breaks even on the course." How much profit (or loss) will the college make on the course if it charges this price?

Accepted Answer

A)  -$2,592,000 
B)  -$1,080,000 
C)  $0 
D)  $450,000 
A)  -$2,592,000 
B)  -$1,080,000 
C)  $0 
D)  $450,000

Question 16

Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell, and a Kentucky Fried Chicken. Using a broad definition of a monopoly, Joe has a monopoly if the menu items sold at the other restaurants are not considered close substitutes for the food sold at the pizza parlor.

Accepted Answer

A) True 
 B)False

Question 17

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?

Accepted Answer

Average revenue is equal to price for an

Question 18

A monopoly is characterized by all of the following except

Accepted Answer

A)  there are only a few sellers, each selling a unique product. 
B)  entry barriers are high. 
C)  there are no close substitutes to the firm's product. 
D)  the firm has market power. 
A)  there are only a few sellers, each selling a unique product. 
B)  entry barriers are high. 
C)  there are no close substitutes to the firm's product. 
D)  the firm has market power.

Question 19

a. What is the defining characteristic of a natural monopoly?
b. Should the government break up a natural monopoly into two or more firms to make the industry more competitive?
c. Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to consumers. To achieve this goal, it requires that the natural monopoly set its price equal to marginal cost. Is this a feasible goal? Explain.
d. What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining average total cost?

Accepted Answer

a. The defining characteristic is the pr

Question 20

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly and Antitrust Policy

A monopoly firm's demand curve

BHP Billiton is a Canadian company that owns mines in Canada that

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each. What is the value of the Herfindahl-Hirschman Index?

If you own the only bookstore in a small town, do you have a monopoly?

The only firms that do not have market power are

The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because

To maximize profit a monopolist will produce where

Figure 15-5 -Refer to Figure 15-5. If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should

Unlike a perfect competitor, a monopolist faces the market demand curve.

Natural monopolies in the United States are generally regulated by

A monopolist's profit-maximizing price and output correspond to the point on a graph

The first important law regulating monopolies in the United States was

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?

A monopoly is characterized by all of the following except

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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