Question 1

Figure 15-4   Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4. What is the amount of the monopoly's total cost of production?

Accepted Answer

A)  $21,600 
B)  $17,700 
C)  $9,340 
D)  $7,800 
A)  $21,600 
B)  $17,700 
C)  $9,340 
D)  $7,800

Question 2

Compared to a monopolistic competitor, a monopolist faces

Accepted Answer

A)  a more elastic demand curve. 
B)  a more inelastic demand curve. 
C)  a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices. 
D)  a demand curve that has a price elasticity coefficient of zero. 
A)  a more elastic demand curve. 
B)  a more inelastic demand curve. 
C)  a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices. 
D)  a demand curve that has a price elasticity coefficient of zero.

Question 3

The term "trust" in antitrust refers to a board of trustees that has collusive control over different companies.

Accepted Answer

A) True 
 B)False

Question 4

Figure 15-2   Figure 15-2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

Accepted Answer

A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. 
A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition.

Question 5

A natural monopoly is most likely to occur in which of the following industries?

Accepted Answer

A)  the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years 
B)  the diamond mining and marketing industry because one firm can control a key resource 
C)  the software industry because of the importance of network externalities 
D)  an industry where fixed costs are very large relative to variable costs 
A)  the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years 
B)  the diamond mining and marketing industry because one firm can control a key resource 
C)  the software industry because of the importance of network externalities 
D)  an industry where fixed costs are very large relative to variable costs

Question 6

Identify four reasons for high entry barriers. Briefly explain each reason.

Accepted Answer

1. Economies of scale. This occurs when

Question 7

Table 15-4
   Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4. What is the amount of Shakti's profit?

Accepted Answer

A)  $68 
B)  $72 
C)  $124 
D)  $192 
A)  $68 
B)  $72 
C)  $124 
D)  $192

Question 8

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire

Accepted Answer

A)  most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B)  prices remain high without patent protection because of a lack of competition. Firms that are not granted patents cannot compete with firms that are granted patents. 
C)  other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the firms that received patents. 
D)  firms will find ways to obtain additional patent protection-often by making cosmetic changes in drugs that were patented-so that they can continue charging high prices. 
A)  most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B)  prices remain high without patent protection because of a lack of competition. Firms that are not granted patents cannot compete with firms that are granted patents. 
C)  other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the firms that received patents. 
D)  firms will find ways to obtain additional patent protection-often by making cosmetic changes in drugs that were patented-so that they can continue charging high prices.

Question 9

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Since Harberger's findings were published, other researchers have studied this same issue. How do the results of these researchers compare to Harberger's results?

Accepted Answer

A)  The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States. 
B)  The other researchers reached conclusions different from Harberger's; namely, they found that the loss of economic efficiency due to market power is only about 1 percent of the value of production in the United States, much less than Harberger's estimate. 
C)  The other researchers reached conclusions different from Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States, significantly greater than Harberger's estimate. 
D)  The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 1 percent of the value of production in the United States. 
A)  The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States. 
B)  The other researchers reached conclusions different from Harberger's; namely, they found that the loss of economic efficiency due to market power is only about 1 percent of the value of production in the United States, much less than Harberger's estimate. 
C)  The other researchers reached conclusions different from Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States, significantly greater than Harberger's estimate. 
D)  The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 1 percent of the value of production in the United States.

Question 10

A public franchise

Accepted Answer

A)  is a corporation that is owned by stockholders. 
B)  results from ownership of a key raw material. 
C)  is a government designation that a private firm is the only legal producer of a good or service. 
D)  is an unregulated monopoly necessary for the public good. 
A)  is a corporation that is owned by stockholders. 
B)  results from ownership of a key raw material. 
C)  is a government designation that a private firm is the only legal producer of a good or service. 
D)  is an unregulated monopoly necessary for the public good.

Question 11

If a restaurant was a natural monopoly, its

Accepted Answer

A)  marginal cost curve would still be declining when it crossed the demand curve. 
B)  average total cost curve would still be declining when it crossed the demand curve. 
C)  marginal revenue curve would be the same as its demand curve. 
D)  marginal revenue curve would be horizontal. 
A)  marginal cost curve would still be declining when it crossed the demand curve. 
B)  average total cost curve would still be declining when it crossed the demand curve. 
C)  marginal revenue curve would be the same as its demand curve. 
D)  marginal revenue curve would be horizontal.

Question 12

Table 15-2
   The government of a small developing country has granted exclusive rights to Linden Enterprises for the production of plastic syringes. Table 15-2 shows the cost and demand data for this government-protected monopolist.
-Refer to Table 15-2. What is the amount of profit that the firm earns?

Accepted Answer

A)  $34.50 
B)  $42 
C)  $47 
D)  $49 
A)  $34.50 
B)  $42 
C)  $47 
D)  $49

Question 13

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15. What is the economically efficient output level and what is the price at that level?

Accepted Answer

A)  Q4, P1 
B)  Q3, P2 
C)  Q2, P2 
D)  Q2, P3 
A)  Q4, P1 
B)  Q3, P2 
C)  Q2, P2 
D)  Q2, P3

Question 14

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies. To maintain its market share, De Beers

Accepted Answer

A)  began buying so-called "blood diamonds" in order to keep these diamonds out of the control of other diamond companies. 
B)  adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand. 
C)  bought diamond mines in Canada and Russia that had been its competitors. 
D)  lowered the prices of its diamonds to make the market appear less profitable to potential competitors. 
A)  began buying so-called "blood diamonds" in order to keep these diamonds out of the control of other diamond companies. 
B)  adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand. 
C)  bought diamond mines in Canada and Russia that had been its competitors. 
D)  lowered the prices of its diamonds to make the market appear less profitable to potential competitors.

Question 15

If a monopolist's price is $50 per unit and its marginal cost is $25, then

Accepted Answer

A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit. 
A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit.

Question 16

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. An economics professor argues: "I think the course should be priced so as to achieve economic efficiency." Which price should this faculty member favor?

Accepted Answer

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

Question 17

The ability of a firm to charge a price greater than marginal cost is called

Accepted Answer

A)  monopoly power. 
B)  price-making power. 
C)  cost-plus pricing. 
D)  market power. 
A)  monopoly power. 
B)  price-making power. 
C)  cost-plus pricing. 
D)  market power.

Question 18

The De Beers diamond mining and marketing company of South Africa became one of the most profitable and longest-lived monopolies in history. Which of the following has always threatened De Beers' control of the diamond market?

Accepted Answer

A)  Since few diamonds are ever destroyed, De Beers has constantly faced possible competition from other firms reselling diamonds. 
B)  Competition from imitation diamonds. Technology has made it possible to make fake diamonds look exactly like real diamonds. 
C)  Competition from other gemstones, including rubies and emeralds, that have become more popular over time. 
D)  At different times in the past some countries have banned the importation of diamonds from South Africa for political reasons. 
A)  Since few diamonds are ever destroyed, De Beers has constantly faced possible competition from other firms reselling diamonds. 
B)  Competition from imitation diamonds. Technology has made it possible to make fake diamonds look exactly like real diamonds. 
C)  Competition from other gemstones, including rubies and emeralds, that have become more popular over time. 
D)  At different times in the past some countries have banned the importation of diamonds from South Africa for political reasons.

Question 19

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." What price should you recommend?

Accepted Answer

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

Question 20

Some economists argue that Microsoft become a monopoly in the market for computer software by developing MS-DOS, an operating system used for the first IBM personal computers. The more people who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system. The explanation for Microsoft's monopoly is

Accepted Answer

A)  the development of new technology that other firms could not copy. 
B)  control of a key resource which, in this case, is the MS-DOS operating system. 
C)  network externalities. 
D)  patents Microsoft obtained when it developed the MS-DOS operating system. 
A)  the development of new technology that other firms could not copy. 
B)  control of a key resource which, in this case, is the MS-DOS operating system. 
C)  network externalities. 
D)  patents Microsoft obtained when it developed the MS-DOS operating system.

Exam 15: Monopoly and Antitrust Policy

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4. What is the amount of the monopoly's total cost of production?

Compared to a monopolistic competitor, a monopolist faces

The term "trust" in antitrust refers to a board of trustees that has collusive control over different companies.

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

A natural monopoly is most likely to occur in which of the following industries?

Identify four reasons for high entry barriers. Briefly explain each reason.

Table 15-4 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm. -Refer to Table 15-4. What is the amount of Shakti's profit?

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Since Harberger's findings were published, other researchers have studied this same issue. How do the results of these researchers compare to Harberger's results?

A public franchise

If a restaurant was a natural monopoly, its

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. What is the economically efficient output level and what is the price at that level?

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies. To maintain its market share, De Beers

If a monopolist's price is $50 per unit and its marginal cost is $25, then

The ability of a firm to charge a price greater than marginal cost is called

The De Beers diamond mining and marketing company of South Africa became one of the most profitable and longest-lived monopolies in history. Which of the following has always threatened De Beers' control of the diamond market?

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

Filters

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. If the firm's average total cost curve is ATC₃, the firm will