Question 1

A patent or copyright is a barrier to entry based on

Accepted Answer

A)  ownership of a key necessary raw material. 
B)  large economies of scale as output increases. 
C)  government action to protect a producer. 
D)  widespread network externalities. 
A)  ownership of a key necessary raw material. 
B)  large economies of scale as output increases. 
C)  government action to protect a producer. 
D)  widespread network externalities.

Question 2

Suppose a monopoly is producing its profit-maximizing output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result the monopolist will increase the price of its product to cover its higher cost.

Accepted Answer

A) True 
 B)False

Question 3

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

Accepted Answer

A)  a government-imposed barrier. 
B)  occupational licensing. 
C)  no competitors apparently found the profit level attractive enough to enter the market. 
D)  the restaurant owned all the fresh seafood in the state. 
A)  a government-imposed barrier. 
B)  occupational licensing. 
C)  no competitors apparently found the profit level attractive enough to enter the market. 
D)  the restaurant owned all the fresh seafood in the state.

Question 4

The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.

Accepted Answer

A) True 
 B)False

Question 5

Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it.

Accepted Answer

A) True 
 B)False

Question 6

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed. Which of the following statements regarding the value of the Index for a given industry is true?

Accepted Answer

A)  If a merger would result in an Index value less than 1,500, the merger would not be challenged. 
B)  If a merger would result in an Index value of 1,500 or more, the industry would be considered a monopoly and the merger would be challenged. 
C)  If a merger resulted in an Index of between 1,500 and 2,500, and the HHI increased by more than 100 points, the industry would be considered competitive and the merger would not be challenged. 
D)  If a merger would increase the Index by 100, the industry would be considered a monopoly and the merger would be challenged. 
A)  If a merger would result in an Index value less than 1,500, the merger would not be challenged. 
B)  If a merger would result in an Index value of 1,500 or more, the industry would be considered a monopoly and the merger would be challenged. 
C)  If a merger resulted in an Index of between 1,500 and 2,500, and the HHI increased by more than 100 points, the industry would be considered competitive and the merger would not be challenged. 
D)  If a merger would increase the Index by 100, the industry would be considered a monopoly and the merger would be challenged.

Question 7

Figure 15-16   Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners. If regulators require that the firm produces the economically efficient output level, what is this level and what price will be charged?

Accepted Answer

A)  Q4 units; P6 
B)  Q1 units; P4 
C)  Q1 units; P1 
D)  Q3 units; P3 
A)  Q4 units; P6 
B)  Q1 units; P4 
C)  Q1 units; P1 
D)  Q3 units; P3

Question 8

Figure 15-18  
-Refer to Figure 15-18 to answer the following questions.
a. What quantity will this monopoly produce and what price will it charge?
b. Suppose the government decides to regulate this monopoly and imposes a price ceiling of $25. Now what quantity will the monopoly produce and what price will it charge?
c. Will every consumer who is willing to pay the ceiling price of $25 be able to buy the product? Briefly explain.

Accepted Answer

a. To maximize profits, the monopoly wil

Question 9

Figure 15-7  
-Refer to Figure 15-7. Use the figure above to answer the following questions.
a. What is the profit-maximizing quantity and what price will the monopolist charge?
b. What is the total revenue at the profit-maximizing output level?
c. What is the total cost at the profit-maximizing output level?
d. What is the profit?
e. What is the profit per unit (average profit) at the profit-maximizing output level?
f. If this industry was organized as a perfectly competitive industry, what would be the profit-maximizing price and quantity?

Accepted Answer

a. Quantity = 50; price = 32
b. Total re

Question 10

Market power refers to

Accepted Answer

A)  the ability of consumers to dictate what products should be produced. 
B)  the ability of a firm to advertise its product and succeed in selling more output. 
C)  the ability of a firm to sell at a lower price than rival sellers. 
D)  the ability of a firm to charge a price higher than the marginal cost of production. 
A)  the ability of consumers to dictate what products should be produced. 
B)  the ability of a firm to advertise its product and succeed in selling more output. 
C)  the ability of a firm to sell at a lower price than rival sellers. 
D)  the ability of a firm to charge a price higher than the marginal cost of production.

Question 11

Figure 15-12   Figure 15-12 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of the consumer surplus?

Accepted Answer

A)  $21 
B)  $124 
C)  $186 
D)  $332 
A)  $21 
B)  $124 
C)  $186 
D)  $332

Question 12

The National Football League has long-term leases with the stadiums in major cities. Control of these stadiums is an entry barrier to a potential new football league.

Accepted Answer

A) True 
 B)False

Question 13

Relative to a perfectly competitive market, a monopoly results in

Accepted Answer

A)  a gain in producer surplus equal to the gain in consumer surplus. 
B)  a gain in producer surplus equal to the loss in consumer surplus. 
C)  a gain in producer surplus less than the loss in consumer surplus. 
D)  greater economic efficiency. 
A)  a gain in producer surplus equal to the gain in consumer surplus. 
B)  a gain in producer surplus equal to the loss in consumer surplus. 
C)  a gain in producer surplus less than the loss in consumer surplus. 
D)  greater economic efficiency.

Question 14

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

Accepted Answer

A)  the Clayton Act 
B)  the Securities and Exchange Act 
C)  the Sherman Act 
D)  the Robinson-Patman Act 
A)  the Clayton Act 
B)  the Securities and Exchange Act 
C)  the Sherman Act 
D)  the Robinson-Patman Act

Question 15

To have a monopoly in an industry there must be

Accepted Answer

A)  barriers to entry so high that no other firms can enter the industry. 
B)  a patent or copyright giving the firm exclusive rights to sell a product for 20 years. 
C)  an inelastic demand for the industry's product. 
D)  a public franchise, making the monopoly the exclusive legal provider of a good or service. 
A)  barriers to entry so high that no other firms can enter the industry. 
B)  a patent or copyright giving the firm exclusive rights to sell a product for 20 years. 
C)  an inelastic demand for the industry's product. 
D)  a public franchise, making the monopoly the exclusive legal provider of a good or service.

Question 16

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 ATC2, 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 17

When the government wants to give an exclusive right to one firm to produce a product, it

Accepted Answer

A)  imposes a tariff on imports of the product. 
B)  imposes a quota on imports of the product. 
C)  grants a patent or copyright to an individual or firm. 
D)  uses antitrust laws to keep other firms from entering the market. 
A)  imposes a tariff on imports of the product. 
B)  imposes a quota on imports of the product. 
C)  grants a patent or copyright to an individual or firm. 
D)  uses antitrust laws to keep other firms from entering the market.

Question 18

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15. The profit-maximizing price is

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 19

If we use a narrow definition of monopoly, then a monopoly is defined as a firm

Accepted Answer

A)  that has been granted special production rights by the government. 
B)  that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. 
C)  that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. 
D)  that has the largest market share in an industry. 
A)  that has been granted special production rights by the government. 
B)  that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. 
C)  that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. 
D)  that has the largest market share in an industry.

Exam 15: Monopoly and Antitrust Policy

A patent or copyright is a barrier to entry based on

Suppose a monopoly is producing its profit-maximizing output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result the monopolist will increase the price of its product to cover its higher cost.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.

Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it.

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed. Which of the following statements regarding the value of the Index for a given industry is true?

Market power refers to

Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. -Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of the consumer surplus?

The National Football League has long-term leases with the stadiums in major cities. Control of these stadiums is an entry barrier to a potential new football league.

Relative to a perfectly competitive market, a monopoly results in

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

To have a monopoly in an industry there must be

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 ATC2, the firm will

When the government wants to give an exclusive right to one firm to produce a product, it

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. The profit-maximizing price is

If we use a narrow definition of monopoly, then a monopoly is defined as a firm

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 ATC₂, the firm will