Question 1

Figure 15-6   Figure 15-6 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-6. The monopolist's total revenue is

Accepted Answer

A)  $1,116. 
B)  $1,488. 
C)  $1,726.40 
D)  $1,826. 
A)  $1,116. 
B)  $1,488. 
C)  $1,726.40 
D)  $1,826.

Question 2

Using a broad definition, a firm would have a monopoly if

Accepted Answer

A)  it produced a product that has no close substitutes. 
B)  it does not have to collude with any other producer to earn an economic profit. 
C)  there is no other firm selling a substitute for its product close enough that its economic profits are competed away in the long run. 
D)  it can make decisions regarding price and output without violating antitrust laws. 
A)  it produced a product that has no close substitutes. 
B)  it does not have to collude with any other producer to earn an economic profit. 
C)  there is no other firm selling a substitute for its product close enough that its economic profits are competed away in the long run. 
D)  it can make decisions regarding price and output without violating antitrust laws.

Question 3

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15. Why won't regulators require that Erickson Power produce the economically efficient output level?

Accepted Answer

A)  because there is insufficient demand at that output level 
B)  because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit 
C)  because Erickson Power will earn zero profit 
D)  because Erickson Power will sustain persistent losses and will not continue in business in the long run 
A)  because there is insufficient demand at that output level 
B)  because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit 
C)  because Erickson Power will earn zero profit 
D)  because Erickson Power will sustain persistent losses and will not continue in business in the long run

Question 4

Figure 15-9   Figure 15-9 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-9. What is the economically efficient output level?

Accepted Answer

A)  600 units 
B)  800 units 
C)  940 units 
D)  1160 units 
A)  600 units 
B)  800 units 
C)  940 units 
D)  1160 units

Question 5

Few firms in the United States are monopolies because

Accepted Answer

A)  few firms experience economies of scale. 
B)  monopolies are technically illegal in the United States. 
C)  when a firm earns profits, other firms will enter its market. 
D)  most firms produce products for which there are no close substitutes. 
A)  few firms experience economies of scale. 
B)  monopolies are technically illegal in the United States. 
C)  when a firm earns profits, other firms will enter its market. 
D)  most firms produce products for which there are no close substitutes.

Question 6

In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.

Accepted Answer

A) True 
 B)False

Question 7

Figure 15-4   Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4. What is the profit-maximizing/loss-minimizing output level?

Accepted Answer

A)  600 units 
B)  800 units 
C)  940 units 
D)  1,160 units 
A)  600 units 
B)  800 units 
C)  940 units 
D)  1,160 units

Question 8

A United States government patent lasts

Accepted Answer

A)  forever. 
B)  50 years. 
C)  20 years. 
D)  7 years. 
A)  forever. 
B)  50 years. 
C)  20 years. 
D)  7 years.

Question 9

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?

Accepted Answer

A)  Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B)  Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. 
C)  Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D)  Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. 
A)  Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B)  Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. 
C)  Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D)  Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Question 10

Merger guidelines developed by the U.S. Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration. This index measures concentration in an industry by

Accepted Answer

A)  adding up the market shares of all firms in the industry, squaring this number and then dividing by the number of firms in the industry. 
B)  squaring the market shares of each firm in an industry and then adding up the values of the squares. 
C)  squaring the four-firm concentration ratio of the industry and dividing this number by the total number of firms in the industry. 
D)  determining the market shares of the four largest firms in the industry, but unlike the concentration ratio, the Index includes sales in the United States by foreign firms. 
A)  adding up the market shares of all firms in the industry, squaring this number and then dividing by the number of firms in the industry. 
B)  squaring the market shares of each firm in an industry and then adding up the values of the squares. 
C)  squaring the four-firm concentration ratio of the industry and dividing this number by the total number of firms in the industry. 
D)  determining the market shares of the four largest firms in the industry, but unlike the concentration ratio, the Index includes sales in the United States by foreign firms.

Question 11

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies. This is an example of

Accepted Answer

A)  a conglomerate merger. 
B)  a horizontal merger. 
C)  a vertical merger. 
D)  a two-dimensional merger. 
A)  a conglomerate merger. 
B)  a horizontal merger. 
C)  a vertical merger. 
D)  a two-dimensional merger.

Question 12

If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would

Accepted Answer

A)  decrease marginal cost. 
B)  raise average total cost. 
C)  increase total revenue. 
D)  make marginal revenue less elastic. 
A)  decrease marginal cost. 
B)  raise average total cost. 
C)  increase total revenue. 
D)  make marginal revenue less elastic.

Question 13

Figure 15-16   Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

Accepted Answer

A)  Q1 units; P4 
B)  Q1 units; P1 
C)  Q5 units; P3 
D)  Q3 units; P4 
A)  Q1 units; P4 
B)  Q1 units; P1 
C)  Q5 units; P3 
D)  Q3 units; P4

Question 14

Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?

Accepted Answer

A)  Patents encourage firms to spend money on research necessary to create new products. 
B)  Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons. 
C)  Patents are an important source of government revenue. 
D)  Patents are justified because they are an important means for creating network externalities. 
A)  Patents encourage firms to spend money on research necessary to create new products. 
B)  Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons. 
C)  Patents are an important source of government revenue. 
D)  Patents are justified because they are an important means for creating network externalities.

Question 15

Figure 15-3   Figure 15-3 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?

Accepted Answer

A)  $38 
B)  $54 
C)  $68 
D)  $75 
A)  $38 
B)  $54 
C)  $68 
D)  $75

Question 16

If a monopolist's marginal revenue is $15 per unit and its marginal cost is $25, then to maximize profit the firm should decrease output.

Accepted Answer

A) True 
 B)False

Question 17

What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?

Accepted Answer

A natural monopoly arises when the produ

Question 18

In the short run, even if a monopoly's total revenue does not cover its variable costs, it should continue to produce because ultimately in the long run, the monopoly will start earning profits.

Accepted Answer

A) True 
 B)False

Question 19

Which two factors make regulating mergers complicated?

Accepted Answer

A)  First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B)  First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. 
C)  First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D)  First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually. 
A)  First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B)  First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. 
C)  First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D)  First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.

Question 20

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly and Antitrust Policy

Figure 15-6 Figure 15-6 shows the cost and demand curves for a monopolist. -Refer to Figure 15-6. The monopolist's total revenue is

Using a broad definition, a firm would have a monopoly if

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. Why won't regulators require that Erickson Power produce the economically efficient output level?

Figure 15-9 Figure 15-9 shows the demand and cost curves for a monopolist. -Refer to Figure 15-9. What is the economically efficient output level?

Few firms in the United States are monopolies because

In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4. What is the profit-maximizing/loss-minimizing output level?

A United States government patent lasts

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?

Merger guidelines developed by the U.S. Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration. This index measures concentration in an industry by

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies. This is an example of

If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would

Figure 15-16 Figure 15-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-16. If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?

If a monopolist's marginal revenue is $15 per unit and its marginal cost is $25, then to maximize profit the firm should decrease output.

What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?

In the short run, even if a monopoly's total revenue does not cover its variable costs, it should continue to produce because ultimately in the long run, the monopoly will start earning profits.

Which two factors make regulating mergers complicated?

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the 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 15-16 Figure 15-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-16. If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of and charge a price of .