Question 1

To maintain a monopoly, a firm must have

Accepted Answer

A)  a perfectly inelastic demand. 
B)  an insurmountable barrier to entry. 
C)  marginal revenue equal to demand. 
D)  few competitors. 
A)  a perfectly inelastic demand. 
B)  an insurmountable barrier to entry. 
C)  marginal revenue equal to demand. 
D)  few competitors.

Question 2

The Sherman Act prohibited

Accepted Answer

A)  marginal cost pricing. 
B)  setting price above marginal cost. 
C)  collusive price agreements among rival sellers. 
D)  selling below average total cost. 
A)  marginal cost pricing. 
B)  setting price above marginal cost. 
C)  collusive price agreements among rival sellers. 
D)  selling below average total cost.

Question 3

A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.

Accepted Answer

A) True 
 B)False

Question 4

An example of a monopoly based on control of a key resource is

Accepted Answer

A)  Major League Baseball. 
B)  NASA. 
C)  Microsoft's Windows operating system. 
D)  the U.S. Food and Drug Administration. 
A)  Major League Baseball. 
B)  NASA. 
C)  Microsoft's Windows operating system. 
D)  the U.S. Food and Drug Administration.

Question 5

Identify two ways by which the government controls monopolies?

Accepted Answer

The government control monopol

Question 6

Figure 15-4   Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4. What is likely to happen to this monopoly in the long run if costs and demand stay the same?

Accepted Answer

A)  New firms will enter the market to eliminate its profits. 
B)  It will expand its output to take advantage of economies of scale so as to further increase its profit. 
C)  As long as there are entry barriers, this firm will continue to enjoy economic profits. 
D)  It will be regulated by the government because of its excess profits. 
A)  New firms will enter the market to eliminate its profits. 
B)  It will expand its output to take advantage of economies of scale so as to further increase its profit. 
C)  As long as there are entry barriers, this firm will continue to enjoy economic profits. 
D)  It will be regulated by the government because of its excess profits.

Question 7

A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.

Accepted Answer

A) True 
 B)False

Question 8

Economic efficiency requires that a natural monopoly's price be

Accepted Answer

A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  equal to the lowest price the firm can charge and still make a normal profit. 
A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  equal to the lowest price the firm can charge and still make a normal profit.

Question 9

Article Summary
In late 2017, informed sources announced that telecommunications companies T-Mobile and Sprint were engaged in active discussions about a potential merger. The 3rd and 4th largest wireless carriers in the United States have had frequent conversations about a stock-for-stock merger, with T-Mobile parent Deutsche Telekom becoming the majority owner of the combined firms and T-Mobile CEO John Legere expected to lead the company. Part of the discussions have been whether the Department of Justice and the Federal Trade Commission would approve the merger, and based on those discussions, whether both companies will choose to proceed with a deal.

-Refer to the Article Summary. The standards used by the Department of Justice and the FTC to evaluate a potential merger such as the one between T-Mobile and Sprint are based on market concentration as determined by the

Accepted Answer

A)  Herfindahl-Hirschman Index. 
B)  Clayton Antitrust Act. 
C)  Anti-Collusion Task Force. 
D)  Robinson-Patman Act. 
A)  Herfindahl-Hirschman Index. 
B)  Clayton Antitrust Act. 
C)  Anti-Collusion Task Force. 
D)  Robinson-Patman Act.

Question 10

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.

Accepted Answer

A) True 
 B)False

Question 11

The demand curve for a monopoly's product is

Accepted Answer

A)  the market demand for the product. 
B)  more elastic than the market demand for the product. 
C)  more inelastic than the market demand for the product. 
D)  undefined. 
A)  the market demand for the product. 
B)  more elastic than the market demand for the product. 
C)  more inelastic than the market demand for the product. 
D)  undefined.

Question 12

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?

Accepted Answer

A)  because Microsoft is large enough to hire the best people in the field 
B)  because Microsoft could potentially lose sales if it sets prices indiscriminately 
C)  because the wealthy corn farmer is a price maker who sets his price independently of the market price, but Microsoft's optimal output depends on the price it selects 
D)  because unlike Microsoft, the wealthy corn farmer is probably a monopolist 
A)  because Microsoft is large enough to hire the best people in the field 
B)  because Microsoft could potentially lose sales if it sets prices indiscriminately 
C)  because the wealthy corn farmer is a price maker who sets his price independently of the market price, but Microsoft's optimal output depends on the price it selects 
D)  because unlike Microsoft, the wealthy corn farmer is probably a monopolist

Question 13

Economic efficiency in a free market occurs when

Accepted Answer

A)  consumer surplus is maximized. 
B)  producer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  price is as low as possible. 
A)  consumer surplus is maximized. 
B)  producer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  price is as low as possible.

Question 14

There are several types of barriers to entry that can create a monopoly. Which of the following barriers is the result of government action?

Accepted Answer

A)  network externalities 
B)  public franchise 
C)  economies of scale 
D)  control of a key resource 
A)  network externalities 
B)  public franchise 
C)  economies of scale 
D)  control of a key resource

Question 15

Firms that face downward-sloping demand curves for their output in the product market are called

Accepted Answer

A)  price takers. 
B)  price dictators. 
C)  monopolists. 
D)  price makers. 
A)  price takers. 
B)  price dictators. 
C)  monopolists. 
D)  price makers.

Question 16

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15. The firm would maximize profit by producing

Accepted Answer

A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units. 
A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units.

Question 17

What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?

Accepted Answer

A monopoly's marginal revenue curve lies

Question 18

Producers in perfect competition receive a smaller producer surplus than a producer in a monopoly.

Accepted Answer

A) True 
 B)False

Question 19

A firm that has the ability to control to some degree the price of the product it sells

Accepted Answer

A)  is also able to dictate the quantity purchased. 
B)  faces a demand curve that is inelastic throughout the entire range of market demand. 
C)  is a price maker. 
D)  faces a perfectly inelastic demand curve. 
A)  is also able to dictate the quantity purchased. 
B)  faces a demand curve that is inelastic throughout the entire range of market demand. 
C)  is a price maker. 
D)  faces a perfectly inelastic demand curve.

Question 20

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. As a result of this change

Accepted Answer

A)  price will be higher, output will be lower, and the deadweight loss will be eliminated. 
B)  consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency. 
C)  price will be higher, consumer surplus will be greater, and output will be greater. 
D)  consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus. 
A)  price will be higher, output will be lower, and the deadweight loss will be eliminated. 
B)  consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency. 
C)  price will be higher, consumer surplus will be greater, and output will be greater. 
D)  consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Exam 15: Monopoly and Antitrust Policy

To maintain a monopoly, a firm must have

The Sherman Act prohibited

A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.

An example of a monopoly based on control of a key resource is

Identify two ways by which the government controls monopolies?

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4. What is likely to happen to this monopoly in the long run if costs and demand stay the same?

A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.

Economic efficiency requires that a natural monopoly's price be

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.

The demand curve for a monopoly's product is

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?

Economic efficiency in a free market occurs when

There are several types of barriers to entry that can create a monopoly. Which of the following barriers is the result of government action?

Firms that face downward-sloping demand curves for their output in the product market are called

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. The firm would maximize profit by producing

What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?

Producers in perfect competition receive a smaller producer surplus than a producer in a monopoly.

A firm that has the ability to control to some degree the price of the product it sells

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. As a result of this change

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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