Question 1

What is a key criterion involved in deciding a natural monopoly?

Accepted Answer

A)  Size of the firm relative to its competitors. 
B)  Size of the firm relative to the total market demand for a product. 
C)  Magnitude of profits generated by the company. 
D)  A firm's ability to adapt to market changes. 
A)  Size of the firm relative to its competitors. 
B)  Size of the firm relative to the total market demand for a product. 
C)  Magnitude of profits generated by the company. 
D)  A firm's ability to adapt to market changes.

Question 2

Why is the demand curve for a monopolist downward sloping? How does this affect the monopolist's behavior?

Accepted Answer

The competitive firm faces a horizontal

Question 3

It is true in monopoly pricing that the

Accepted Answer

A)  sky is not the limit. 
B)  market cannot impose a price on a monopolist. 
C)  monopolist is a price maker. 
D)  All of the above are correct. 
A)  sky is not the limit. 
B)  market cannot impose a price on a monopolist. 
C)  monopolist is a price maker. 
D)  All of the above are correct.

Question 4

If a monopoly firm reduced the price of its product, which of following must have been true?

Accepted Answer

A)  MR > MC 
B)  MR  AR 
D)  MC > AR 
A)  MR > MC 
B)  MR  AR 
D)  MC > AR

Question 5

The marginal revenue curve for a monopolist is

Accepted Answer

A)  always above the demand curve. 
B)  generally below the average cost curve. 
C)  always above the average revenue curve. 
D)  always below the demand curve. 
A)  always above the demand curve. 
B)  generally below the average cost curve. 
C)  always above the average revenue curve. 
D)  always below the demand curve.

Question 6

What arguments have been advanced in defense of price discrimination?

Accepted Answer

Some would support price discrimination

Question 7

A positive aspect of monopolies is that they may aid innovation in the marketplace.

Accepted Answer

A) True 
 B)False

Question 8

If the government charged a tax on monopolists equal to, say, 75 percent of their economic profits, what would happen to the level of output the firm would produce? What about the price? Explain.

Accepted Answer

There would be no effect on the price or

Question 9

The two basic reasons why a monopoly exists are barriers to entry and cost advantages.

Accepted Answer

A) True 
 B)False

Question 10

For a monopoly, MC = MR < P so that MC < MU.

Accepted Answer

A) True 
 B)False

Question 11

Successful advertising by a monopolist will

Accepted Answer

A)  reduce the gap between the monopoly and competitive output. 
B)  increase the gap between the monopoly and competitive output. 
C)  cause the monopolist to overproduce. 
D)  cause the monopolist to decrease output. 
A)  reduce the gap between the monopoly and competitive output. 
B)  increase the gap between the monopoly and competitive output. 
C)  cause the monopolist to overproduce. 
D)  cause the monopolist to decrease output.

Question 12

Pure monopoly is able to exist because the firm's product is better than the substitutes that are available in the market.

Accepted Answer

A) True 
 B)False

Question 13

At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve.The monopolist

Accepted Answer

A)  is earning a negative economic profit. 
B)  may or may not be earning a negative economic profit. 
C)  is earning zero economic profit. 
D)  is earning a positive economic profit. 
A)  is earning a negative economic profit. 
B)  may or may not be earning a negative economic profit. 
C)  is earning zero economic profit. 
D)  is earning a positive economic profit.

Question 14

A monopolist firm may be more innovative than a competitive firm.

Accepted Answer

A) True 
 B)False

Question 15

Control of a scarce resource or input can serve as an entry barrier.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following observations concerning price discrimination is true?

Accepted Answer

A)  It only occurs in monopolies. 
B)  It is easier for a monopolist than for a firm that is affected by competition. 
C)  It means that sales to all customers are equally profitable. 
D)  It is considered as a bad business practice under all circumstance. 
A)  It only occurs in monopolies. 
B)  It is easier for a monopolist than for a firm that is affected by competition. 
C)  It means that sales to all customers are equally profitable. 
D)  It is considered as a bad business practice under all circumstance.

Question 17

Since a monopolist has a unique product, it makes no sense for the firm to advertise.

Accepted Answer

A) True 
 B)False

Question 18

Being a monopolist in the market

Accepted Answer

A)  guarantees a positive short-run profit. 
B)  guarantees a positive long-run profit. 
C)  does not contradict with the rule that profit is maximized where MR = MC. 
D)  All of the above are correct. 
A)  guarantees a positive short-run profit. 
B)  guarantees a positive long-run profit. 
C)  does not contradict with the rule that profit is maximized where MR = MC. 
D)  All of the above are correct.

Question 19

Compared to perfect competition, monopoly

Accepted Answer

A)  provides less output. 
B)  charges a higher price. 
C)  results in higher cost (inefficient) production. 
D)  All of the above are correct. 
A)  provides less output. 
B)  charges a higher price. 
C)  results in higher cost (inefficient) production. 
D)  All of the above are correct.

Question 20

Price discrimination only occurs under monopoly.

Accepted Answer

A) True 
 B)False

Exam 11: Monopoly

What is a key criterion involved in deciding a natural monopoly?

Why is the demand curve for a monopolist downward sloping? How does this affect the monopolist's behavior?

It is true in monopoly pricing that the

If a monopoly firm reduced the price of its product, which of following must have been true?

The marginal revenue curve for a monopolist is

What arguments have been advanced in defense of price discrimination?

A positive aspect of monopolies is that they may aid innovation in the marketplace.

If the government charged a tax on monopolists equal to, say, 75 percent of their economic profits, what would happen to the level of output the firm would produce? What about the price? Explain.

The two basic reasons why a monopoly exists are barriers to entry and cost advantages.

For a monopoly, MC = MR < P so that MC < MU.

Successful advertising by a monopolist will

Pure monopoly is able to exist because the firm's product is better than the substitutes that are available in the market.

At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve.The monopolist

A monopolist firm may be more innovative than a competitive firm.

Control of a scarce resource or input can serve as an entry barrier.

Which of the following observations concerning price discrimination is true?

Since a monopolist has a unique product, it makes no sense for the firm to advertise.

Being a monopolist in the market

Compared to perfect competition, monopoly

Price discrimination only occurs under monopoly.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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