Question 1

Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by

Accepted Answer

A) selling the product at the highest possible price at which a positive quantity will be demanded. 
B) producing Q₁ units and charging a price of P₁. 
C) producing Q₃ units and charging a price of P₃. 
D) producing Q₂ units and charging a price of P₂. 
A) selling the product at the highest possible price at which a positive quantity will be demanded. 
B) producing Q₁ units and charging a price of P₁. 
C) producing Q₃ units and charging a price of P₃. 
D) producing Q₂ units and charging a price of P₂.

Question 2

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm will be operating in the

Accepted Answer

A) perfectly elastic portion of its demand curve. 
B) perfectly inelastic portion of its demand curve. 
C) elastic portion of its demand curve. 
D) inelastic portion of its demand curve. 
A) perfectly elastic portion of its demand curve. 
B) perfectly inelastic portion of its demand curve. 
C) elastic portion of its demand curve. 
D) inelastic portion of its demand curve.

Question 3

Refer to the two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by

Accepted Answer

A) lines B and C, respectively. 
B) lines A and C, respectively. 
C) lines A and B, respectively. 
D) line B. 
A) lines B and C, respectively. 
B) lines A and C, respectively. 
C) lines A and B, respectively. 
D) line B.

Question 4

Refer to the graph for a profit-maximizing monopolist. The firm will set its price equal to the distance:

Accepted Answer

A) 0 J. 
B) 0 G 
C) 0 K. 
D) 0H. 
A) 0 J. 
B) 0 G 
C) 0 K. 
D) 0H.

Question 5

Which of the following statements is correct?

Accepted Answer

A) Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization. 
B) Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency. 
C) Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products. 
D) Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits. 
A) Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization. 
B) Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency. 
C) Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products. 
D) Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits.

Question 6

Network effects and simultaneous consumption tend to foster the development of

Accepted Answer

A) pure competition. 
B) monopoly power. 
C) net social benefits. 
D) allocative efficiency. 
A) pure competition. 
B) monopoly power. 
C) net social benefits. 
D) allocative efficiency.

Question 7

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, MR = $3, and AVC = $2.50. This firm is realizing

Accepted Answer

A) an economic loss that could be reduced by producing more output. 
B) an economic loss that could be reduced by producing less output. 
C) an economic profit that could be increased by producing more output. 
D) an economic profit that could be increased by producing less output. 
A) an economic loss that could be reduced by producing more output. 
B) an economic loss that could be reduced by producing less output. 
C) an economic profit that could be increased by producing more output. 
D) an economic profit that could be increased by producing less output.

Question 8

A pure monopolist should never produce in the

Accepted Answer

A) elastic segment of its demand curve, because it can increase total revenue and reduce total cost by lowering price. 
B) inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price. 
C) inelastic segment of its demand curve, because it can always increase total revenue by more than it increases total cost by reducing price. 
D) segment of its demand curve, where the price elasticity coefficient is greater than one. 
A) elastic segment of its demand curve, because it can increase total revenue and reduce total cost by lowering price. 
B) inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price. 
C) inelastic segment of its demand curve, because it can always increase total revenue by more than it increases total cost by reducing price. 
D) segment of its demand curve, where the price elasticity coefficient is greater than one.

Question 9

Refer to the demand and cost data for a pure monopolist given in the table. If the monopolist perfectly price-discriminated and sold each unit of the product at the maximum price the buyer of that unit would be willing to pay, and if the monopolist maximized profits, then the total profit received would be

Accepted Answer

A) $250. 
B) $400. 
C) $1,000. 
D) $900. 
A) $250. 
B) $400. 
C) $1,000. 
D) $900.

Question 10

Monopolists are said to be allocatively inefficient because

Accepted Answer

A) they produce where MR > MC. 
B) at the profit-maximizing output, price is greater than AVC. 
C) they produce only the type of product they desire and do not consider the consumer. 
D) at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost. 
A) they produce where MR > MC. 
B) at the profit-maximizing output, price is greater than AVC. 
C) they produce only the type of product they desire and do not consider the consumer. 
D) at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Question 11

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium

Accepted Answer

A) price equals minimum average total cost. 
B) marginal revenue equals marginal cost. 
C) marginal cost exceeds price. 
D) price exceeds marginal cost. 
A) price equals minimum average total cost. 
B) marginal revenue equals marginal cost. 
C) marginal cost exceeds price. 
D) price exceeds marginal cost.

Question 12

A profit-maximizing monopolist facing the situation shown in the graph should

Accepted Answer

A) shut down in the short run. 
B) continue producing to minimize losses. 
C) continue producing to make economic profits. 
D) continue producing as long as price is greater than marginal cost. 
A) shut down in the short run. 
B) continue producing to minimize losses. 
C) continue producing to make economic profits. 
D) continue producing as long as price is greater than marginal cost.

Question 13

If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce?

Accepted Answer

A) 5 
B) 4 
C) 3 
D) 2 
A) 5 
B) 4 
C) 3 
D) 2

Question 14

What is the relationship between economies of scale and a natural monopoly?

Accepted Answer

A natural monopoly is an industry in whi

Question 15

The pure monopolist's demand curve is relatively elastic

Accepted Answer

A) in the price range where total revenue is declining. 
B) at all points where the demand curve lies above the horizontal axis. 
C) in the price range where marginal revenue is negative. 
D) in the price range where marginal revenue is positive. 
A) in the price range where total revenue is declining. 
B) at all points where the demand curve lies above the horizontal axis. 
C) in the price range where marginal revenue is negative. 
D) in the price range where marginal revenue is positive.

Question 16

For a pure nondiscriminating monopolist, marginal revenue is less than price because

Accepted Answer

A) the monopolist's demand curve is perfectly elastic. 
B) the monopolist's demand curve is perfectly inelastic. 
C) when a monopolist lowers price to sell more output, the lower price applies to all units sold. 
D) the monopolist's total revenue curve is linear and slopes upward to the right. 
A) the monopolist's demand curve is perfectly elastic. 
B) the monopolist's demand curve is perfectly inelastic. 
C) when a monopolist lowers price to sell more output, the lower price applies to all units sold. 
D) the monopolist's total revenue curve is linear and slopes upward to the right.

Question 17

In which one of the following market models is X-inefficiency least likely to be present?

Accepted Answer

A) pure competition 
B) oligopoly 
C) monopolistic competition 
D) pure monopoly 
A) pure competition 
B) oligopoly 
C) monopolistic competition 
D) pure monopoly

Question 18

For a monopolist to sell an output level of 10 units, the price must be $8. MR at this output level will be

Accepted Answer

A) > $8 and  $16. 
A) > $8 and  $16.

Question 19

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist.   Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of

Accepted Answer

A) $12. 
B) $9. 
C) $6. 
D) $8. 
A) $12. 
B) $9. 
C) $6. 
D) $8.

Question 20

A monopoly results in productive inefficiency because at the profit-maximizing output level,

Accepted Answer

A) P > MC. 
B) ATC is not at its minimum level. 
C) MC is not at its minimum level. 
D) P > AVC. 
A) P > MC. 
B) ATC is not at its minimum level. 
C) MC is not at its minimum level. 
D) P > AVC.

Exam 12: Pure Monopoly

Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm will be operating in the

Refer to the two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by

Refer to the graph for a profit-maximizing monopolist. The firm will set its price equal to the distance:

Which of the following statements is correct?

Network effects and simultaneous consumption tend to foster the development of

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, MR = $3, and AVC = $2.50. This firm is realizing

A pure monopolist should never produce in the

Monopolists are said to be allocatively inefficient because

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium

A profit-maximizing monopolist facing the situation shown in the graph should

If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce?

What is the relationship between economies of scale and a natural monopoly?

The pure monopolist's demand curve is relatively elastic

For a pure nondiscriminating monopolist, marginal revenue is less than price because

In which one of the following market models is X-inefficiency least likely to be present?

For a monopolist to sell an output level of 10 units, the price must be $8. MR at this output level will be

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist. Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of

A monopoly results in productive inefficiency because at the profit-maximizing output level,

Limits, Alternatives, and Choices

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Market Failures Caused by Externalities Asymmetric Information

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The Demand for Resources

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