Question 1

Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning

Accepted Answer

A) positive profits. 
B) negative profits. 
C) zero profits. 
D) profits that cannot be determined from the given graph. 
A) positive profits. 
B) negative profits. 
C) zero profits. 
D) profits that cannot be determined from the given graph.

Question 2

Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at

Accepted Answer

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

Question 3

To practice long-run price discrimination, a monopolist must

Accepted Answer

A) be a natural monopoly. 
B) charge one price to all buyers. 
C) permit the resale of the product by the original buyers. 
D) be able to separate buyers into different markets with different price elasticities. 
A) be a natural monopoly. 
B) charge one price to all buyers. 
C) permit the resale of the product by the original buyers. 
D) be able to separate buyers into different markets with different price elasticities.

Question 4

Compared to the purely competitive industry, a pure monopoly

Accepted Answer

A) is able to use barriers to entry and maintain positive economic profits in the long run. 
B) produces an equal amount of output, but charges higher prices to cover all costs in the market. 
C) is often more efficient from society's perspective because it has big plants and it uses the newest technology. 
D) will always become competitive in the long run because positive economic profits will entice competitors into the market. 
A) is able to use barriers to entry and maintain positive economic profits in the long run. 
B) produces an equal amount of output, but charges higher prices to cover all costs in the market. 
C) is often more efficient from society's perspective because it has big plants and it uses the newest technology. 
D) will always become competitive in the long run because positive economic profits will entice competitors into the market.

Question 5

For a pure monopolist, the relationship between total revenue and marginal revenue is such that

Accepted Answer

A) marginal revenue is positive when total revenue is at a maximum. 
B) total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing. 
C) marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing. 
D) marginal revenue is positive so long as total revenue is positive. 
A) marginal revenue is positive when total revenue is at a maximum. 
B) total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing. 
C) marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing. 
D) marginal revenue is positive so long as total revenue is positive.

Question 6

Price discrimination is more common in service industries because

Accepted Answer

A) low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers. 
B) the costs of providing such industries' products to different groups of buyers vary dramatically. 
C) the price elasticity of demand is the same for all groups of buyers in these industries. 
D) all firms in these industries have significant monopoly power over price. 
A) low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers. 
B) the costs of providing such industries' products to different groups of buyers vary dramatically. 
C) the price elasticity of demand is the same for all groups of buyers in these industries. 
D) all firms in these industries have significant monopoly power over price.

Question 7

Refer to the graph for a pure monopoly. Which of the following pricing models would allow the monopolist to earn positive economic profits?

Accepted Answer

A) profit-maximizing price only 
B) both profit-maximizing price and fair-return prices 
C) both fair-return price and the socially optimal prices 
D) all three: profit-maximizing, fair return, and socially optimal prices 
A) profit-maximizing price only 
B) both profit-maximizing price and fair-return prices 
C) both fair-return price and the socially optimal prices 
D) all three: profit-maximizing, fair return, and socially optimal prices

Question 8

Refer to the graph, which shows the revenue curves for a monopolist. Total revenue will be greatest at what output level?

Accepted Answer

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

Question 9

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

Accepted Answer

A) overallocated because price exceeds marginal cost. 
B) overallocated because marginal cost exceeds price. 
C) underallocated because price exceeds marginal cost. 
D) underallocated because marginal cost exceeds price. 
A) overallocated because price exceeds marginal cost. 
B) overallocated because marginal cost exceeds price. 
C) underallocated because price exceeds marginal cost. 
D) underallocated because marginal cost exceeds price.

Question 10

The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 11

The diagram indicates that the marginal revenue of the sixth unit of output is

Accepted Answer

A) −$1. 
B) $1. 
C) $4. 
D) $24. 
A) −$1. 
B) $1. 
C) $4. 
D) $24.

Question 12

In the inelastic portion of a monopolist's demand curve, an increase in price will

Accepted Answer

A) reduce output quantity, increase total revenue, and increase total cost. 
B) reduce output quantity, increase total revenue, and decrease total cost. 
C) raise output quantity, decrease total revenue, and increase total cost. 
D) reduce output quantity, decrease total revenue, and decrease total cost. 
A) reduce output quantity, increase total revenue, and increase total cost. 
B) reduce output quantity, increase total revenue, and decrease total cost. 
C) raise output quantity, decrease total revenue, and increase total cost. 
D) reduce output quantity, decrease total revenue, and decrease total cost.

Question 13

Refer to the graph for a pure monopoly. If the government regulated the monopoly and made it charge the socially optimal price, this price would be

Accepted Answer

A) higher than the profit-maximizing price. 
B) higher than the fair-return price. 
C) lower than both the fair-return price and the profit-maximizing price. 
D) between the fair-return price and the profit-maximizing price. 
A) higher than the profit-maximizing price. 
B) higher than the fair-return price. 
C) lower than both the fair-return price and the profit-maximizing price. 
D) between the fair-return price and the profit-maximizing price.

Question 14

Refer to the graph, which shows a linear demand curve for a monopolist. In which range of the demand curve (or output quantity)will the firm operate?

Accepted Answer

A) to the right of point W 
B) between V and W 
C) between S and T 
D) between quantities 0 and S 
A) to the right of point W 
B) between V and W 
C) between S and T 
D) between quantities 0 and S

Question 15

Refer to the long-run cost curve for a firm. If the firm produces output Q₁ at an average total cost of ATC₁, then the firm is

Accepted Answer

A) producing the profit-maximizing output but is failing to minimize production costs. 
B) incurring X-inefficiency but is realizing all existing economies of scale. 
C) incurring X-inefficiency and is failing to realize all existing economies of scale. 
D) producing that output with the most efficient combination of inputs and is realizing all economies of scale. 
A) producing the profit-maximizing output but is failing to minimize production costs. 
B) incurring X-inefficiency but is realizing all existing economies of scale. 
C) incurring X-inefficiency and is failing to realize all existing economies of scale. 
D) producing that output with the most efficient combination of inputs and is realizing all economies of scale.

Question 16

If a monopolist engages in price discrimination, it will

Accepted Answer

A) realize a smaller profit. 
B) charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic. 
C) produce a smaller output than when it did not discriminate. 
D) charge a competitive price to all its customers. 
A) realize a smaller profit. 
B) charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic. 
C) produce a smaller output than when it did not discriminate. 
D) charge a competitive price to all its customers.

Question 17

Refer to the diagram for a nondiscriminating monopolist. At the profit-maximizing output, the firm's economic profit will be BAFG.

Accepted Answer

A) True 
 B)False

Question 18

The government may create barriers to entry that serve to foster monopoly power of firms.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the long-run cost diagram for a firm. If the firm produces output Q ₂ at an average cost of ATC ₂, then the firm is

Accepted Answer

A) producing the profit-maximizing output but is failing to minimize production costs. 
B) incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized. 
C) incurring X-inefficiency and is failing to produce the output at which all economies of scale might be realized. 
D) producing that output with the most efficient combination of inputs and is realizing all existing economies of scale. 
A) producing the profit-maximizing output but is failing to minimize production costs. 
B) incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized. 
C) incurring X-inefficiency and is failing to produce the output at which all economies of scale might be realized. 
D) producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

Question 20

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

Accepted Answer

A) $10 
B) $20 
C) $30 
D) $40 
A) $10 
B) $20 
C) $30 
D) $40

Exam 12: Pure Monopoly

Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning

Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at

To practice long-run price discrimination, a monopolist must

Compared to the purely competitive industry, a pure monopoly

For a pure monopolist, the relationship between total revenue and marginal revenue is such that

Price discrimination is more common in service industries because

Refer to the graph for a pure monopoly. Which of the following pricing models would allow the monopolist to earn positive economic profits?

Refer to the graph, which shows the revenue curves for a monopolist. Total revenue will be greatest at what output level?

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

The diagram indicates that the marginal revenue of the sixth unit of output is

In the inelastic portion of a monopolist's demand curve, an increase in price will

Refer to the graph for a pure monopoly. If the government regulated the monopoly and made it charge the socially optimal price, this price would be

Refer to the graph, which shows a linear demand curve for a monopolist. In which range of the demand curve (or output quantity)will the firm operate?

Refer to the long-run cost curve for a firm. If the firm produces output Q₁ at an average total cost of ATC₁, then the firm is

If a monopolist engages in price discrimination, it will

Refer to the diagram for a nondiscriminating monopolist. At the profit-maximizing output, the firm's economic profit will be BAFG.

The government may create barriers to entry that serve to foster monopoly power of firms.

Refer to the long-run cost diagram for a firm. If the firm produces output Q ₂ at an average cost of ATC ₂, then the firm is

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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