Question 1

What is the shape of the demand curve of a monopolist?

Accepted Answer

A)  downward sloping and below the marginal revenue curve 
B)  identical to the marginal cost curve 
C)  kinked because of recognized interdependence with other firms 
D)  downward sloping and above the marginal revenue curve 
A)  downward sloping and below the marginal revenue curve 
B)  identical to the marginal cost curve 
C)  kinked because of recognized interdependence with other firms 
D)  downward sloping and above the marginal revenue curve

Question 2

Which of the following best describes marginal cost regulation of a natural monopoly?

Accepted Answer

A)  It generates economic profits for the seller. 
B)  It causes firms to produce less than the socially optimal output. 
C)  It creates incentives that tend to shift average total cost curves in a downward direction. 
D)  It imposes a price that is less than average total cost. 
A)  It generates economic profits for the seller. 
B)  It causes firms to produce less than the socially optimal output. 
C)  It creates incentives that tend to shift average total cost curves in a downward direction. 
D)  It imposes a price that is less than average total cost.

Question 3

TABLE 9-2
  
-Refer to Table 9-2. If the firm is currently producing 12 units of output, what should the firm do to maximize profits?

Accepted Answer

A)  Reduce output to 11 units. 
B)  Increase output beyond 12 units. 
C)  Maintain the current output level. 
D)  Reduce output to 10 units. 
A)  Reduce output to 11 units. 
B)  Increase output beyond 12 units. 
C)  Maintain the current output level. 
D)  Reduce output to 10 units.

Question 4

Which of the following is a Canadian monopoly?

Accepted Answer

A)  Air Canada 
B)  Canada Post 
C)  The Hudson's Bay Company 
D)  Bell Canada 
A)  Air Canada 
B)  Canada Post 
C)  The Hudson's Bay Company 
D)  Bell Canada

Question 5

If a regulatory commission wishes to allow a firm to earn a normal rate of return, what should it set price equal to?

Accepted Answer

A)  average total cost 
B)  average variable cost 
C)  marginal revenue 
D)  marginal cost 
A)  average total cost 
B)  average variable cost 
C)  marginal revenue 
D)  marginal cost

Question 6

Which of the following is NOT an example of price discrimination?

Accepted Answer

A)  housing prices being higher in Toronto than in Winnipeg 
B)  student discounts 
C)  airline seat sales that are only available for travel on Tuesdays 
D)  weekly discount coupons for grocery items 
A)  housing prices being higher in Toronto than in Winnipeg 
B)  student discounts 
C)  airline seat sales that are only available for travel on Tuesdays 
D)  weekly discount coupons for grocery items

Question 7

Figure 9-2
  
-Refer to Figure 9-2. What level of output will the profit-maximizing firm produce at?

Accepted Answer

A)  0Q1 
B)  0Q2 
C)  0Q3 
D)  0 units 
A)  0Q1 
B)  0Q2 
C)  0Q3 
D)  0 units

Question 8

FIGURE 9-4
  
-Refer to Figure 9-4. What quantity of output would a profit-maximizing monopolist produce?

Accepted Answer

A)  0 
B)  Q1 
C)  Q2 
D)  Q3 
A)  0 
B)  Q1 
C)  Q2 
D)  Q3

Question 9

Which of the following is likely to occur in a monopolized market?

Accepted Answer

A)  a deadweight loss due to the barriers to entry 
B)  profits that tend towards zero in the long run 
C)  a marginal revenue that exceeds marginal cost 
D)  a price that exceeds marginal cost 
A)  a deadweight loss due to the barriers to entry 
B)  profits that tend towards zero in the long run 
C)  a marginal revenue that exceeds marginal cost 
D)  a price that exceeds marginal cost

Question 10

FIGURE 9-5
  
-Refer to Figure 9-5. If the firm sets a price to maximize profits, will it earn a profit or suffer a loss?

Accepted Answer

A)  an economic profit of $3250 
B)  an economic profit of $2500 
C)  an economic profit of $1500 
D)  an economic loss of $1500 
A)  an economic profit of $3250 
B)  an economic profit of $2500 
C)  an economic profit of $1500 
D)  an economic loss of $1500

Question 11

Governments around the world are allowing competition in the production of goods and services that have historically been considered natural monopolies. Competition has been introduced in industries providing local telephone service and electricity. Why might the introduction of competition increase the efficiency of these industries?

Accepted Answer

One reason may be that changes in techno

Question 12

Monopoly profits cannot persist in the long run, because there are barriers to entry.

Accepted Answer

A) True 
 B)False

Question 13

In what way are a price-taking firm and a monopoly firm alike?

Accepted Answer

A)  Price exceeds marginal cost at the profit-maximizing level of output for both. 
B)  Both maximize profits by choosing an output where marginal revenue equals marginal cost, provided that price exceeds average variable cost. 
C)  In the long run, both earn zero economic profits. 
D)  Price equals marginal revenue for both. 
A)  Price exceeds marginal cost at the profit-maximizing level of output for both. 
B)  Both maximize profits by choosing an output where marginal revenue equals marginal cost, provided that price exceeds average variable cost. 
C)  In the long run, both earn zero economic profits. 
D)  Price equals marginal revenue for both.

Question 14

What type of market structure exists when a single firm can produce output over the relevant range of demand more efficiently than two or more firms can because of the existence of economies of scale?

Accepted Answer

A)  diseconomies of scale 
B)  monopolistic competition 
C)  a natural monopoly 
D)  perfect competition 
A)  diseconomies of scale 
B)  monopolistic competition 
C)  a natural monopoly 
D)  perfect competition

Question 15

Why does monopoly result in a welfare loss?

Accepted Answer

A)  because the monopolist restricts output below the socially efficient level 
B)  because marginal revenue does not equal marginal cost 
C)  because total cost is not minimized 
D)  because average variable cost is not minimized 
A)  because the monopolist restricts output below the socially efficient level 
B)  because marginal revenue does not equal marginal cost 
C)  because total cost is not minimized 
D)  because average variable cost is not minimized

Question 16

Figure 9-1
  
-Refer to Figure 9-1. What level of output will the profit-maximizing firm produce at?

Accepted Answer

A)  0Q1 
B)  0Q2 
C)  0Q3 
D)  zero (shutdown) 
A)  0Q1 
B)  0Q2 
C)  0Q3 
D)  zero (shutdown)

Question 17

If a public utility is subject to average-cost pricing regulation, what can we conclude?

Accepted Answer

A)  It will produce the socially efficient level of output. 
B)  It will earn an above-normal rate of return. 
C)  It will suffer economic losses without a subsidy. 
D)  It will earn a normal rate of return. 
A)  It will produce the socially efficient level of output. 
B)  It will earn an above-normal rate of return. 
C)  It will suffer economic losses without a subsidy. 
D)  It will earn a normal rate of return.

Question 18

If a profit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, what action should it take to maximize profits?

Accepted Answer

A)  It should reduce both output and price. 
B)  It should raise the price and decrease output. 
C)  It should raise the price and hold output constant. 
D)  It should lower the price and increase output. 
A)  It should reduce both output and price. 
B)  It should raise the price and decrease output. 
C)  It should raise the price and hold output constant. 
D)  It should lower the price and increase output.

Question 19

A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than what it costs to produce them.

Accepted Answer

A) True 
 B)False

Question 20

The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

Accepted Answer

A) True 
 B)False

What is the shape of the demand curve of a monopolist?

Which of the following best describes marginal cost regulation of a natural monopoly?

TABLE 9-2 -Refer to Table 9-2. If the firm is currently producing 12 units of output, what should the firm do to maximize profits?

Which of the following is a Canadian monopoly?

If a regulatory commission wishes to allow a firm to earn a normal rate of return, what should it set price equal to?

Which of the following is NOT an example of price discrimination?

Figure 9-2 -Refer to Figure 9-2. What level of output will the profit-maximizing firm produce at?

FIGURE 9-4 -Refer to Figure 9-4. What quantity of output would a profit-maximizing monopolist produce?

Which of the following is likely to occur in a monopolized market?

FIGURE 9-5 -Refer to Figure 9-5. If the firm sets a price to maximize profits, will it earn a profit or suffer a loss?

Monopoly profits cannot persist in the long run, because there are barriers to entry.

In what way are a price-taking firm and a monopoly firm alike?

What type of market structure exists when a single firm can produce output over the relevant range of demand more efficiently than two or more firms can because of the existence of economies of scale?

Why does monopoly result in a welfare loss?

Figure 9-1 -Refer to Figure 9-1. What level of output will the profit-maximizing firm produce at?

If a public utility is subject to average-cost pricing regulation, what can we conclude?

If a profit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, what action should it take to maximize profits?

A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than what it costs to produce them.

The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 9: Monopoly

What is the shape of the demand curve of a monopolist?

Which of the following best describes marginal cost regulation of a natural monopoly?

TABLE 9-2 -Refer to Table 9-2. If the firm is currently producing 12 units of output, what should the firm do to maximize profits?

Which of the following is a Canadian monopoly?

If a regulatory commission wishes to allow a firm to earn a normal rate of return, what should it set price equal to?

Which of the following is NOT an example of price discrimination?

Figure 9-2 -Refer to Figure 9-2. What level of output will the profit-maximizing firm produce at?

FIGURE 9-4 -Refer to Figure 9-4. What quantity of output would a profit-maximizing monopolist produce?

Which of the following is likely to occur in a monopolized market?

FIGURE 9-5 -Refer to Figure 9-5. If the firm sets a price to maximize profits, will it earn a profit or suffer a loss?

Monopoly profits cannot persist in the long run, because there are barriers to entry.

In what way are a price-taking firm and a monopoly firm alike?

What type of market structure exists when a single firm can produce output over the relevant range of demand more efficiently than two or more firms can because of the existence of economies of scale?

Why does monopoly result in a welfare loss?

Figure 9-1 -Refer to Figure 9-1. What level of output will the profit-maximizing firm produce at?

If a public utility is subject to average-cost pricing regulation, what can we conclude?

If a profit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, what action should it take to maximize profits?

A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than what it costs to produce them.

The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers.

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters