Question 1

The demand curve facing a monopolist

Accepted Answer

A)  is perfectly elastic. 
B)  lies above its marginal revenue curve. 
C)  lies below its marginal revenue curve. 
D)  is the same as its marginal revenue curve. 
A)  is perfectly elastic. 
B)  lies above its marginal revenue curve. 
C)  lies below its marginal revenue curve. 
D)  is the same as its marginal revenue curve.

Question 2

Antitrust action restructures a previously monopolized industry into a competitive industry. If economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is

Accepted Answer

A)  a reduction in output and an increase in price in the industry. 
B)  a reduction in both price and output in the industry. 
C)  an increase in both price and output in the industry. 
D)  an increase in output and a reduction in price in the industry. 
A)  a reduction in output and an increase in price in the industry. 
B)  a reduction in both price and output in the industry. 
C)  an increase in both price and output in the industry. 
D)  an increase in output and a reduction in price in the industry.

Question 3

Oligopolistic agreements on price tend to be unstable because

Accepted Answer

A)  although the monopoly price is the best price for all firms, oligopolists are unaware of this and thus charge prices that are lower than the price that could be charged by a monopolists, therefore, decreasing social welfare. 
B)  although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down. 
C)  the demand for the products of oligopolistic industries is inherently unstable relative to the demand for the products of non-oligopolistic industries because demand for products in oligopolistic industries are dependent on changes in consumer tastes and preferences. 
D)  firms in oligopolistic industries have more concern for consumers than do firms in competitive industries. 
A)  although the monopoly price is the best price for all firms, oligopolists are unaware of this and thus charge prices that are lower than the price that could be charged by a monopolists, therefore, decreasing social welfare. 
B)  although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down. 
C)  the demand for the products of oligopolistic industries is inherently unstable relative to the demand for the products of non-oligopolistic industries because demand for products in oligopolistic industries are dependent on changes in consumer tastes and preferences. 
D)  firms in oligopolistic industries have more concern for consumers than do firms in competitive industries.

Question 4

Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?

Accepted Answer

A)  price-taker markets with low entry barriers 
B)  pure monopoly 
C)  price-searcher markets with low entry barriers 
D)  oligopoly 
A)  price-taker markets with low entry barriers 
B)  pure monopoly 
C)  price-searcher markets with low entry barriers 
D)  oligopoly

Question 5

(I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits.

Accepted Answer

A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are false. 
D)  Both I and II are true. 
A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are false. 
D)  Both I and II are true.

Question 6

A natural monopoly exists when

Accepted Answer

A)  a single firm has control over a natural resource, such as timber. 
B)  ATC in an industry will be at a minimum if output is produced by a single firm. 
C)  a firm has an exclusive patent or license to produce a product granted by the government. 
D)  entering the industry is barred by governmental authorities. 
A)  a single firm has control over a natural resource, such as timber. 
B)  ATC in an industry will be at a minimum if output is produced by a single firm. 
C)  a firm has an exclusive patent or license to produce a product granted by the government. 
D)  entering the industry is barred by governmental authorities.

Question 7

Consider the following demand and cost information for a monopoly.
Table 11-1
  Refer to Table 11-1. To maximize profit, the monopolist sets price at

Accepted Answer

A)  $10 
B)  $15 
C)  $20 
D)  $25 
A)  $10 
B)  $15 
C)  $20 
D)  $25

Question 8

The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
 
Refer to Figure 11-17. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Accepted Answer

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

Question 9

Regulating natural monopolies according to the "rate of return" criterion is likely to

Accepted Answer

A)  reduce the incentive of firms to minimize cost. 
B)  result in a smaller quantity of output than when the natural monopolist is unregulated. 
C)  discourage the firms from investing resources in an effort to influence the decisions of the regulatory agency. 
D)  increase the number of firms in the industry. 
A)  reduce the incentive of firms to minimize cost. 
B)  result in a smaller quantity of output than when the natural monopolist is unregulated. 
C)  discourage the firms from investing resources in an effort to influence the decisions of the regulatory agency. 
D)  increase the number of firms in the industry.

Question 10

Cartels are difficult to maintain because

Accepted Answer

A)  antitrust laws are difficult to enforce. 
B)  cartel agreements are conducive to monopoly outcomes. 
C)  there is always tension between cooperation and self-interest in a cartel. 
D)  firms pay little attention to the decision made by other firms. 
A)  antitrust laws are difficult to enforce. 
B)  cartel agreements are conducive to monopoly outcomes. 
C)  there is always tension between cooperation and self-interest in a cartel. 
D)  firms pay little attention to the decision made by other firms.

Question 11

Monopolists are criticized because they are inefficient. What is meant by this statement?

Accepted Answer

A)  Monopolists charge too high a price. 
B)  Monopolists don't innovate enough to control pollution. 
C)  Monopolists produce a large quantity of waste. 
D)  Monopolists usually don't produce at the minimum of the ATC. 
E)  Monopolists could use their resources better elsewhere. 
A)  Monopolists charge too high a price. 
B)  Monopolists don't innovate enough to control pollution. 
C)  Monopolists produce a large quantity of waste. 
D)  Monopolists usually don't produce at the minimum of the ATC. 
E)  Monopolists could use their resources better elsewhere.

Question 12

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

Accepted Answer

A)  they are unable to maintain the same degree of monopoly power achieved by a monopolist. 
B)  each firm's profit always ends up being zero. 
C)  competitive pressures are absent from the market. 
D)  it will be easier to maintain collusive agreements. 
A)  they are unable to maintain the same degree of monopoly power achieved by a monopolist. 
B)  each firm's profit always ends up being zero. 
C)  competitive pressures are absent from the market. 
D)  it will be easier to maintain collusive agreements.

Question 13

In the case where a natural monopoly exists in an industry,

Accepted Answer

A)  a competitive market structure will be costly and difficult to maintain. 
B)  a competitive market structure will be more efficient and more equitable. 
C)  government regulations will always improve efficiency in this industry. 
D)  economies of scale will not be a consideration when analyzing the proper structure of the industry. 
A)  a competitive market structure will be costly and difficult to maintain. 
B)  a competitive market structure will be more efficient and more equitable. 
C)  government regulations will always improve efficiency in this industry. 
D)  economies of scale will not be a consideration when analyzing the proper structure of the industry.

Question 14

In which of the following industries would we expect collusion to be most effective?

Accepted Answer

A)  retail gasoline, where most gas is sold by a large number of small dealers 
B)  crude oil production, where most oil is sold by a small number of large sellers 
C)  housing construction, an industry dominated by local firms that produce unique products 
D)  soybean production, where there are large numbers of farmers in many countries 
A)  retail gasoline, where most gas is sold by a large number of small dealers 
B)  crude oil production, where most oil is sold by a small number of large sellers 
C)  housing construction, an industry dominated by local firms that produce unique products 
D)  soybean production, where there are large numbers of farmers in many countries

Question 15

Use the table to answer the following question.
Table 11-4
 
The demand and total cost schedules of a monopolist are presented in Table 11-4. What price should a profit-maximizing monopolist charge?

Accepted Answer

A)  $24 
B)  $23 
C)  $22 
D)  $21 
A)  $24 
B)  $23 
C)  $22 
D)  $21

Question 16

When a monopolist is maximizing profit, which of the following conditions will always be satisfied?

Accepted Answer

A)  P = MC 
B)  MR = AVC 
C)  P = ATC 
D)  MR = MC 
A)  P = MC 
B)  MR = AVC 
C)  P = ATC 
D)  MR = MC

Question 17

Use the figure to answer the following question(s).
Figure 11-13
 
Using Figure 11-13, determine the maximum joint monthly profit of the firms if they operate as a cartel.

Accepted Answer

A)  zero 
B)  $1,500 
C)  $3,000 
D)  $4,500 
A)  zero 
B)  $1,500 
C)  $3,000 
D)  $4,500

Question 18

Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets?

Accepted Answer

A)  A monopolist will maximize profit, while firms in competitive price-searcher markets will maximize sales. 
B)  A monopolist may be able to earn long-run economic profit, but firms in competitive price-searcher markets will not be able to do so. 
C)  A monopolist will charge a price that is greater than its marginal cost, but competitive price searchers will charge prices that are just equal to their marginal cost. 
D)  A monopolist will charge a price that is just equal to its marginal cost, but competitive price searchers will charge prices that are greater than their marginal cost. 
A)  A monopolist will maximize profit, while firms in competitive price-searcher markets will maximize sales. 
B)  A monopolist may be able to earn long-run economic profit, but firms in competitive price-searcher markets will not be able to do so. 
C)  A monopolist will charge a price that is greater than its marginal cost, but competitive price searchers will charge prices that are just equal to their marginal cost. 
D)  A monopolist will charge a price that is just equal to its marginal cost, but competitive price searchers will charge prices that are greater than their marginal cost.

Question 19

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Accepted Answer

A)  Raise price and lower output. 
B)  Lower price and lower output. 
C)  Raise price and raise output. 
D)  Lower price and raise output. 
E)  Lower output but leave price unchanged. 
A)  Raise price and lower output. 
B)  Lower price and lower output. 
C)  Raise price and raise output. 
D)  Lower price and raise output. 
E)  Lower output but leave price unchanged.

Question 20

Figure 11-16  
Refer to Figure 11-16. The allocative inefficiency caused by a profit-maximizing monopoly amounts to

Accepted Answer

A)  $150. 
B)  $200. 
C)  $250. 
D)  $300. 
A)  $150. 
B)  $200. 
C)  $250. 
D)  $300.

The demand curve facing a monopolist

Antitrust action restructures a previously monopolized industry into a competitive industry. If economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is

Oligopolistic agreements on price tend to be unstable because

Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?

(I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits.

A natural monopoly exists when

Consider the following demand and cost information for a monopoly. Table 11-1 Refer to Table 11-1. To maximize profit, the monopolist sets price at

The figure below illustrates the cost and revenue structure for a monopoly firm. Figure 11-17 Refer to Figure 11-17. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Regulating natural monopolies according to the "rate of return" criterion is likely to

Cartels are difficult to maintain because

Monopolists are criticized because they are inefficient. What is meant by this statement?

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

In the case where a natural monopoly exists in an industry,

In which of the following industries would we expect collusion to be most effective?

Use the table to answer the following question. Table 11-4 The demand and total cost schedules of a monopolist are presented in Table 11-4. What price should a profit-maximizing monopolist charge?

When a monopolist is maximizing profit, which of the following conditions will always be satisfied?

Use the figure to answer the following question(s). Figure 11-13 Using Figure 11-13, determine the maximum joint monthly profit of the firms if they operate as a cartel.

Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets?

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Figure 11-16 Refer to Figure 11-16. The allocative inefficiency caused by a profit-maximizing monopoly amounts to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

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Exam 11: Price-Searcher Markets With High Entry Barriers

The demand curve facing a monopolist

Antitrust action restructures a previously monopolized industry into a competitive industry. If economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is

Oligopolistic agreements on price tend to be unstable because

Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?

(I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits.

A natural monopoly exists when

Consider the following demand and cost information for a monopoly. Table 11-1 Refer to Table 11-1. To maximize profit, the monopolist sets price at

The figure below illustrates the cost and revenue structure for a monopoly firm. Figure 11-17 Refer to Figure 11-17. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Regulating natural monopolies according to the "rate of return" criterion is likely to

Cartels are difficult to maintain because

Monopolists are criticized because they are inefficient. What is meant by this statement?

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

In the case where a natural monopoly exists in an industry,

In which of the following industries would we expect collusion to be most effective?

Use the table to answer the following question. Table 11-4 The demand and total cost schedules of a monopolist are presented in Table 11-4. What price should a profit-maximizing monopolist charge?

When a monopolist is maximizing profit, which of the following conditions will always be satisfied?

Use the figure to answer the following question(s). Figure 11-13 Using Figure 11-13, determine the maximum joint monthly profit of the firms if they operate as a cartel.

Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets?

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Figure 11-16 Refer to Figure 11-16. The allocative inefficiency caused by a profit-maximizing monopoly amounts to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters