Question 1

A monopolist faces a downward-sloping demand curve because:

Accepted Answer

A)  the demand for its product is inelastic. 
B)  the industry demand curve is horizontal. 
C)  resource prices increase as the monopolist expands output. 
D)  the entire market demand curve is the monopolist's demand curve. 
A)  the demand for its product is inelastic. 
B)  the industry demand curve is horizontal. 
C)  resource prices increase as the monopolist expands output. 
D)  the entire market demand curve is the monopolist's demand curve. D

Question 2

An example of price discrimination is the price charged for:

Accepted Answer

A)  an economics textbook at a campus bookstore. 
B)  gasoline. 
C)  a piece of art sold at an auction. 
D)  a postage stamp. 
A)  an economics textbook at a campus bookstore. 
B)  gasoline. 
C)  a piece of art sold at an auction. 
D)  a postage stamp. C

Question 3

Why can a monopoly earn economic profits in the long run?

Accepted Answer

Because a monopoly experiences very strong barriers to entry, keeping potential competitors out of its market, it can earn economic profits in the long run. Barriers to entry may include economies of scale, financial and technological barriers to entry, sole ownership over a strategic resource, and even government laws and regulation.

Question 4

Which of the following factors is not a barrier limiting the entry of potential competitors into a market?

Accepted Answer

A)  legally enforced patent rights 
B)  an inelastic demand for a product 
C)  economies of scale 
D)  ownership of a vital resource 
A)  legally enforced patent rights 
B)  an inelastic demand for a product 
C)  economies of scale 
D)  ownership of a vital resource

Question 5

Suppose there are four buyers all considering purchasing round-trip airfare from Boston to Miami with the following price elasticities of demand for this purchase: Buyer A: 1.5, Buyer B: 0.7, Buyer C: 1.0, Buyer D: 2.3. If the airline knows of these elasticities and practices price discrimination, which buyer will pay the highest price for the airfare?

Accepted Answer

A)  Buyer A 
B)  Buyer B 
C)  Buyer C 
D)  Buyer D 
A)  Buyer A 
B)  Buyer B 
C)  Buyer C 
D)  Buyer D

Question 6

Comparing a perfectly competitive market to a monopoly, which of the following is true ?

Accepted Answer

A)  Price will be higher and quantity will be lower in the perfectly competitive market than in the monopoly. 
B)  Price will be higher than marginal cost in the perfectly competitive market but will be equal to marginal cost in the monopoly. 
C)  Price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly. 
D)  at that point on the market demand curve which intersects the marginal cost curve. 
A)  Price will be higher and quantity will be lower in the perfectly competitive market than in the monopoly. 
B)  Price will be higher than marginal cost in the perfectly competitive market but will be equal to marginal cost in the monopoly. 
C)  Price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly. 
D)  at that point on the market demand curve which intersects the marginal cost curve.

Question 7

A monopoly is:

Accepted Answer

A)  a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run. 
B)  the only seller of a good for which there are no good substitutes in a market with high barriers to entry. 
C)  the only buyer of a unique raw material. 
D)  the producer of a product subsidized by the government. 
A)  a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run. 
B)  the only seller of a good for which there are no good substitutes in a market with high barriers to entry. 
C)  the only buyer of a unique raw material. 
D)  the producer of a product subsidized by the government.

Question 8

Both a perfectly competitive firm and a monopolist:

Accepted Answer

A)  always earn an economic profit. 
B)  maximize profit by setting marginal cost equal to marginal revenue. 
C)  maximize profit by setting marginal cost equal to average total cost. 
D)  are price takers. 
A)  always earn an economic profit. 
B)  maximize profit by setting marginal cost equal to marginal revenue. 
C)  maximize profit by setting marginal cost equal to average total cost. 
D)  are price takers.

Question 9

Which of the following is true for a monopolist but not for a firm in perfect competition?

Accepted Answer

A)  The marginal revenue curve is downward-sloping. 
B)  Marginal revenue equals price. 
C)  Economic profits are zero in the long-run. 
D)  The marginal revenue curve lies above the demand curve. 
A)  The marginal revenue curve is downward-sloping. 
B)  Marginal revenue equals price. 
C)  Economic profits are zero in the long-run. 
D)  The marginal revenue curve lies above the demand curve.

Question 10

At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:

Accepted Answer

A)  $14. 
B)  $55. 
C)  $6. 
D)  $175. 
A)  $14. 
B)  $55. 
C)  $6. 
D)  $175.

Question 11

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?

Accepted Answer

A)  ownership of a vital resource 
B)  government franchises and licenses 
C)  patents and copyrights 
D)  economies of scale 
A)  ownership of a vital resource 
B)  government franchises and licenses 
C)  patents and copyrights 
D)  economies of scale

Question 12

At the level of output where the marginal cost and marginal revenue curves intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms?

Accepted Answer

A)  The firms are making an economic profit. 
B)  Price equals marginal revenue. 
C)  Price equals marginal cost. 
D)  Entry of new firms is expected in the market. 
A)  The firms are making an economic profit. 
B)  Price equals marginal revenue. 
C)  Price equals marginal cost. 
D)  Entry of new firms is expected in the market.

Question 13

A monopoly:

Accepted Answer

A)  can increase price and increase output at the same time. 
B)  can charge any price it wants and still sell all of its output. 
C)  can sell any output it produces provided it accepts the market price. 
D)  must lower price in order to increase output. 
A)  can increase price and increase output at the same time. 
B)  can charge any price it wants and still sell all of its output. 
C)  can sell any output it produces provided it accepts the market price. 
D)  must lower price in order to increase output.

Question 14

Exhibit 9-4 Demand and cost curves for a monopolist
​
 
As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?

Accepted Answer

A)  2 units per hour. 
B)  4 units per hour. 
C)  6 units per hour. 
D)  8 units per hour. 
A)  2 units per hour. 
B)  4 units per hour. 
C)  6 units per hour. 
D)  8 units per hour.

Question 15

If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect:

Accepted Answer

A)  less pizza to be sold at a higher price. 
B)  more pizza to be sold at a higher price. 
C)  less pizza to be sold at a lower price. 
D)  more pizza to be sold at a lower price. 
A)  less pizza to be sold at a higher price. 
B)  more pizza to be sold at a higher price. 
C)  less pizza to be sold at a lower price. 
D)  more pizza to be sold at a lower price.

Question 16

A monopoly sets a market price that is higher than the marginal cost of production. This fact implies that a monopoly's allocation of resources is:

Accepted Answer

A)  unfair. 
B)  inefficient. 
C)  discriminatory. 
D)  excessive. 
A)  unfair. 
B)  inefficient. 
C)  discriminatory. 
D)  excessive.

Question 17

Economists do not think price discrimination is unfair because

Accepted Answer

A)  people with higher incomes should pay higher prices than those with lower incomes. 
B)  if the prices charged to some buyers get too high, those who are able to buy at lower prices will just resell their purchases to the people facing the high prices. 
C)  economists are concerned with efficiency rather than fairness. 
D)  more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price. 
A)  people with higher incomes should pay higher prices than those with lower incomes. 
B)  if the prices charged to some buyers get too high, those who are able to buy at lower prices will just resell their purchases to the people facing the high prices. 
C)  economists are concerned with efficiency rather than fairness. 
D)  more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price.

Question 18

The strategy underlying price discrimination is to:

Accepted Answer

A)  charge higher prices to customers who have better access to substitutes. 
B)  charge everyone the same price but limit the quantity they are allowed to buy. 
C)  increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D)  reduce per-unit costs by charging higher prices to those with the most elastic demand and lower prices to those with the most inelastic demand. 
A)  charge higher prices to customers who have better access to substitutes. 
B)  charge everyone the same price but limit the quantity they are allowed to buy. 
C)  increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D)  reduce per-unit costs by charging higher prices to those with the most elastic demand and lower prices to those with the most inelastic demand.

Question 19

Exhibit 9-7 Monopolist
​
 
According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?

Accepted Answer

A)  Stay where he is currently operating because he is charging the profit-maximizing price. 
B)  Increase price and increase output. 
C)  Decrease price and increase output. 
D)  Increase output and hold price constant. 
A)  Stay where he is currently operating because he is charging the profit-maximizing price. 
B)  Increase price and increase output. 
C)  Decrease price and increase output. 
D)  Increase output and hold price constant.

Question 20

Price discrimination requires:

Accepted Answer

A)  a firm to be a competitive firm. 
B)  a firm to be able to segment its customers based on different price elasticities of demand. 
C)  arbitrage. 
D)  that the product can be easily resold. 
A)  a firm to be a competitive firm. 
B)  a firm to be able to segment its customers based on different price elasticities of demand. 
C)  arbitrage. 
D)  that the product can be easily resold.

Exam 9: Monopoly

A monopolist faces a downward-sloping demand curve because:

An example of price discrimination is the price charged for:

Why can a monopoly earn economic profits in the long run?

Which of the following factors is not a barrier limiting the entry of potential competitors into a market?

Comparing a perfectly competitive market to a monopoly, which of the following is true ?

A monopoly is:

Both a perfectly competitive firm and a monopolist:

Which of the following is true for a monopolist but not for a firm in perfect competition?

At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?

At the level of output where the marginal cost and marginal revenue curves intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms?

A monopoly:

Exhibit 9-4 Demand and cost curves for a monopolist ​ As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?

If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect:

A monopoly sets a market price that is higher than the marginal cost of production. This fact implies that a monopoly's allocation of resources is:

Economists do not think price discrimination is unfair because

The strategy underlying price discrimination is to:

Exhibit 9-7 Monopolist ​ According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?

Price discrimination requires:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 9-4 Demand and cost curves for a monopolist As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?

Exhibit 9-7 Monopolist According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?