Question 1

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

Accepted Answer

A) a smaller firm will always have lower per-unit costs. 
B) many firms will tend to emerge from the competitive process. 
C) a single large firm will develop, and it will have cost advantages that protect it from potential rivals. 
D) a single large firm will develop, and it will buy out any smaller rival firms to avoid the small firms' production at a lower per-unit cost. 
A) a smaller firm will always have lower per-unit costs. 
B) many firms will tend to emerge from the competitive process. 
C) a single large firm will develop, and it will have cost advantages that protect it from potential rivals. 
D) a single large firm will develop, and it will buy out any smaller rival firms to avoid the small firms' production at a lower per-unit cost.

Question 2

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist

Accepted Answer

A) is producing his profit-maximizing level of output. 
B) could increase his profit by increasing his output. 
C) could increase his profit by increasing his price. 
D) should exit the market if he has positive fixed cost. 
A) is producing his profit-maximizing level of output. 
B) could increase his profit by increasing his output. 
C) could increase his profit by increasing his price. 
D) should exit the market if he has positive fixed cost.

Question 3

Figure 11-15
  
-Refer to Figure 11-15. Which of the following areas represents the deadweight loss due to monopoly pricing?

Accepted Answer

A) Triangle bde 
B) Triangle bge 
C) Rectangle acdb 
D) Rectangle cfgd 
A) Triangle bde 
B) Triangle bge 
C) Rectangle acdb 
D) Rectangle cfgd

Question 4

Which of the following is true under natural monopoly?

Accepted Answer

A) The marginal cost curve will be above the average cost curve. 
B) The monopolist will set price equal to marginal cost and will earn economic profits. 
C) Economies of scale will be present. 
D) Output is produced under conditions of constant cost. 
A) The marginal cost curve will be above the average cost curve. 
B) The monopolist will set price equal to marginal cost and will earn economic profits. 
C) Economies of scale will be present. 
D) Output is produced under conditions of constant cost.

Question 5

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 6

The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to

Accepted Answer

A) cheat to maximize joint profits and the incentive to raise prices. 
B) cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C) increase output in order to minimize per-unit costs and the incentive to reduce price in order to maximize joint profit. 
D) cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit. 
A) cheat to maximize joint profits and the incentive to raise prices. 
B) cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C) increase output in order to minimize per-unit costs and the incentive to reduce price in order to maximize joint profit. 
D) cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.

Question 7

If government officials break a natural monopoly up into several smaller firms, then

Accepted Answer

A) competition will force firms to attain economic profits rather than accounting profits. 
B) competition will force firms to produce surplus output, which drives up price. 
C) the average costs of production will increase. 
D) the average costs of production will decrease. 
A) competition will force firms to attain economic profits rather than accounting profits. 
B) competition will force firms to produce surplus output, which drives up price. 
C) the average costs of production will increase. 
D) the average costs of production will decrease.

Question 8

Figure 11-21
  
-The welfare loss associated with the unregulated natural monopoly in Figure 11-21 is shown by the area

Accepted Answer

A) cef 
B) abc 
C) adf 
D) dfeg 
E) bcfd 
A) cef 
B) abc 
C) adf 
D) dfeg 
E) bcfd

Question 9

Assume a monopolist's marginal cost and marginal revenue curves intersect and the demand curve passes above its average total cost curve. The firm will

Accepted Answer

A) make an economic profit. 
B) stay in operation in the short run, but shut down in the long run. 
C) shut down in the short run. 
D) lower the price. 
A) make an economic profit. 
B) stay in operation in the short run, but shut down in the long run. 
C) shut down in the short run. 
D) lower the price.

Question 10

How will the price and output of an unregulated monopolist compare with the ideal levels that might be reached if the market was competitive?

Accepted Answer

A) The output of the monopolist will be larger and the price lower. 
B) The output of the monopolist will be larger and the price higher. 
C) The output of the monopolist will be smaller and the price lower. 
D) The output of the monopolist will be smaller and the price higher. 
A) The output of the monopolist will be larger and the price lower. 
B) The output of the monopolist will be larger and the price higher. 
C) The output of the monopolist will be smaller and the price lower. 
D) The output of the monopolist will be smaller and the price higher.

Question 11

In the area of business, rent-seeking often involves

Accepted Answer

A) the use of resources to construct high-priced rental housing. 
B) the use of resources to secure and maintain a grant of monopoly power from the government. 
C) an agreement between firms to raise prices and limit entry. 
D) an agreement between a firm and a customer that makes both parties better off. 
A) the use of resources to construct high-priced rental housing. 
B) the use of resources to secure and maintain a grant of monopoly power from the government. 
C) an agreement between firms to raise prices and limit entry. 
D) an agreement between a firm and a customer that makes both parties better off.

Question 12

A regulatory agency that imposes a price ceiling in order to limit monopoly profits to a "fair rate of return" is forcing the monopolist to sell at a price equal to

Accepted Answer

A) average fixed cost. 
B) average total cost. 
C) marginal cost. 
D) average variable cost. 
A) average fixed cost. 
B) average total cost. 
C) marginal cost. 
D) average variable cost.

Question 13

Which of the following is a unique characteristic of the oligopolistic market structure?

Accepted Answer

A) low barriers to entry 
B) a large number of firms producing highly differentiated products that are complements to each other 
C) product differentiation among the products produced by individual firms 
D) mutual interdependence among firms in demand, and thus, in price decisions 
A) low barriers to entry 
B) a large number of firms producing highly differentiated products that are complements to each other 
C) product differentiation among the products produced by individual firms 
D) mutual interdependence among firms in demand, and thus, in price decisions

Question 14

Which of the following has tended to increase the competitiveness of markets in the United States during the last couple of decades?

Accepted Answer

A) increases in transport costs 
B) development of the Internet 
C) decreased competition from imports 
D) more government regulation of product quality 
A) increases in transport costs 
B) development of the Internet 
C) decreased competition from imports 
D) more government regulation of product quality

Question 15

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

Accepted Answer

A) increase the monopolist's incentive to minimize cost. 
B) increase output compared to the situation where the firm is unregulated. 
C) completely eliminate the "welfare loss" due to monopoly. 
D) do all of the above 
A) increase the monopolist's incentive to minimize cost. 
B) increase output compared to the situation where the firm is unregulated. 
C) completely eliminate the "welfare loss" due to monopoly. 
D) do all of the above

Question 16

If marginal revenue exceeds marginal cost, a profit-maximizing monopolist will

Accepted Answer

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

Question 17

A monopolist finds out that if he lowers his price from $10 to $8, sales rise from 100 units to 115 units. Therefore, in this price range,

Accepted Answer

A) marginal revenue is positive. 
B) marginal revenue is negative. 
C) the price elasticity of demand is greater than one. 
D) both a and c are correct. 
A) marginal revenue is positive. 
B) marginal revenue is negative. 
C) the price elasticity of demand is greater than one. 
D) both a and c are correct.

Question 18

Figure 11-20
  
-At the profit-maximizing level of production, the monopoly in Figure 11-20 will have a

Accepted Answer

A) profit per unit of output of $2. 
B) loss per unit of output of $2. 
C) loss per unit of output of $5. 
D) profit per unit of output of $5. 
E) loss per unit of output of $4. 
A) profit per unit of output of $2. 
B) loss per unit of output of $2. 
C) loss per unit of output of $5. 
D) profit per unit of output of $5. 
E) loss per unit of output of $4.

Question 19

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 20

Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry

Accepted Answer

A) redistribute income from consumers to business decision makers without affecting the allocation of resources. 
B) may be a source of business monopoly power, but they may also encourage innovation in the long run. 
C) encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly. 
D) help inventors at the expense of consumers in the long run. 
A) redistribute income from consumers to business decision makers without affecting the allocation of resources. 
B) may be a source of business monopoly power, but they may also encourage innovation in the long run. 
C) encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly. 
D) help inventors at the expense of consumers in the long run.

Exam 11: A: Price-Searcher Markets With High Entry Barriers

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist

Figure 11-15 -Refer to Figure 11-15. Which of the following areas represents the deadweight loss due to monopoly pricing?

Which of the following is true under natural monopoly?

Oligopolistic agreements on price tend to be unstable because

The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to

If government officials break a natural monopoly up into several smaller firms, then

Figure 11-21 -The welfare loss associated with the unregulated natural monopoly in Figure 11-21 is shown by the area

Assume a monopolist's marginal cost and marginal revenue curves intersect and the demand curve passes above its average total cost curve. The firm will

How will the price and output of an unregulated monopolist compare with the ideal levels that might be reached if the market was competitive?

In the area of business, rent-seeking often involves

A regulatory agency that imposes a price ceiling in order to limit monopoly profits to a "fair rate of return" is forcing the monopolist to sell at a price equal to

Which of the following is a unique characteristic of the oligopolistic market structure?

Which of the following has tended to increase the competitiveness of markets in the United States during the last couple of decades?

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

If marginal revenue exceeds marginal cost, a profit-maximizing monopolist will

A monopolist finds out that if he lowers his price from $10 to $8, sales rise from 100 units to 115 units. Therefore, in this price range,

Figure 11-20 -At the profit-maximizing level of production, the monopoly in Figure 11-20 will have a

Cartels are difficult to maintain because

Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

B: Price-Searcher Markets With High 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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