Question 1

A monopoly arises for two key reasons, which are

Accepted Answer

A) barriers to entry and no close substitutes. 
B) franchises and barriers to entry. 
C) barriers to entry and close substitutes. 
D) close substitutes and no barriers to entry. 
E) natural and legal 
A) barriers to entry and no close substitutes. 
B) franchises and barriers to entry. 
C) barriers to entry and close substitutes. 
D) close substitutes and no barriers to entry. 
E) natural and legal A

Question 2

To prevent monopoly from arising, there must be

Accepted Answer

A) a single supplier of a good in the market. 
B) no close substitutes for the good. 
C) barriers preventing entry of other firms. 
D) freedom of entry into the market. 
E) economies of scale. 
A) a single supplier of a good in the market. 
B) no close substitutes for the good. 
C) barriers preventing entry of other firms. 
D) freedom of entry into the market. 
E) economies of scale. D

Question 3

If a firm practises perfect price discrimination,

Accepted Answer

A) its marginal cost curve is horizontal. 
B) it will maximize total revenue. 
C) it does not produce the quantity at which marginal revenue equals marginal cost. 
D) it will produce the quantity at which the marginal revenue curve intersects the average total cost curve. 
E) it will produce the quantity at which the marginal cost curve intersects the demand curve. 
A) its marginal cost curve is horizontal. 
B) it will maximize total revenue. 
C) it does not produce the quantity at which marginal revenue equals marginal cost. 
D) it will produce the quantity at which the marginal revenue curve intersects the average total cost curve. 
E) it will produce the quantity at which the marginal cost curve intersects the demand curve. E

Question 4

Capture theory states that

Accepted Answer

A) public officials favour consumers over producers. 
B) regulations promote the attainment of an efficient outcome. 
C) regulations lead to deadweight loss. 
D) regulation eliminates economic profit. 
E) rate of return regulation is best for all parties. 
A) public officials favour consumers over producers. 
B) regulations promote the attainment of an efficient outcome. 
C) regulations lead to deadweight loss. 
D) regulation eliminates economic profit. 
E) rate of return regulation is best for all parties.

Question 5

Use the figure below to answer the following questions.
   
Figure 13.3.2
-Consider Figure 13.3.2. Consider a single-price monopoly. If the light grey area shows the consumer surplus, and the dark grey area shows the producer surplus, which graph correctly represents this firm?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (b)and (c) 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (b)and (c)

Question 6

The capture theory holds that regulations are supplied to maximize

Accepted Answer

A) total sales. 
B) economic profit. 
C) marginal product. 
D) consumer surplus. 
E) marginal revenue. 
A) total sales. 
B) economic profit. 
C) marginal product. 
D) consumer surplus. 
E) marginal revenue.

Question 7

To increase sales from 7 units to 8 units, a single-price monopolist must drop the price from $7 per unit to $6 per unit. What is marginal revenue in this range?

Accepted Answer

A) $48 
B) $6 
C) $1 
D) -$1 
E) $7 
A) $48 
B) $6 
C) $1 
D) -$1 
E) $7

Question 8

For a single-price monopoly, marginal revenue is less than price because

Accepted Answer

A) the revenue gained from the last unit sold is offset by further gains in price on units not sold at all. 
B) total revenue always decreases as output increases. 
C) the revenue gained from the last unit sold is offset by a revenue loss on the units that previously had been sold at a higher price. 
D) the price does not need to be lowered on all previous units sold. 
E) demand is perfectly elastic. 
A) the revenue gained from the last unit sold is offset by further gains in price on units not sold at all. 
B) total revenue always decreases as output increases. 
C) the revenue gained from the last unit sold is offset by a revenue loss on the units that previously had been sold at a higher price. 
D) the price does not need to be lowered on all previous units sold. 
E) demand is perfectly elastic.

Question 9

Rent seeking

Accepted Answer

A) is a variable cost and with rent seeking the monopoly becomes more efficient. 
B) decreases average total cost and with rent seeking the monopoly becomes more efficient. 
C) increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity. 
D) decreases consumer surplus and with rent seeking the monopoly becomes more efficient. 
E) decreases deadweight loss. 
A) is a variable cost and with rent seeking the monopoly becomes more efficient. 
B) decreases average total cost and with rent seeking the monopoly becomes more efficient. 
C) increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity. 
D) decreases consumer surplus and with rent seeking the monopoly becomes more efficient. 
E) decreases deadweight loss.

Question 10

Use the figure below to answer the following questions.
   
Figure 13.2.2
-For the single-price monopoly shown in Figure 13.2.2, when profit is maximized, quantity is

Accepted Answer

A) 3 and price is $3. 
B) 3 and price is $6. 
C) 4 and price is $4. 
D) 4 and price is $5. 
E) 5 and price is $4. 
A) 3 and price is $3. 
B) 3 and price is $6. 
C) 4 and price is $4. 
D) 4 and price is $5. 
E) 5 and price is $4.

Question 11

Use the table below to answer the following questions.
Table 13.4.1
  
-Table 13.4.1 shows the demand schedule faced by a perfect price-discriminating monopoly. If 3 units are sold, total revenue is

Accepted Answer

A) $15.00. 
B) $16.00. 
C) $18.00. 
D) $19.50. 
E) $5.00. 
A) $15.00. 
B) $16.00. 
C) $18.00. 
D) $19.50. 
E) $5.00.

Question 12

A natural monopoly exists when

Accepted Answer

A) the government protects the firm by granting an exclusive franchise. 
B) production can take place with constant returns to scale. 
C) there are no rivals in the market. 
D) one firm can supply the entire market at a lower cost than two or more firms. 
E) the average total cost curve is upward sloping. 
A) the government protects the firm by granting an exclusive franchise. 
B) production can take place with constant returns to scale. 
C) there are no rivals in the market. 
D) one firm can supply the entire market at a lower cost than two or more firms. 
E) the average total cost curve is upward sloping.

Question 13

In a natural monopoly, the long-run average cost curve

Accepted Answer

A) is downward sloping in the relevant range of output levels. 
B) is horizontal in the relevant range of output levels. 
C) is upward sloping in the relevant range of output levels. 
D) may be either upward sloping or downward sloping in the relevant range of output levels. 
E) lies below the marginal cost curve. 
A) is downward sloping in the relevant range of output levels. 
B) is horizontal in the relevant range of output levels. 
C) is upward sloping in the relevant range of output levels. 
D) may be either upward sloping or downward sloping in the relevant range of output levels. 
E) lies below the marginal cost curve.

Question 14

Use the figure below to answer the following questions.
   
Figure 13.3.3
-Consider the revenue and cost curves in Figure 13.3.3. If this is a single-price monopoly, what is consumer surplus?

Accepted Answer

A) EADH 
B) EABH 
C) ABD 
D) ACD 
E) KEA 
A) EADH 
B) EABH 
C) ABD 
D) ACD 
E) KEA

Question 15

Use the figure below to answer the following questions.
   
Figure 13.3.3
-Consider the market demand curve in Figure 13.3.3. If the market is perfectly competitive, which area indicates producer surplus?

Accepted Answer

A) AEK 
B) DHK 
C) DIK 
D) DIH 
E) ACD 
A) AEK 
B) DHK 
C) DIK 
D) DIH 
E) ACD

Question 16

Use the figure below to answer the following questions.
   
Figure 13.5.2
-Consider the natural monopoly depicted in Figure 13.5.2. What area in the graph represents the deadweight loss arising from an average cost pricing rule?

Accepted Answer

A) ABD 
B) DGF 
C) DEF 
D) ACF 
E) CBDE 
A) ABD 
B) DGF 
C) DEF 
D) ACF 
E) CBDE

Question 17

Use the figure below to answer the following questions.
   
Figure 13.4.6
-Prime Pharmaceuticals has developed a new asthma inhaler, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 13.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If prime Pharmaceuticals can perfectly price discriminate, producer surplus is

Accepted Answer

A) $16 million. 
B) zero. 
C) $32 million. 
D) $64 million. 
E) $24 million. 
A) $16 million. 
B) zero. 
C) $32 million. 
D) $64 million. 
E) $24 million.

Question 18

Use the figure below to answer the following questions.
   
Figure 13.4.6
-Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 13.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If Prime Pharmaceuticals can perfectly price discriminate, then consumer surplus is

Accepted Answer

A) zero. 
B) $24 million. 
C) $64 million. 
D) $44 million. 
E) $32 million. 
A) zero. 
B) $24 million. 
C) $64 million. 
D) $44 million. 
E) $32 million.

Question 19

For a monopoly able to practice perfect price discrimination, the market

Accepted Answer

A) supply curve is horizontal. 
B) supply curve is the same as the marginal revenue curve. 
C) demand curve is the same as the marginal cost curve. 
D) demand curve is the same as the marginal revenue curve. 
E) demand curve is horizontal. 
A) supply curve is horizontal. 
B) supply curve is the same as the marginal revenue curve. 
C) demand curve is the same as the marginal cost curve. 
D) demand curve is the same as the marginal revenue curve. 
E) demand curve is horizontal.

Question 20

Under a marginal cost pricing rule, a regulated natural monopoly

Accepted Answer

A) makes an economic profit and a deadweight loss arises. 
B) makes an economic profit with no deadweight loss. 
C) incurs an economic loss with no deadweight loss. 
D) incurs an economic loss and a deadweight loss arises. 
E) breaks even. 
A) makes an economic profit and a deadweight loss arises. 
B) makes an economic profit with no deadweight loss. 
C) incurs an economic loss with no deadweight loss. 
D) incurs an economic loss and a deadweight loss arises. 
E) breaks even.

Exam 13: Monopoly

A monopoly arises for two key reasons, which are

To prevent monopoly from arising, there must be

If a firm practises perfect price discrimination,

Capture theory states that

Use the figure below to answer the following questions. Figure 13.3.2 -Consider Figure 13.3.2. Consider a single-price monopoly. If the light grey area shows the consumer surplus, and the dark grey area shows the producer surplus, which graph correctly represents this firm?

The capture theory holds that regulations are supplied to maximize

To increase sales from 7 units to 8 units, a single-price monopolist must drop the price from $7 per unit to $6 per unit. What is marginal revenue in this range?

For a single-price monopoly, marginal revenue is less than price because

Rent seeking

Use the figure below to answer the following questions. Figure 13.2.2 -For the single-price monopoly shown in Figure 13.2.2, when profit is maximized, quantity is

Use the table below to answer the following questions. Table 13.4.1 -Table 13.4.1 shows the demand schedule faced by a perfect price-discriminating monopoly. If 3 units are sold, total revenue is

A natural monopoly exists when

In a natural monopoly, the long-run average cost curve

Use the figure below to answer the following questions. Figure 13.3.3 -Consider the revenue and cost curves in Figure 13.3.3. If this is a single-price monopoly, what is consumer surplus?

Use the figure below to answer the following questions. Figure 13.3.3 -Consider the market demand curve in Figure 13.3.3. If the market is perfectly competitive, which area indicates producer surplus?

Use the figure below to answer the following questions. Figure 13.5.2 -Consider the natural monopoly depicted in Figure 13.5.2. What area in the graph represents the deadweight loss arising from an average cost pricing rule?

For a monopoly able to practice perfect price discrimination, the market

Under a marginal cost pricing rule, a regulated natural monopoly

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