Question 1

Which of the following average cost functions suggests the presence of a natural monopoly?

Accepted Answer

A)  AC = 2 
B)  AC = 100/Q + 2 
C)  TC = 100/Q + 2Q 
D)  All of the above. 
A)  AC = 2 
B)  AC = 100/Q + 2 
C)  TC = 100/Q + 2Q 
D)  All of the above.

Question 2

Marginal Revenue is

Accepted Answer

A)  the increase in total revenue from selling one more unit of output. 
B)  equal to P(1+1/ε). 
C)  equal to P when the price elasticity of demand is infinite. 
D)  All of the above. 
A)  the increase in total revenue from selling one more unit of output. 
B)  equal to P(1+1/ε). 
C)  equal to P when the price elasticity of demand is infinite. 
D)  All of the above.

Question 3

If the inverse demand curve a monopoly faces is p = 100 - 2Q,then profit maximization

Accepted Answer

A)  is achieved when 25 units are produced. 
B)  is achieved by setting price equal to 25. 
C)  is achieved only by shutting down in the short run. 
D)  cannot be determined solely from the information provided. 
A)  is achieved when 25 units are produced. 
B)  is achieved by setting price equal to 25. 
C)  is achieved only by shutting down in the short run. 
D)  cannot be determined solely from the information provided.

Question 4

A monopolist that chooses price

Accepted Answer

A)  necessarily produces less than a monopolist that chooses quantity, hence the laws against price fixing. 
B)  produces the same amount as a monopolist that chooses quantity. 
C)  produces more than a monopolist that chooses quantity, thus the irony of laws against price fixing. 
D)  could produce more or less than a monopolist that chooses quantity since the demand curve is not specified. 
A)  necessarily produces less than a monopolist that chooses quantity, hence the laws against price fixing. 
B)  produces the same amount as a monopolist that chooses quantity. 
C)  produces more than a monopolist that chooses quantity, thus the irony of laws against price fixing. 
D)  could produce more or less than a monopolist that chooses quantity since the demand curve is not specified.

Question 5

Consider a monopoly who posts an economic profit of $10,000,000.All else equal,this monopolist should expect

Accepted Answer

A)  entry into its market, prices to fall, profits to fall. 
B)  no entry into its market, prices to remain the same, profits to remain the same. 
C)  exit from its market, prices to rise, profits to rise. 
D)  entry into its market, the need to increase price, profits to remain the same. 
A)  entry into its market, prices to fall, profits to fall. 
B)  no entry into its market, prices to remain the same, profits to remain the same. 
C)  exit from its market, prices to rise, profits to rise. 
D)  entry into its market, the need to increase price, profits to remain the same.

Question 6

Government actions that create monopolies

Accepted Answer

A)  spur product innovation by the monopoly. 
B)  create deadweight loss. 
C)  result in lower average costs of production. 
D)  ensure that firms price at marginal cost. 
A)  spur product innovation by the monopoly. 
B)  create deadweight loss. 
C)  result in lower average costs of production. 
D)  ensure that firms price at marginal cost.

Question 7

If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the deadweight loss from monopoly equals

Accepted Answer

A)  $21. 
B)  $441. 
C)  $882. 
D)  $1,764. 
A)  $21. 
B)  $441. 
C)  $882. 
D)  $1,764.

Question 8

If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue,why does the ad valorem tax reduce output less than the specific tax?

Accepted Answer

While the per unit amount of the specifi

Question 9

In the dominant firm model as evidenced by the production of iPods by Apple,the entrance of the competitive fringe firms has what effect on the dominant firm?

Accepted Answer

A)  Its price is lower, but it produces more output. 
B)  Its price is lower, and it produces less output. 
C)  Its price is the same, but it produces less output. 
D)  Its price is higher, but it produces more output. 
A)  Its price is lower, but it produces more output. 
B)  Its price is lower, and it produces less output. 
C)  Its price is the same, but it produces less output. 
D)  Its price is higher, but it produces more output.

Question 10

The introduction of satellite television systems would cause the Lerner Index for cable television to

Accepted Answer

A)  become smaller. 
B)  increase. 
C)  change in accordance to the increase in market power of cable TV providers. 
D)  be unchanged. 
A)  become smaller. 
B)  increase. 
C)  change in accordance to the increase in market power of cable TV providers. 
D)  be unchanged.

Question 11

A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10.Assuming profit maximization,the implicit demand elasticity is

Accepted Answer

A)  -0.2. 
B)  -0.8. 
C)  -1.25. 
D)  -5.0. 
A)  -0.2. 
B)  -0.8. 
C)  -1.25. 
D)  -5.0.

Question 12

The government prefers an ad valorem tax to a specific tax that reduces the monopoly output by the same amount because

Accepted Answer

A)  consumers are not harmed by the ad valorem tax. 
B)  the monopoly prefers the ad valorem tax. 
C)  consumers prefer the ad valorem tax. 
D)  the ad valorem tax transfers more revenue from the monopoly to the government. 
A)  consumers are not harmed by the ad valorem tax. 
B)  the monopoly prefers the ad valorem tax. 
C)  consumers prefer the ad valorem tax. 
D)  the ad valorem tax transfers more revenue from the monopoly to the government.

Question 13

An alternative to patent protection might be

Accepted Answer

A)  dollar prizes for innovation. 
B)  an appeal to altruism. 
C)  granting of citizenship for innovation. 
D)  forcing innovators to cede their innovations. 
A)  dollar prizes for innovation. 
B)  an appeal to altruism. 
C)  granting of citizenship for innovation. 
D)  forcing innovators to cede their innovations.

Question 14

Forcing a natural monopoly to charge P = MC will not work.

Accepted Answer

A) True 
 B)False

Question 15

The telephone is an example of a product with network externalities.

Accepted Answer

A) True 
 B)False

Question 16

If the government's goal is to generate a certain amount of tax revenue,a specific tax and an ad valorem tax on a monopoly have the same impact on social welfare.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a monopolist has TC = 100 + 10Q + 2Q2,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?

Accepted Answer

First,determine MR = 90 - 4Q.Second,MC =

Question 18

If a monopoly's Lerner Index exceeds 1,then

Accepted Answer

A)  it is earning maximum profit. 
B)  it has ultimate market power. 
C)  it must be pricing below marginal cost. 
D)  marginal revenue is negative. 
A)  it is earning maximum profit. 
B)  it has ultimate market power. 
C)  it must be pricing below marginal cost. 
D)  marginal revenue is negative.

Question 19

Which of the following markets is closest to a monopoly?

Accepted Answer

A)  a firm with a 90% market share 
B)  the only gas station for 100 miles 
C)  cable television 
D)  garbage disposal 
A)  a firm with a 90% market share 
B)  the only gas station for 100 miles 
C)  cable television 
D)  garbage disposal

Question 20

A monopoly's output decision depends only on the shape of its marginal cost curve.

Accepted Answer

A) True 
 B)False

Which of the following average cost functions suggests the presence of a natural monopoly?

Marginal Revenue is

If the inverse demand curve a monopoly faces is p = 100 - 2Q,then profit maximization

A monopolist that chooses price

Consider a monopoly who posts an economic profit of $10,000,000.All else equal,this monopolist should expect

Government actions that create monopolies

If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the deadweight loss from monopoly equals

If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue,why does the ad valorem tax reduce output less than the specific tax?

In the dominant firm model as evidenced by the production of iPods by Apple,the entrance of the competitive fringe firms has what effect on the dominant firm?

The introduction of satellite television systems would cause the Lerner Index for cable television to

A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10.Assuming profit maximization,the implicit demand elasticity is

The government prefers an ad valorem tax to a specific tax that reduces the monopoly output by the same amount because

An alternative to patent protection might be

Forcing a natural monopoly to charge P = MC will not work.

The telephone is an example of a product with network externalities.

If the government's goal is to generate a certain amount of tax revenue,a specific tax and an ad valorem tax on a monopoly have the same impact on social welfare.

Suppose a monopolist has TC = 100 + 10Q + 2Q²,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?

If a monopoly's Lerner Index exceeds 1,then

Which of the following markets is closest to a monopoly?

A monopoly's output decision depends only on the shape of its marginal cost curve.

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 11: Monopoly

Which of the following average cost functions suggests the presence of a natural monopoly?

Marginal Revenue is

If the inverse demand curve a monopoly faces is p = 100 - 2Q,then profit maximization

A monopolist that chooses price

Consider a monopoly who posts an economic profit of $10,000,000.All else equal,this monopolist should expect

Government actions that create monopolies

If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the deadweight loss from monopoly equals

If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue,why does the ad valorem tax reduce output less than the specific tax?

In the dominant firm model as evidenced by the production of iPods by Apple,the entrance of the competitive fringe firms has what effect on the dominant firm?

The introduction of satellite television systems would cause the Lerner Index for cable television to

A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10.Assuming profit maximization,the implicit demand elasticity is

The government prefers an ad valorem tax to a specific tax that reduces the monopoly output by the same amount because

An alternative to patent protection might be

Forcing a natural monopoly to charge P = MC will not work.

The telephone is an example of a product with network externalities.

If the government's goal is to generate a certain amount of tax revenue,a specific tax and an ad valorem tax on a monopoly have the same impact on social welfare.

Suppose a monopolist has TC = 100 + 10Q + 2Q2,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?

If a monopoly's Lerner Index exceeds 1,then

Which of the following markets is closest to a monopoly?

A monopoly's output decision depends only on the shape of its marginal cost curve.

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose a monopolist has TC = 100 + 10Q + 2Q²,and the demand curve it faces is p = 90 - 2Q.What will be the price,quantity,and profit for this firm?