Question 1

For a monopolist, marginal revenue is:

Accepted Answer

A)  negative when the output effect is greater than the price effect 
B)  negative when the price effect is greater than the output effect 
C)  positive when the demand effect is greater than the supply effect 
D)  positive when the monopoly effect is greater than the competitive effect 
A)  negative when the output effect is greater than the price effect 
B)  negative when the price effect is greater than the output effect 
C)  positive when the demand effect is greater than the supply effect 
D)  positive when the monopoly effect is greater than the competitive effect

Question 2

A competitive firm is a price maker and a monopoly firm is a price taker.

Accepted Answer

A) True 
 B)False

Question 3

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $16. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $8.

Accepted Answer

A)  not enough information is given to answer this question 
B)  $4 
C)  $8 
D)  $16 
A)  not enough information is given to answer this question 
B)  $4 
C)  $8 
D)  $16

Question 4

Black Box Pay TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Black Box pays $150 000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed satellite dishes to all of the homes in its market area, the marginal cost of PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service in order to maximise her profit. Before setting the price, she hires an economist to estimate the demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4000 diehard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to about 20 000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC.
-Refer to the information provided. If Black Box Pay TV is unable to price discriminate, what price will it choose to maximise its profit and what is the amount of the profit?

Accepted Answer

A)  price = $20, profit = $400 000 
B)  price = $150, profit = $600 000 
C)  price = $150, profit = $450 000 
D)  price = $20, profit = $550 000 
A)  price = $20, profit = $400 000 
B)  price = $150, profit = $600 000 
C)  price = $150, profit = $450 000 
D)  price = $20, profit = $550 000

Question 5

A fundamental source of monopoly market power arises from:

Accepted Answer

A)  barriers to entry 
B)  perfectly elastic demand 
C)  perfectly inelastic demand 
D)  availability of 'free' natural resources, such as water or air 
A)  barriers to entry 
B)  perfectly elastic demand 
C)  perfectly inelastic demand 
D)  availability of 'free' natural resources, such as water or air

Question 6

When a firm's average-total-cost curve continually declines, the firm is:

Accepted Answer

A)  a government-created monopoly 
B)  a resource monopoly 
C)  a natural monopoly 
D)  all of the above 
A)  a government-created monopoly 
B)  a resource monopoly 
C)  a natural monopoly 
D)  all of the above

Question 7

For a monopolist, profit is determined by which of the following equations?

Accepted Answer

A)  Profit = Total revenue - Total cost 
B)  Profit = (TR/Q - TC/Q) * Q 
C)  Profit = (Price - Average total cost) *  Quantity 
D)  all of the above 
A)  Profit = Total revenue - Total cost 
B)  Profit = (TR/Q - TC/Q) * Q 
C)  Profit = (Price - Average total cost) *  Quantity 
D)  all of the above

Question 8

When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect.

Accepted Answer

A) True 
 B)False

Question 9

Black Box Pay TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Black Box pays $150 000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed satellite dishes to all of the homes in its market area, the marginal cost of PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service in order to maximise her profit. Before setting the price, she hires an economist to estimate the demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4000 diehard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to about 20 000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC.
-According to the information provided, what is the deadweight loss associated with the non-discriminating pricing policy compared to the price-discriminating policy?

Accepted Answer

A)  not enough information is given to answer this question 
B)  $375 000 
C)  $475 000 
D)  $400 000 
A)  not enough information is given to answer this question 
B)  $375 000 
C)  $475 000 
D)  $400 000

Question 10

Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for:

Accepted Answer

A)  natural monopolies 
B)  government-created monopolies 
C)  resource monopolies 
D)  innovation 
A)  natural monopolies 
B)  government-created monopolies 
C)  resource monopolies 
D)  innovation

Question 11

A firm that is a natural monopoly:

Accepted Answer

A)  is not likely to be concerned about new entrants eroding its monopoly power 
B)  is not enjoying economies of scale 
C)  it tends to drive down wages 
D)  can lower its average total cost if more firms enter the market 
A)  is not likely to be concerned about new entrants eroding its monopoly power 
B)  is not enjoying economies of scale 
C)  it tends to drive down wages 
D)  can lower its average total cost if more firms enter the market

Question 12

The amount that producers receive for a good minus their costs of producing it equals producer:

Accepted Answer

A)  cost 
B)  surplus 
C)  gain 
D)  margin 
A)  cost 
B)  surplus 
C)  gain 
D)  margin

Question 13

A monopolist will choose to increase output when:

Accepted Answer

A)  all of the below conditions exist 
B)  market prices rise 
C)  there is an expansionary shift in the market supply curve 
D)  marginal revenue exceeds marginal cost 
A)  all of the below conditions exist 
B)  market prices rise 
C)  there is an expansionary shift in the market supply curve 
D)  marginal revenue exceeds marginal cost

Question 14

An unregulated monopoly is likely to have its marginal cost set:

Accepted Answer

A)  above its marginal revenue 
B)  equal to its average total cost 
C)  below its average fixed cost 
D)  below the market price of its goods 
A)  above its marginal revenue 
B)  equal to its average total cost 
C)  below its average fixed cost 
D)  below the market price of its goods

Question 15

Generic drugs enter the pharmaceutical drug market once:

Accepted Answer

A)  the ingredients to the name brand drug have been discovered 
B)  the patent on the name brand drug expires 
C)  10 years have passed 
D)  they are patented 
A)  the ingredients to the name brand drug have been discovered 
B)  the patent on the name brand drug expires 
C)  10 years have passed 
D)  they are patented

Question 16

Graph 15-6
   This graph depicts the demand, marginal-revenue and marginal-cost curves of a profit-maximising monopolist. Use the graph to answer the following question(s).
-Refer to Graph 15-6. What is the deadweight loss equal to when the monopolist does NOT price discriminate?

Accepted Answer

A)  ABC 
B)  ADF 
C)  CEF 
D)  deadweight loss will equal zero 
A)  ABC 
B)  ADF 
C)  CEF 
D)  deadweight loss will equal zero

Question 17

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $24. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $12.

Accepted Answer

A)  $180 
B)  $200 
C)  $360 
D)  there is not enough information is given to answer this question 
A)  $180 
B)  $200 
C)  $360 
D)  there is not enough information is given to answer this question

Question 18

To price discriminate and raise profits, publishers release hardback books first and paperback books later. Diehard fans are willing to pay more than less enthusiastic readers to read the book first.

Accepted Answer

A) True 
 B)False

Question 19

Airlines often separate their customers into business travellers and personal travellers by giving a discount to those travellers who stay over a Saturday night.

Accepted Answer

A) True 
 B)False

Question 20

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the marginal-revenue curve.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly

For a monopolist, marginal revenue is:

A competitive firm is a price maker and a monopoly firm is a price taker.

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $16. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $8.

A fundamental source of monopoly market power arises from:

When a firm's average-total-cost curve continually declines, the firm is:

For a monopolist, profit is determined by which of the following equations?

When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect.

Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for:

A firm that is a natural monopoly:

The amount that producers receive for a good minus their costs of producing it equals producer:

A monopolist will choose to increase output when:

An unregulated monopoly is likely to have its marginal cost set:

Generic drugs enter the pharmaceutical drug market once:

Graph 15-6 This graph depicts the demand, marginal-revenue and marginal-cost curves of a profit-maximising monopolist. Use the graph to answer the following question(s). -Refer to Graph 15-6. What is the deadweight loss equal to when the monopolist does NOT price discriminate?

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $24. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $12.

To price discriminate and raise profits, publishers release hardback books first and paperback books later. Diehard fans are willing to pay more than less enthusiastic readers to read the book first.

Airlines often separate their customers into business travellers and personal travellers by giving a discount to those travellers who stay over a Saturday night.

A profit-maximising monopolist chooses the output level where marginal revenue equals marginal cost and chooses the corresponding price off the marginal-revenue curve.

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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