Question 1

Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.

Accepted Answer

A) True 
 B)False

Question 2

In order for a firm to maximize profits through price discrimination,the firm must have some market power and be able to prevent arbitrage.

Accepted Answer

A) True 
 B)False

Question 3

Monopolies are inefficient because they

Accepted Answer

A)  (i)and (ii)only 
B)  (ii)and (iii)only 
C)  (iii)only 
D)  (i),(ii),and (iii) 
A)  (i)and (ii)only 
B)  (ii)and (iii)only 
C)  (iii)only 
D)  (i),(ii),and (iii)

Question 4

When a monopolist increases the amount of output that it produces and sells,the price of its output

Accepted Answer

A)  stays the same. 
B)  increases. 
C)  decreases. 
D)  may increase or decrease depending on the price elasticity of demand. 
A)  stays the same. 
B)  increases. 
C)  decreases. 
D)  may increase or decrease depending on the price elasticity of demand.

Question 5

When a monopolist increases the number of units it sells,there are two effects on revenue.They are the

Accepted Answer

A)  demand effect and the supply effect. 
B)  competition effect and the cost effect. 
C)  competitive effect and the monopoly effect. 
D)  output effect and the price effect. 
A)  demand effect and the supply effect. 
B)  competition effect and the cost effect. 
C)  competitive effect and the monopoly effect. 
D)  output effect and the price effect.

Question 6

Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society from monopoly power.

Accepted Answer

A) True 
 B)False

Question 7

Table 15-1
  
-Refer to Table 15-1.What is the marginal revenue for the monopolist for the sixth unit sold?

Accepted Answer

A)  3 
B)  5 
C)  11 
D)  17 
A)  3 
B)  5 
C)  11 
D)  17

Question 8

The simplest way for a monopoly to arise is for a single firm to

Accepted Answer

A)  decrease its price below its competitors' prices. 
B)  decrease production to increase demand for its product. 
C)  make pricing decisions jointly with other firms. 
D)  own a key resource. 
A)  decrease its price below its competitors' prices. 
B)  decrease production to increase demand for its product. 
C)  make pricing decisions jointly with other firms. 
D)  own a key resource.

Question 9

Which of the following is an example of price discrimination?

Accepted Answer

A)  Nabisco provides cents-off coupons for its products. 
B)  Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. 
C)  Hotel rates for AAA members are lower than for nonmembers. 
D)  All of the above are correct. 
A)  Nabisco provides cents-off coupons for its products. 
B)  Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. 
C)  Hotel rates for AAA members are lower than for nonmembers. 
D)  All of the above are correct.

Question 10

In order to sell more of its product,a monopolist must

Accepted Answer

A)  sell to the government. 
B)  sell in international markets. 
C)  lower its price. 
D)  use its market power to force up the price of complementary products. 
A)  sell to the government. 
B)  sell in international markets. 
C)  lower its price. 
D)  use its market power to force up the price of complementary products.

Question 11

Scenario 15-4
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC)in its market area.Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC.Since Black Box has already installed cable to all of the homes in its market area,the marginal cost of delivering PMC to subscribers is zero.The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit.Before setting price,she hires an economist to estimate demand for the PMC service.The economist discovers that there are two types of subscribers who value premium movie channels.First are the 4,000 die-hard 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 Scenario 15-4.If Black Box Cable TV is unable to price discriminate,what price will it choose to maximize its profit,and what is the amount of the profit?

Accepted Answer

A)  price = $20;profit = $400,000 
B)  price = $20;profit = $330,000 
C)  price = $150;profit = $450,000 
D)  price = $150;profit = $600,000 
A)  price = $20;profit = $400,000 
B)  price = $20;profit = $330,000 
C)  price = $150;profit = $450,000 
D)  price = $150;profit = $600,000

Question 12

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

Accepted Answer

A) True 
 B)False

Question 13

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

Accepted Answer

A) True 
 B)False

Question 14

The defining characteristic of a natural monopoly is

Accepted Answer

A)  constant marginal cost over the relevant range of output. 
B)  economies of scale over the relevant range of output. 
C)  constant returns to scale over the relevant range of output. 
D)  diseconomies of scale over the relevant range of output. 
A)  constant marginal cost over the relevant range of output. 
B)  economies of scale over the relevant range of output. 
C)  constant returns to scale over the relevant range of output. 
D)  diseconomies of scale over the relevant range of output.

Question 15

If the government regulates the price that a natural monopolist can charge to be equal to the firm's average total cost,the firm will

Accepted Answer

A)  earn zero profits. 
B)  earn positive profits,causing other firms to enter the industry. 
C)  earn negative profits,causing the firm to exit the industry. 
D)  minimize costs in order to lower the price that it charges. 
A)  earn zero profits. 
B)  earn positive profits,causing other firms to enter the industry. 
C)  earn negative profits,causing the firm to exit the industry. 
D)  minimize costs in order to lower the price that it charges.

Question 16

Many economists criticize monopolists because they

Accepted Answer

A)  charge a price that equals marginal cost rather than a price that equals average cost. 
B)  don't innovate. 
C)  produce a large quantity of waste. 
D)  produce less than the socially efficient level of output. 
A)  charge a price that equals marginal cost rather than a price that equals average cost. 
B)  don't innovate. 
C)  produce a large quantity of waste. 
D)  produce less than the socially efficient level of output.

Question 17

Which of the following statements is true of a monopoly firm?

Accepted Answer

A)  A monopoly firm is a price taker and has no supply curve. 
B)  A monopoly firm is a price maker and has no supply curve 
C)  A monopoly firm is a price maker and has a downward-sloping supply curve. 
D)  A monopoly firm is a price maker and has an upward-sloping supply curve. 
A)  A monopoly firm is a price taker and has no supply curve. 
B)  A monopoly firm is a price maker and has no supply curve 
C)  A monopoly firm is a price maker and has a downward-sloping supply curve. 
D)  A monopoly firm is a price maker and has an upward-sloping supply curve.

Question 18

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

Accepted Answer

A)  arbitrage 
B)  cost-plus pricing 
C)  price discrimination 
D)  regulations that force monopolies to reduce their levels of output 
A)  arbitrage 
B)  cost-plus pricing 
C)  price discrimination 
D)  regulations that force monopolies to reduce their levels of output

Question 19

Figure 15-5  
-Refer to Figure 15-5.A profit-maximizing monopoly will charge a price of

Accepted Answer

A)  P5. 
B)  P4. 
C)  P3. 
D)  P2. 
A)  P5. 
B)  P4. 
C)  P3. 
D)  P2.

Question 20

Table 15-6
Dreher's Designer Shirt Company,a monopolist,has the following cost and revenue information.Assume that Dreher's is able to engage in perfect price discrimination.
  
-Refer to Table 15-6.If the monopolist can engage in perfect price discrimination,what is the total revenue when 7 shirts are sold?

Accepted Answer

A)  $650 
B)  $700 
C)  $910 
D)  $1080 
A)  $650 
B)  $700 
C)  $910 
D)  $1080

Exam 15: Monopoly

Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.

In order for a firm to maximize profits through price discrimination,the firm must have some market power and be able to prevent arbitrage.

Monopolies are inefficient because they

When a monopolist increases the amount of output that it produces and sells,the price of its output

When a monopolist increases the number of units it sells,there are two effects on revenue.They are the

Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society from monopoly power.

Table 15-1 -Refer to Table 15-1.What is the marginal revenue for the monopolist for the sixth unit sold?

The simplest way for a monopoly to arise is for a single firm to

Which of the following is an example of price discrimination?

In order to sell more of its product,a monopolist must

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

The defining characteristic of a natural monopoly is

If the government regulates the price that a natural monopolist can charge to be equal to the firm's average total cost,the firm will

Many economists criticize monopolists because they

Which of the following statements is true of a monopoly firm?

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

Figure 15-5 -Refer to Figure 15-5.A profit-maximizing monopoly will charge a price of

Ten Principles of 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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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