Question 1

Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy option?

Accepted Answer

A)  If the monopoly is attained and maintained through anticompetitive behavior, the government can file a suit based on antitrust laws. 
B)  If the firm is a natural monopoly, the government may decide to regulate its prices and operations. 
C)  If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry. 
D)  If the monopoly is subject, and vulnerable, to potential competition, the government can decide to leave it alone. 
A)  If the monopoly is attained and maintained through anticompetitive behavior, the government can file a suit based on antitrust laws. 
B)  If the firm is a natural monopoly, the government may decide to regulate its prices and operations. 
C)  If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry. 
D)  If the monopoly is subject, and vulnerable, to potential competition, the government can decide to leave it alone.

Question 2

Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as

Accepted Answer

A)  rent-seeking. 
B)  price discrimination. 
C)  X-efficiency. 
D)  network effects. 
A)  rent-seeking. 
B)  price discrimination. 
C)  X-efficiency. 
D)  network effects.

Question 3

An argument for making regulated monopolies adopt marginal-cost pricing is that this would

Accepted Answer

A)  increase productive efficiency by making price equal average cost. 
B)  benefit higher-income groups by making monopoly products more affordable. 
C)  increase managerial incentives to reduce employment and production. 
D)  make the marginal cost equal to society's valuation of the marginal benefit. 
A)  increase productive efficiency by making price equal average cost. 
B)  benefit higher-income groups by making monopoly products more affordable. 
C)  increase managerial incentives to reduce employment and production. 
D)  make the marginal cost equal to society's valuation of the marginal benefit.

Question 4

The MR = MC rule

Accepted Answer

A)  applies only to pure competition. 
B)  applies only to pure monopoly. 
C)  does not apply to pure monopoly, because price exceeds marginal revenue. 
D)  applies both to pure monopoly and pure competition. 
A)  applies only to pure competition. 
B)  applies only to pure monopoly. 
C)  does not apply to pure monopoly, because price exceeds marginal revenue. 
D)  applies both to pure monopoly and pure competition.

Question 5

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?

Accepted Answer

A)  if it discovered that it was producing where MC = MR 
B)  if it discovered that it was producing where its MC curve intersects its demand curve 
C)  if it discovered that it was producing where MC < MR 
D)  under none of these circumstances because a monopolist would never lower price 
A)  if it discovered that it was producing where MC = MR 
B)  if it discovered that it was producing where its MC curve intersects its demand curve 
C)  if it discovered that it was producing where MC < MR 
D)  under none of these circumstances because a monopolist would never lower price

Question 6

Barriers to entry

Accepted Answer

A)  usually result in pure competition. 
B)  can result from government regulation. 
C)  exist in economic theory but not in the real world. 
D)  are typically the result of wrongdoing on the part of a firm. 
A)  usually result in pure competition. 
B)  can result from government regulation. 
C)  exist in economic theory but not in the real world. 
D)  are typically the result of wrongdoing on the part of a firm.

Question 7

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

Accepted Answer

A) True 
 B)False

Question 8

If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?

Accepted Answer

A)  MC = P 
B)  MC = ATC 
C)  MR = MC 
D)  P = MR 
A)  MC = P 
B)  MC = ATC 
C)  MR = MC 
D)  P = MR

Question 9

Pure monopoly refers to

Accepted Answer

A)  any market in which the demand curve for the firm is downsloping. 
B)  a standardized product being produced by many firms. 
C)  a single firm producing a product for which there are no close substitutes. 
D)  a large number of firms producing a differentiated product. 
A)  any market in which the demand curve for the firm is downsloping. 
B)  a standardized product being produced by many firms. 
C)  a single firm producing a product for which there are no close substitutes. 
D)  a large number of firms producing a differentiated product.

Question 10

The nondiscriminating monopolist's demand curve

Accepted Answer

A)  is less elastic than a purely competitive firm's demand curve. 
B)  is perfectly elastic. 
C)  coincides with its marginal revenue curve. 
D)  is perfectly inelastic. 
A)  is less elastic than a purely competitive firm's demand curve. 
B)  is perfectly elastic. 
C)  coincides with its marginal revenue curve. 
D)  is perfectly inelastic.

Question 11

When a firm is on the inelastic segment of its demand curve, it can

Accepted Answer

A)  increase total revenue by reducing price. 
B)  decrease total costs by decreasing price. 
C)  increase profits by increasing price. 
D)  increase total revenue by more than the increase in total cost by increasing price. 
A)  increase total revenue by reducing price. 
B)  decrease total costs by decreasing price. 
C)  increase profits by increasing price. 
D)  increase total revenue by more than the increase in total cost by increasing price.

Question 12

For an imperfectly competitive firm,

Accepted Answer

A)  total revenue is a straight, upsloping line because a firm's sales are independent of product price. 
B)  the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. 
C)  the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. 
D)  the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold. 
A)  total revenue is a straight, upsloping line because a firm's sales are independent of product price. 
B)  the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. 
C)  the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. 
D)  the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

Question 13

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

Accepted Answer

A)  may be either greater or less than $35. 
B)  will also be $35. 
C)  will be less than $35. 
D)  will be greater than $35. 
A)  may be either greater or less than $35. 
B)  will also be $35. 
C)  will be less than $35. 
D)  will be greater than $35.

Question 14

One argument for having the government regulate natural monopolies is that without regulation,

Accepted Answer

A)  these monopolies usually produce things that are potentially harmful to our health. 
B)  these monopolies produce at a level where marginal benefit is greater than marginal cost. 
C)  these monopolies produce at a level where marginal benefit is less than marginal cost. 
D)  the industry would become competitive and there would be too many firms in the market to achieve efficiency. 
A)  these monopolies usually produce things that are potentially harmful to our health. 
B)  these monopolies produce at a level where marginal benefit is greater than marginal cost. 
C)  these monopolies produce at a level where marginal benefit is less than marginal cost. 
D)  the industry would become competitive and there would be too many firms in the market to achieve efficiency.

Question 15

In the inelastic portion of a monopolist's demand curve, an increase in price will

Accepted Answer

A)  reduce output quantity, increase total revenue, and increase total cost. 
B)  reduce output quantity, increase total revenue, and decrease total cost. 
C)  raise output quantity, decrease total revenue, and increase total cost. 
D)  reduce output quantity, decrease total revenue, and decrease total cost. 
A)  reduce output quantity, increase total revenue, and increase total cost. 
B)  reduce output quantity, increase total revenue, and decrease total cost. 
C)  raise output quantity, decrease total revenue, and increase total cost. 
D)  reduce output quantity, decrease total revenue, and decrease total cost.

Question 16

Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be

Accepted Answer

A)  positive and demand is elastic. 
B)  negative and demand is elastic. 
C)  positive and demand is inelastic. 
D)  negative and demand is inelastic. 
A)  positive and demand is elastic. 
B)  negative and demand is elastic. 
C)  positive and demand is inelastic. 
D)  negative and demand is inelastic.

Question 17

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

Accepted Answer

A) True 
 B)False

Question 18

The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 19

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

Accepted Answer

A)  equals marginal revenue. 
B)  will vertically intersect demand where MR = MC. 
C)  will always equal ATC. 
D)  always exceeds ATC. 
A)  equals marginal revenue. 
B)  will vertically intersect demand where MR = MC. 
C)  will always equal ATC. 
D)  always exceeds ATC.

Question 20

Price discrimination refers to

Accepted Answer

A)  selling a given product for different prices at two different points in time. 
B)  any price above that which is equal to a minimum average total cost. 
C)  the selling of a given product to different customers at different prices that do not reflect cost differences. 
D)  the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. 
A)  selling a given product for different prices at two different points in time. 
B)  any price above that which is equal to a minimum average total cost. 
C)  the selling of a given product to different customers at different prices that do not reflect cost differences. 
D)  the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

Exam 12: Pure Monopoly

Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy option?

Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as

An argument for making regulated monopolies adopt marginal-cost pricing is that this would

The MR = MC rule

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?

Barriers to entry

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?

Pure monopoly refers to

The nondiscriminating monopolist's demand curve

When a firm is on the inelastic segment of its demand curve, it can

For an imperfectly competitive firm,

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

One argument for having the government regulate natural monopolies is that without regulation,

In the inelastic portion of a monopolist's demand curve, an increase in price will

Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

Price discrimination refers to

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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