Question 1

Which of the following is correct?

Accepted Answer

A)  Both purely competitive and monopolistic firms are "price takers." 
B)  Both purely competitive and monopolistic firms are "price makers." 
C)  A purely competitive firm is a "price taker," while a monopolist is a "price maker." 
D)  A purely competitive firm is a "price maker," while a monopolist is a "price taker." 
A)  Both purely competitive and monopolistic firms are "price takers." 
B)  Both purely competitive and monopolistic firms are "price makers." 
C)  A purely competitive firm is a "price taker," while a monopolist is a "price maker." 
D)  A purely competitive firm is a "price maker," while a monopolist is a "price taker."

Question 2

Which is a major criticism of a monopoly as a source of allocative inefficiency?

Accepted Answer

A)  A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost. 
B)  A monopolist has no incentive to produce efficiently, because even the inefficient monopolist can be assured of economic profits. 
C)  A monopolist will always earn profits, and that means that prices are too high. 
D)  A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms can. 
A)  A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost. 
B)  A monopolist has no incentive to produce efficiently, because even the inefficient monopolist can be assured of economic profits. 
C)  A monopolist will always earn profits, and that means that prices are too high. 
D)  A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms can.

Question 3

One feature of pure monopoly is that the firm is

Accepted Answer

A)  a producer of products with close substitutes. 
B)  one of several producers of a product. 
C)  a price taker. 
D)  a price maker. 
A)  a producer of products with close substitutes. 
B)  one of several producers of a product. 
C)  a price taker. 
D)  a price maker.

Question 4

Which of the following statements is correct?

Accepted Answer

A)  Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization. 
B)  Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency. 
C)  Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products. 
D)  Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits. 
A)  Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization. 
B)  Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency. 
C)  Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products. 
D)  Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits.

Question 5

In most cases, a monopolist practicing price discrimination will end up earning less economic profits than a nondiscriminating monopolist.

Accepted Answer

A) True 
 B)False

Question 6

Compared to the purely competitive industry, a pure monopoly

Accepted Answer

A)  is able to use barriers to entry and maintain positive economic profits in the long run. 
B)  produces an equal amount of output, but charges higher prices to cover all costs in the market. 
C)  is often more efficient from society's perspective because it has big plants and it uses the newest technology. 
D)  will always become competitive in the long run because positive economic profits will entice competitors into the market. 
A)  is able to use barriers to entry and maintain positive economic profits in the long run. 
B)  produces an equal amount of output, but charges higher prices to cover all costs in the market. 
C)  is often more efficient from society's perspective because it has big plants and it uses the newest technology. 
D)  will always become competitive in the long run because positive economic profits will entice competitors into the market.

Question 7

Answer the question on the basis of the provided demand and cost data for a pure monopolist. $ \quad$$ \quad$$ \quad$$ \quad$   $\text { Cost Data }$    $ \quad$$ \quad$$ \quad$  $\text { Demand Data }$ 
$\begin{array} { | c | c | c | c| } 
\hline \text { Price } & \begin{array} { c } 
\text { Quartity } \
\text { Dernarded }
\end{array} & \text { Output } & \text { Total Cost } \
\hline 55.50 & 3 & 3 & \$ 5.01 \
\hline 5.84 & 4 & 4 & 6.01 \
\hline 4.50 & 5 & 5 & 6.50 \
\hline 3.85 & 6 & 6 & 7.50 \
\hline 3.35 & 7 & 7 & 9.01 \
\hline 2.90 & 8 & 8 & 11.81 \
\hline 2.50 & 9 & 9 & 14.81 \
\hline
\end{array}$ The profit-maximizing price for the monopolist will be

Accepted Answer

A)  $5.00. 
B)  $2.90. 
C)  $3.35. 
D)  $4.50. 
A)  $5.00. 
B)  $2.90. 
C)  $3.35. 
D)  $4.50.

Question 8

Which of the following statements is true of price discrimination?

Accepted Answer

A)  Successful price discrimination will provide the firm with lower total profits than if it did not discriminate. 
B)  Successful price discrimination will provide the firm with more profit than if it did not discriminate. 
C)  Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly. 
D)  Successful price discrimination occurs when there are differences in the costs of producing for different groups of buyers. 
A)  Successful price discrimination will provide the firm with lower total profits than if it did not discriminate. 
B)  Successful price discrimination will provide the firm with more profit than if it did not discriminate. 
C)  Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly. 
D)  Successful price discrimination occurs when there are differences in the costs of producing for different groups of buyers.

Question 9

The problem with socially optimal pricing regulation of a natural monopoly is that

Accepted Answer

A)  P < MC. 
B)  P < AVC. 
C)  P < ATC. 
D)  P < MR. 
A)  P < MC. 
B)  P < AVC. 
C)  P < ATC. 
D)  P < MR.

Question 10

Answer the question on the basis of the provided demand and cost data for a pure monopolist. $ \quad$$ \quad$$ \quad$$ \quad$   $\text { Cost Data }$    $ \quad$$ \quad$$ \quad$  $\text { Demand Data }$ 
$\begin{array} { | c | c | c | c| } 
\hline \text { Price } & \begin{array} { c } 
\text { Quartity } \
\text { Dernarded }
\end{array} & \text { Output } & \text { Total Cost } \
\hline 55.50 & 3 & 3 & \$ 5.01 \
\hline 5.84 & 4 & 4 & 6.01 \
\hline 4.50 & 5 & 5 & 6.50 \
\hline 3.85 & 6 & 6 & 7.50 \
\hline 3.35 & 7 & 7 & 9.01 \
\hline 2.90 & 8 & 8 & 11.81 \
\hline 2.50 & 9 & 9 & 14.81 \
\hline
\end{array}$ The profit-maximizing level of output will be

Accepted Answer

A)  4 units. 
B)  7 units. 
C)  6 units. 
D)  5 units. 
A)  4 units. 
B)  7 units. 
C)  6 units. 
D)  5 units.

Question 11

Answer the question on the basis of the accompanying demand schedule. $\begin{array} { | c | c| } 
\hline \text { Price } & \text {Quantity Demanded } \
\hline \$ 7 & 1 \
\hline 6 & 2 \
\hline 5 & 3 \
\hline 4 & 4 \
\hline 3 & 5 \
\hline
\end{array}$ At the point where 3 units are being sold, the coefficient of price elasticity of demand

Accepted Answer

A)  cannot be estimated. 
B)  suggests that the market is purely competitive. 
C)  is less than unity (one). 
D)  is greater than unity (one). 
A)  cannot be estimated. 
B)  suggests that the market is purely competitive. 
C)  is less than unity (one). 
D)  is greater than unity (one).

Question 12

The marginal revenue curve for a monopolist

Accepted Answer

A)  is a straight, upsloping curve. 
B)  rises at first, reaches a maximum, and then declines. 
C)  becomes negative when output increases beyond some particular level. 
D)  is a straight line, parallel to the horizontal axis. 
A)  is a straight, upsloping curve. 
B)  rises at first, reaches a maximum, and then declines. 
C)  becomes negative when output increases beyond some particular level. 
D)  is a straight line, parallel to the horizontal axis.

Question 13

One of the economic effects of monopoly is an income transfer from consumers to the firm.

Accepted Answer

A) True 
 B)False

Question 14

Which phrase would be most characteristic of pure monopoly?

Accepted Answer

A)  close substitutes 
B)  efficient advertiser 
C)  price taker 
D)  sole seller 
A)  close substitutes 
B)  efficient advertiser 
C)  price taker 
D)  sole seller

Question 15

The gains to monopolists from exercising market power

Accepted Answer

A)  exceed the losses to consumers in monopoly markets, resulting in a net gain to society. 
B)  equal the losses to consumers in monopoly markets, resulting in no net change for society. 
C)  are less than the losses to consumers in monopoly markets, resulting in a net loss to society. 
D)  create smaller deadweight losses than occur in purely competitive industries. 
A)  exceed the losses to consumers in monopoly markets, resulting in a net gain to society. 
B)  equal the losses to consumers in monopoly markets, resulting in no net change for society. 
C)  are less than the losses to consumers in monopoly markets, resulting in a net loss to society. 
D)  create smaller deadweight losses than occur in purely competitive industries.

Question 16

What is the meaning of the phrase "dilemma of regulation"?

Accepted Answer

A)  Natural monopolies achieve economies of scale but charge high prices when there is no government regulation; government regulation reduces prices but results in diseconomies of scale. 
B)  Natural monopolies are profitable, but only if the government permits price discrimination; government regulation to restrict price discrimination reduces monopoly prices, but the regulation also reduces monopoly output. 
C)  The fair-return price achieves allocative efficiency but may produce economic losses; the socially optimal price yields a normal profit but may not be allocatively efficient. 
D)  The socially optimal price achieves allocative efficiency but may produce economic losses; the fair-return price yields a normal profit but may not be allocatively efficient. 
A)  Natural monopolies achieve economies of scale but charge high prices when there is no government regulation; government regulation reduces prices but results in diseconomies of scale. 
B)  Natural monopolies are profitable, but only if the government permits price discrimination; government regulation to restrict price discrimination reduces monopoly prices, but the regulation also reduces monopoly output. 
C)  The fair-return price achieves allocative efficiency but may produce economic losses; the socially optimal price yields a normal profit but may not be allocatively efficient. 
D)  The socially optimal price achieves allocative efficiency but may produce economic losses; the fair-return price yields a normal profit but may not be allocatively efficient.

Question 17

Consumers who clip and redeem discount coupons

Accepted Answer

A)  exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
B)  exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
C)  exhibit a lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
D)  cause total revenue to decrease for firms that issue coupons for their products. 
A)  exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
B)  exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
C)  exhibit a lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons. 
D)  cause total revenue to decrease for firms that issue coupons for their products.

Question 18

Society suffers a deadweight loss in a pure-monopoly market because

Accepted Answer

A)  output is less, while price is more, than is socially optimal. 
B)  output is more, while price is less, than is socially optimal. 
C)  both output and price are higher than is socially optimal. 
D)  both output and price are lower than is socially optimal. 
A)  output is less, while price is more, than is socially optimal. 
B)  output is more, while price is less, than is socially optimal. 
C)  both output and price are higher than is socially optimal. 
D)  both output and price are lower than is socially optimal.

Question 19

In an unregulated monopoly at equilibrium, the output level is higher than the economically efficient level.

Accepted Answer

A) True 
 B)False

Question 20

The demand curve faced by a pure monopolist

Accepted Answer

A)  may be either more or less elastic than that faced by a single purely competitive firm. 
B)  is less elastic than that faced by a single purely competitive firm. 
C)  has the same elasticity as that faced by a single purely competitive firm. 
D)  is more elastic than that faced by a single purely competitive firm. 
A)  may be either more or less elastic than that faced by a single purely competitive firm. 
B)  is less elastic than that faced by a single purely competitive firm. 
C)  has the same elasticity as that faced by a single purely competitive firm. 
D)  is more elastic than that faced by a single purely competitive firm.

Exam 12: Pure Monopoly

Which of the following is correct?

Which is a major criticism of a monopoly as a source of allocative inefficiency?

One feature of pure monopoly is that the firm is

Which of the following statements is correct?

In most cases, a monopolist practicing price discrimination will end up earning less economic profits than a nondiscriminating monopolist.

Compared to the purely competitive industry, a pure monopoly

Which of the following statements is true of price discrimination?

The problem with socially optimal pricing regulation of a natural monopoly is that

Answer the question on the basis of the accompanying demand schedule. Price Quantity Demanded \ 7 1 6 2 5 3 4 4 3 5 At the point where 3 units are being sold, the coefficient of price elasticity of demand

The marginal revenue curve for a monopolist

One of the economic effects of monopoly is an income transfer from consumers to the firm.

Which phrase would be most characteristic of pure monopoly?

The gains to monopolists from exercising market power

What is the meaning of the phrase "dilemma of regulation"?

Consumers who clip and redeem discount coupons

Society suffers a deadweight loss in a pure-monopoly market because

In an unregulated monopoly at equilibrium, the output level is higher than the economically efficient level.

The demand curve faced by a pure monopolist

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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