Question 1

The demand curve confronting a nondiscriminating pure monopolist is

Accepted Answer

A)  horizontal. 
B)  the same as the industry's demand curve. 
C)  more elastic than the demand curve confronting a competitive firm. 
D)  derived by vertically summing the individual demand curves for the buyers. 
A)  horizontal. 
B)  the same as the industry's demand curve. 
C)  more elastic than the demand curve confronting a competitive firm. 
D)  derived by vertically summing the individual demand curves for the buyers.

Question 2

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is

Accepted Answer

A)  greater or equal to one. 
B)  less than one. 
C)  equal to one. 
D)  impossible to determine. 
A)  greater or equal to one. 
B)  less than one. 
C)  equal to one. 
D)  impossible to determine.

Question 3

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

Accepted Answer

A)  equal to its price. 
B)  the price at which that unit is sold less the price reductions that apply to all other units of output. 
C)  the price at which that unit is sold plus the price increases that apply to all other units of output. 
D)  indeterminate unless marginal cost data are known. 
A)  equal to its price. 
B)  the price at which that unit is sold less the price reductions that apply to all other units of output. 
C)  the price at which that unit is sold plus the price increases that apply to all other units of output. 
D)  indeterminate unless marginal cost data are known.

Question 4

The region of demand in which the monopolist will choose a price-output combination will be

Accepted Answer

A)  inelastic because, as price declines and output increases, total revenue will increase. 
B)  inelastic because, as price declines and output increases, total revenue will decrease. 
C)  elastic because, as price declines and output increases, total revenue will decrease. 
D)  elastic because, as price declines and output increases, total revenue will increase. 
A)  inelastic because, as price declines and output increases, total revenue will increase. 
B)  inelastic because, as price declines and output increases, total revenue will decrease. 
C)  elastic because, as price declines and output increases, total revenue will decrease. 
D)  elastic because, as price declines and output increases, total revenue will increase.

Question 5

Assuming no change in product demand, a pure monopolist

Accepted Answer

A)  can increase price and increase sales simultaneously because it dominates the market. 
B)  adds an amount to total revenue that is equal to the price of incremental sales. 
C)  should produce in the range where marginal revenue is negative. 
D)  must lower price to increase sales. 
A)  can increase price and increase sales simultaneously because it dominates the market. 
B)  adds an amount to total revenue that is equal to the price of incremental sales. 
C)  should produce in the range where marginal revenue is negative. 
D)  must lower price to increase sales.

Question 6

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

Accepted Answer

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

Question 7

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

Accepted Answer

A)  reducing output and raising price. 
B)  reducing both output and price. 
C)  increasing both price and output. 
D)  raising price while keeping output unchanged. 
A)  reducing output and raising price. 
B)  reducing both output and price. 
C)  increasing both price and output. 
D)  raising price while keeping output unchanged.

Question 8

Given a linear demand curve, at which combination of price and marginal revenue (P, MR) is the price elasticity of demand greater than 1?

Accepted Answer

A)  P = 15, MR = 8 
B)  P = 12, MR = 0 
C)  P = 8, MR = −2 
D)  P = 4, MR = −4 
A)  P = 15, MR = 8 
B)  P = 12, MR = 0 
C)  P = 8, MR = −2 
D)  P = 4, MR = −4

Question 9

With a natural monopoly, the fair-return price

Accepted Answer

A)  is allocatively efficient; the socially optimal price is allocatively inefficient. 
B)  is allocatively inefficient; the socially optimal price is allocatively efficient. 
C)  and the socially optimal price are both allocatively inefficient. 
D)  and the socially optimal price are both allocatively efficient. 
A)  is allocatively efficient; the socially optimal price is allocatively inefficient. 
B)  is allocatively inefficient; the socially optimal price is allocatively efficient. 
C)  and the socially optimal price are both allocatively inefficient. 
D)  and the socially optimal price are both allocatively efficient.

Question 10

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

Accepted Answer

A)  produce more output and charge a higher price. 
B)  produce more output and charge a lower price. 
C)  reduce both output and price. 
D)  raise both output and price. 
A)  produce more output and charge a higher price. 
B)  produce more output and charge a lower price. 
C)  reduce both output and price. 
D)  raise both output and price.

Question 11

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

Accepted Answer

A) True 
 B)False

Question 12

A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by

Accepted Answer

A)  4 units per day. 
B)  3 units per day. 
C)  2 units per day. 
D)  1 unit per day. 
A)  4 units per day. 
B)  3 units per day. 
C)  2 units per day. 
D)  1 unit per day.

Question 13

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

Accepted Answer

A) True 
 B)False

Question 14

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

Accepted Answer

A)  average total cost. 
B)  marginal revenue. 
C)  average variable cost. 
D)  average cost. 
A)  average total cost. 
B)  marginal revenue. 
C)  average variable cost. 
D)  average cost.

Question 15

In the short run a pure monopolist will charge the highest price the market will bear for its product.

Accepted Answer

A) True 
 B)False

Question 16

An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

Accepted Answer

A)  copyright. 
B)  franchise. 
C)  patent. 
D)  license. 
A)  copyright. 
B)  franchise. 
C)  patent. 
D)  license.

Question 17

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

Accepted Answer

A)  $1 or less. 
B)  $.75 or less. 
C)  $1.75 or less. 
D)  $2 or less. 
A)  $1 or less. 
B)  $.75 or less. 
C)  $1.75 or less. 
D)  $2 or less.

Question 18

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

Accepted Answer

A)  price of the seventh unit is $10. 
B)  price of the seventh unit is $11. 
C)  price of the seventh unit is greater than $12. 
D)  firm's demand curve is perfectly elastic. 
A)  price of the seventh unit is $10. 
B)  price of the seventh unit is $11. 
C)  price of the seventh unit is greater than $12. 
D)  firm's demand curve is perfectly elastic.

Question 19

For a monopolist, maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.

Accepted Answer

A) True 
 B)False

Question 20

When the value of a product to each user, including existing users, increases due to an increase in the total number of users-as in the case of Facebook-we refer to this as

Accepted Answer

A)  income transfer. 
B)  price discrimination. 
C)  simultaneous consumption. 
D)  network effects. 
A)  income transfer. 
B)  price discrimination. 
C)  simultaneous consumption. 
D)  network effects.

Exam 12: Pure Monopoly

The demand curve confronting a nondiscriminating pure monopolist is

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

The region of demand in which the monopolist will choose a price-output combination will be

Assuming no change in product demand, a pure monopolist

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

Given a linear demand curve, at which combination of price and marginal revenue (P, MR) is the price elasticity of demand greater than 1?

With a natural monopoly, the fair-return price

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

In the short run a pure monopolist will charge the highest price the market will bear for its product.

An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

For a monopolist, maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.

When the value of a product to each user, including existing users, increases due to an increase in the total number of users-as in the case of Facebook-we refer to this as

Limits, Alternatives, and Choices

The Market System and the Circular Flow

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Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

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The Demand for Resources

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