Question 1

If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,then the average profit is $7.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a monopoly is producing its profit-maximising output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result,the monopolist will increase the price of its product to cover its higher cost.

Accepted Answer

A) True 
 B)False

Question 3

The size of a deadweight loss in a market is reduced by

Accepted Answer

A)  government legislating a price ceiling. 
B)  government legislating a price floor. 
C)  market price being close to marginal cost. 
D)  creative destruction. 
A)  government legislating a price ceiling. 
B)  government legislating a price floor. 
C)  market price being close to marginal cost. 
D)  creative destruction.

Question 4

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

Accepted Answer

A)  Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B)  Under perfectly competitive conditions, economic surplus in this industry is maximised. Under monopoly conditions, economic surplus is minimised. 
C)  Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price-takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D)  Under perfectly competitive conditions, economic surplus is maximised. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. 
A)  Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B)  Under perfectly competitive conditions, economic surplus in this industry is maximised. Under monopoly conditions, economic surplus is minimised. 
C)  Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price-takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D)  Under perfectly competitive conditions, economic surplus is maximised. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Question 5

If a restaurant was a natural monopoly,dividing the restaurant equally into two separate restaurants would

Accepted Answer

A)  decrease marginal cost. 
B)  raise average total cost. 
C)  increase total revenue. 
D)  make marginal revenue less elastic. 
A)  decrease marginal cost. 
B)  raise average total cost. 
C)  increase total revenue. 
D)  make marginal revenue less elastic.

Question 6

Figure 8.11   Figure 8.11 shows the cost and demand curves for a monopolist.
-Refer to Figure 8.11.Assume the firm maximises its profits.The amount of consumer surplus is -.

Accepted Answer

A)  $21 
B)  $124 
C)  $186 
D)  $332 
A)  $21 
B)  $124 
C)  $186 
D)  $332

Question 7

What must a firm have to maintain a monopoly?

Accepted Answer

A)  A perfectly inelastic demand 
B)  An insurmountable barrier to entry 
C)  Marginal revenue equal to demand 
D)  Few competitors 
A)  A perfectly inelastic demand 
B)  An insurmountable barrier to entry 
C)  Marginal revenue equal to demand 
D)  Few competitors

Question 8

In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller,

Accepted Answer

A)  the greater the difference between marginal cost and price. 
B)  the smaller the difference between marginal cost and average total cost. 
C)  the smaller the difference between marginal cost and price. 
D)  the greater the difference between marginal cost and average revenue. 
A)  the greater the difference between marginal cost and price. 
B)  the smaller the difference between marginal cost and average total cost. 
C)  the smaller the difference between marginal cost and price. 
D)  the greater the difference between marginal cost and average revenue.

Question 9

Figure 8.12   Figure 8.12 shows the cost and demand curves for the ETSA.
-Refer to Figure 8.12.Why won't regulators require that ETSA Power produce the economically efficient output level?

Accepted Answer

A)  Because there is insufficient demand at that output level 
B)  Because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit 
C)  Because Erickson Power will earn zero profit 
D)  Because Erickson Power will sustain persistent losses and will not continue in business in the long run 
A)  Because there is insufficient demand at that output level 
B)  Because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit 
C)  Because Erickson Power will earn zero profit 
D)  Because Erickson Power will sustain persistent losses and will not continue in business in the long run

Question 10

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.As a result of this change:

Accepted Answer

A)  Price will be higher, output will be lower and the deadweight loss will be eliminated. 
B)  Consumer surplus will be smaller, producer surplus will be greater and there will be a reduction in economic efficiency. 
C)  Price will be higher, consumer surplus will be greater and output will be greater. 
D)  Consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus. 
A)  Price will be higher, output will be lower and the deadweight loss will be eliminated. 
B)  Consumer surplus will be smaller, producer surplus will be greater and there will be a reduction in economic efficiency. 
C)  Price will be higher, consumer surplus will be greater and output will be greater. 
D)  Consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Question 11

Table 8.1
 $$\begin{array} { | c | c | c | } 
\hline \text { Price per Unit } & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (units) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 85 & 10 & \$ 530 \
\hline 80 & 11 & 540 \
\hline 75 & 12 & 550 \
\hline 70 & 13 & 560 \
\hline 65 & 14 & 575 \
\hline 60 & 15 & 595 \
\hline 55 & 16 & 625 \
\hline
\end{array}$$ A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 8.1.
-Refer to Table 8.1.What is the firm's profit-maximising output and what is the price charged to sell this output?

Accepted Answer

A)  P = $85; Q = 10 
B)  P = $80; Q = 11 
C)  P = $70; Q = 13 
D)  P = $65; Q = 14 
A)  P = $85; Q = 10 
B)  P = $80; Q = 11 
C)  P = $70; Q = 13 
D)  P = $65; Q = 14

Question 12

Governments grant patents to encourage

Accepted Answer

A)  research and development on new products. 
B)  competition. 
C)  low prices. 
D)  firms to form public enterprises. 
A)  research and development on new products. 
B)  competition. 
C)  low prices. 
D)  firms to form public enterprises.

Question 13

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the 'market' that firms are in are broadly defined rather than narrowly defined.

Accepted Answer

A) True 
 B)False

Question 14

Long-run economic profits would most likely exist in which market structure?

Accepted Answer

A)  Monopoly, monopolistic competition, and oligopoly 
B)  Monopoly and oligopoly 
C)  Monopoly and monopolistic competition 
D)  Monopoly only 
A)  Monopoly, monopolistic competition, and oligopoly 
B)  Monopoly and oligopoly 
C)  Monopoly and monopolistic competition 
D)  Monopoly only

Question 15

Figure 8.3   Figure 8.3 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 8.3.What happens to the monopolist represented in the diagram in the long run?

Accepted Answer

A)  It will raise its price at least until it breaks even. 
B)  If the cost and demand curves remain the same, it will exit the market. 
C)  The government will subsidise the monopoly to enable it to break even. 
D)  It will be forced out of business by more efficient producers. 
A)  It will raise its price at least until it breaks even. 
B)  If the cost and demand curves remain the same, it will exit the market. 
C)  The government will subsidise the monopoly to enable it to break even. 
D)  It will be forced out of business by more efficient producers.

Question 16

In regulating a natural monopoly,the price strategy that ensures the highest possible output and zero profit is one that sets price

Accepted Answer

A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  corresponding to the demand curve where marginal revenue equals zero. 
A)  equal to average total cost where it intersects the demand curve. 
B)  equal to marginal cost where it intersects the demand curve. 
C)  equal to average variable cost where it intersects the demand curve. 
D)  corresponding to the demand curve where marginal revenue equals zero.

Question 17

When a proposed merger between two companies is reviewed by the government,the relevant market is defined by

Accepted Answer

A)  whether or not there are close substitutes for the products of the two firms. 
B)  how elastic the demand is for each firm's product. 
C)  counting the number of firms that produce the same product. 
D)  how much advertising is done in the industry. 
A)  whether or not there are close substitutes for the products of the two firms. 
B)  how elastic the demand is for each firm's product. 
C)  counting the number of firms that produce the same product. 
D)  how much advertising is done in the industry.

Question 18

Ordinarily,governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

Accepted Answer

A)  Patents encourage firms to spend money on research necessary to create new products. 
B)  Politicians sometimes succumb to pressure from lobbyists to grant favours to businesses for political reasons. 
C)  Patents are an important source of government revenue. 
D)  Patents are justified because they are an important means for creating network externalities. 
A)  Patents encourage firms to spend money on research necessary to create new products. 
B)  Politicians sometimes succumb to pressure from lobbyists to grant favours to businesses for political reasons. 
C)  Patents are an important source of government revenue. 
D)  Patents are justified because they are an important means for creating network externalities.

Question 19

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25,then

Accepted Answer

A)  to maximise profit the firm should increase output. 
B)  to maximise profit the firm should decrease output. 
C)  to maximise profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximise profit. 
A)  to maximise profit the firm should increase output. 
B)  to maximise profit the firm should decrease output. 
C)  to maximise profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximise profit.

Question 20

A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.

Accepted Answer

A) True 
 B)False

If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,then the average profit is $7.

Suppose a monopoly is producing its profit-maximising output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result,the monopolist will increase the price of its product to cover its higher cost.

The size of a deadweight loss in a market is reduced by

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

If a restaurant was a natural monopoly,dividing the restaurant equally into two separate restaurants would

Figure 8.11 Figure 8.11 shows the cost and demand curves for a monopolist. -Refer to Figure 8.11.Assume the firm maximises its profits.The amount of consumer surplus is -.

What must a firm have to maintain a monopoly?

In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller,

Figure 8.12 Figure 8.12 shows the cost and demand curves for the ETSA. -Refer to Figure 8.12.Why won't regulators require that ETSA Power produce the economically efficient output level?

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.As a result of this change:

Governments grant patents to encourage

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the 'market' that firms are in are broadly defined rather than narrowly defined.

Long-run economic profits would most likely exist in which market structure?

Figure 8.3 Figure 8.3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 8.3.What happens to the monopolist represented in the diagram in the long run?

In regulating a natural monopoly,the price strategy that ensures the highest possible output and zero profit is one that sets price

When a proposed merger between two companies is reviewed by the government,the relevant market is defined by

Ordinarily,governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25,then

A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 8: Monopoly Markets

If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,then the average profit is $7.

Suppose a monopoly is producing its profit-maximising output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result,the monopolist will increase the price of its product to cover its higher cost.

The size of a deadweight loss in a market is reduced by

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

If a restaurant was a natural monopoly,dividing the restaurant equally into two separate restaurants would

Figure 8.11 Figure 8.11 shows the cost and demand curves for a monopolist. -Refer to Figure 8.11.Assume the firm maximises its profits.The amount of consumer surplus is -.

What must a firm have to maintain a monopoly?

In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller,

Figure 8.12 Figure 8.12 shows the cost and demand curves for the ETSA. -Refer to Figure 8.12.Why won't regulators require that ETSA Power produce the economically efficient output level?

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.As a result of this change:

Governments grant patents to encourage

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the 'market' that firms are in are broadly defined rather than narrowly defined.

Long-run economic profits would most likely exist in which market structure?

Figure 8.3 Figure 8.3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 8.3.What happens to the monopolist represented in the diagram in the long run?

In regulating a natural monopoly,the price strategy that ensures the highest possible output and zero profit is one that sets price

When a proposed merger between two companies is reviewed by the government,the relevant market is defined by

Ordinarily,governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25,then

A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters