Question 1

If a restaurant were 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 2

Which of the following statements is true?

Accepted Answer

A)  If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B)  A monopolist will always charge the highest possible price. 
C)  If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers. 
D)  Because a monopolist faces no competition, the demand for its product is perfectly inelastic. 
A)  If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B)  A monopolist will always charge the highest possible price. 
C)  If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers. 
D)  Because a monopolist faces no competition, the demand for its product is perfectly inelastic.

Question 3

If a firm's average total cost is less than price where MR = MC,

Accepted Answer

A)  the firm should shut down. 
B)  the firm should raise its price. 
C)  the firm should continue to produce the output it is producing. 
D)  the firm should cut back on its output to lower its cost. 
A)  the firm should shut down. 
B)  the firm should raise its price. 
C)  the firm should continue to produce the output it is producing. 
D)  the firm should cut back on its output to lower its cost.

Question 4

Congress has divided the authority to police mergers between the Antitrust Division of the U.S. Department of Justice (AD) and the Federal Trade Commission (FTC). How is this authority divided?

Accepted Answer

A)  The AD decides whether proposed horizontal mergers will be challenged; the FTC decides whether proposed vertical mergers will be challenged. 
B)  Both the AD and the FTC are responsible for merger policy. 
C)  The AD always renders its opinion on any proposed merger first. If the AD approves the merger, the case then goes to the FTC for final approval. If the AD disallows the merger, the decision stands and the FTC does not become involved. 
D)  The AD establishes the guidelines that are used to evaluate proposed mergers; the FTC uses these guidelines to decide whether a proposed merger will be allowed to take place. 
A)  The AD decides whether proposed horizontal mergers will be challenged; the FTC decides whether proposed vertical mergers will be challenged. 
B)  Both the AD and the FTC are responsible for merger policy. 
C)  The AD always renders its opinion on any proposed merger first. If the AD approves the merger, the case then goes to the FTC for final approval. If the AD disallows the merger, the decision stands and the FTC does not become involved. 
D)  The AD establishes the guidelines that are used to evaluate proposed mergers; the FTC uses these guidelines to decide whether a proposed merger will be allowed to take place.

Question 5

Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows: a. Firm A: 30%
B. Firm B: 20%
C. Firms C, D and E: 10% each
D. Firms F, G, H and J: 5% each
What is the value of the four-firm concentration ratio and how is the industry categorized?

Accepted Answer

A)  50%; monopolistic competition 
B)  70%; oligopoly 
C)  75%; oligopoly 
D)  80%; strongly oligopolistic 
A)  50%; monopolistic competition 
B)  70%; oligopoly 
C)  75%; oligopoly 
D)  80%; strongly oligopolistic

Question 6

Figure 15-8   Figure 15-8 reflects the cost and revenue structure for a monopoly that has been in business for a very long time.
-Economic efficiency in a free market occurs when

Accepted Answer

A)  consumer surplus is maximized. 
B)  producer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  price is as low as possible. 
A)  consumer surplus is maximized. 
B)  producer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  price is as low as possible.

Question 7

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 8

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

Accepted Answer

A)  A virtuous cycle refers to successful research and development that leads to information that is used to develop other new products. 
B)  A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another market. 
C)  A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an increase in social welfare (the "invisible hand"). 
D)  A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional customers because its product's value has been increased by other customers using it, which attracts even more customers. 
A)  A virtuous cycle refers to successful research and development that leads to information that is used to develop other new products. 
B)  A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another market. 
C)  A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an increase in social welfare (the "invisible hand"). 
D)  A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional customers because its product's value has been increased by other customers using it, which attracts even more customers.

Question 9

Table 15-1
   A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1.
-Refer to Table 15-1. What is the amount of the firm's profit?

Accepted Answer

A)  $335 
B)  $350 
C)  $880 
D)  $910 
A)  $335 
B)  $350 
C)  $880 
D)  $910

Question 10

Table 15-3
   Assume Table 15-3 gives the monthly demand and costs for subscriptions to basic cable for Comcast, a cable television monopoly in Philadelphia.
-Refer to Table 15-3. If Comcast maximizes its profits, how much profit will it earn?

Accepted Answer

A)  $84 
B)  $40 
C)  $4 
D)  Comcast will break even. 
A)  $84 
B)  $40 
C)  $4 
D)  Comcast will break even.

Question 11

Figure 15-14  
-A merger between the Ford Motor Company and General Motors would be an example of a

Accepted Answer

A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  trust. 
A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  trust.

Question 12

Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell and a Kentucky Fried Chicken. Using a broad definition of a monopoly, Joe has a monopoly.

Accepted Answer

A) True 
 B)False

Question 13

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

Accepted Answer

A)  the Clayton Act 
B)  the Securities and Exchange Act 
C)  the Sherman Act 
D)  the Robinson-Patman Act 
A)  the Clayton Act 
B)  the Securities and Exchange Act 
C)  the Sherman Act 
D)  the Robinson-Patman Act

Question 14

Firms that face downward-sloping demand curves for their output in the product market are called

Accepted Answer

A)  price takers. 
B)  price dictators. 
C)  monopolists. 
D)  price makers. 
A)  price takers. 
B)  price dictators. 
C)  monopolists. 
D)  price makers.

Question 15

The most profitable price for a monopolist is

Accepted Answer

A)  the highest price a consumer is willing to pay for the monopolist's product. 
B)  the price at which demand is unit-elastic. 
C)  a price that maximizes the quantity sold. 
D)  the price for which marginal revenue equals marginal cost. 
A)  the highest price a consumer is willing to pay for the monopolist's product. 
B)  the price at which demand is unit-elastic. 
C)  a price that maximizes the quantity sold. 
D)  the price for which marginal revenue equals marginal cost.

Question 16

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 17

Whenever a firm can charge a price greater than marginal cost,

Accepted Answer

A)  the firm must be a monopolist. 
B)  there is some loss of economic efficiency. 
C)  consumers have the ability to choose a close substitute. 
D)  the firm will earn economic profits. 
A)  the firm must be a monopolist. 
B)  there is some loss of economic efficiency. 
C)  consumers have the ability to choose a close substitute. 
D)  the firm will earn economic profits.

Question 18

Figure 15-2   Figure 15-2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-2. To maximize profit, the firm will produce

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 19

Figure 15-9   Figure 15-9 shows the demand and cost curves for a monopolist.
-Why does a monopoly cause a deadweight loss?

Accepted Answer

A)  because it does not produce some output for which marginal benefit exceeds marginal cost 
B)  because it appropriates a portion of consumer surplus for itself 
C)  because it increases producer surplus at the expense of consumer surplus 
D)  because it does not produce some output for which demand exceeds supply 
A)  because it does not produce some output for which marginal benefit exceeds marginal cost 
B)  because it appropriates a portion of consumer surplus for itself 
C)  because it increases producer surplus at the expense of consumer surplus 
D)  because it does not produce some output for which demand exceeds supply

Question 20

Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale. The main reason for the elimination of profits is

Accepted Answer

A)  after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat. 
B)  firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses. 
C)  the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls. 
D)  after 20 years patent protection is ended and other firms can produce less expensive generic versions of the drug. 
A)  after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat. 
B)  firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses. 
C)  the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls. 
D)  after 20 years patent protection is ended and other firms can produce less expensive generic versions of the drug.

Exam 15: Monopoly and Antitrust Policy

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

Which of the following statements is true?

If a firm's average total cost is less than price where MR = MC,

Congress has divided the authority to police mergers between the Antitrust Division of the U.S. Department of Justice (AD) and the Federal Trade Commission (FTC). How is this authority divided?

Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows: a. Firm A: 30% B. Firm B: 20% C. Firms C, D and E: 10% each D. Firms F, G, H and J: 5% each What is the value of the four-firm concentration ratio and how is the industry categorized?

Figure 15-8 Figure 15-8 reflects the cost and revenue structure for a monopoly that has been in business for a very long time. -Economic efficiency in a free market occurs when

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

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

Table 15-1 A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1. -Refer to Table 15-1. What is the amount of the firm's profit?

Table 15-3 Assume Table 15-3 gives the monthly demand and costs for subscriptions to basic cable for Comcast, a cable television monopoly in Philadelphia. -Refer to Table 15-3. If Comcast maximizes its profits, how much profit will it earn?

Figure 15-14 -A merger between the Ford Motor Company and General Motors would be an example of a

Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell and a Kentucky Fried Chicken. Using a broad definition of a monopoly, Joe has a monopoly.

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

Firms that face downward-sloping demand curves for their output in the product market are called

The most profitable price for a monopolist is

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

Whenever a firm can charge a price greater than marginal cost,

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. To maximize profit, the firm will produce

Figure 15-9 Figure 15-9 shows the demand and cost curves for a monopolist. -Why does a monopoly cause a deadweight loss?

Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale. The main reason for the elimination of profits is

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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