Question 1

Suppose an industry is made up of 25 firms,all with equal market share.The four-firm concentration ratio of this industry is

Accepted Answer

A)  16%. 
B)  20%. 
C)  25%. 
D)  It cannot be determined from the information given. 
A)  16%. 
B)  20%. 
C)  25%. 
D)  It cannot be determined from the information given. A

Question 2

Figure 15-1   Figure 15-1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-1.If the firm's average total cost curve is ATC1,the firm will

Accepted Answer

A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. 
A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. C

Question 3

The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.

Accepted Answer

A) True 
 B)False  False

Question 4

Figure 15-8  
-Refer to Figure 15-8.From the monopoly graph above,identify the following:
a.The profit maximizing price
b.The profit maximizing quantity
c.The area representing deadweight loss
d.The area representing the transfer of consumer surplus to the monopoly

Accepted Answer

a.Price = P₃ b.Quantity = Q₁ c.D

Question 5

In a natural monopoly,throughout the range of market demand

Accepted Answer

A)  marginal cost is above average total cost and pulls average total cost upward. 
B)  average total cost is above marginal cost and pulls marginal cost upward. 
C)  marginal cost is below average total cost and pulls average total cost downward. 
D)  there are diseconomies of scale. 
A)  marginal cost is above average total cost and pulls average total cost upward. 
B)  average total cost is above marginal cost and pulls marginal cost upward. 
C)  marginal cost is below average total cost and pulls average total cost downward. 
D)  there are diseconomies of scale.

Question 6

A possible advantage of a horizontal merger for the economy is that

Accepted Answer

A)  the merging firms could avoid losses. 
B)  the merged firm might reap economies of scale which could translate into lower prices. 
C)  the degree of competition in the industry will be intensified. 
D)  the government stands to collect more corporate income tax revenue. 
A)  the merging firms could avoid losses. 
B)  the merged firm might reap economies of scale which could translate into lower prices. 
C)  the degree of competition in the industry will be intensified. 
D)  the government stands to collect more corporate income tax revenue.

Question 7

The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.

Accepted Answer

A) True 
 B)False

Question 8

Consider two industries,industry Q and industry Z.In industry Q there are 10 companies,each with a market share of 10% of total sales.In industry Z,there are eight companies.One company has a 65% market share and each of the other seven firms has a market share of 5%.
a.Calculate the four-firm concentration ratio for each industry.
b.Calculate the Herfindahl-Hirschman Index (HHI)for each industry.
c.What do the values of the two concentration measures imply about the degree of market power in the two industries?

Accepted Answer

a.The concentration ratio in industry Q

Question 9

Relative to a perfectly competitive market,a monopoly results in

Accepted Answer

A)  a gain in producer surplus equal to the gain in consumer surplus. 
B)  a gain in producer surplus equal to the loss in consumer surplus. 
C)  a gain in producer surplus less than the loss in consumer surplus. 
D)  greater economic efficiency. 
A)  a gain in producer surplus equal to the gain in consumer surplus. 
B)  a gain in producer surplus equal to the loss in consumer surplus. 
C)  a gain in producer surplus less than the loss in consumer surplus. 
D)  greater economic efficiency.

Question 10

Figure 15-1   Figure 15-1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-1.If the firm's average total cost curve is ATC2,the firm will

Accepted Answer

A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. 
A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition.

Question 11

If a monopolist's price is $50 per unit and its marginal cost is $25,then

Accepted Answer

A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize 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 maximize profit. 
A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize 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 maximize profit.

Question 12

Figure 15-3   Figure 15-3 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-3.What is the amount of the monopoly's total cost of production?

Accepted Answer

A)  $21,600 
B)  $17,700 
C)  $9,340 
D)  $7,800 
A)  $21,600 
B)  $17,700 
C)  $9,340 
D)  $7,800

Question 13

A monopoly is characterized by all of the following except

Accepted Answer

A)  there are only a few sellers each selling a unique product. 
B)  entry barriers are high. 
C)  there are no close substitutes to the firm's product. 
D)  the firm has market power. 
A)  there are only a few sellers each selling a unique product. 
B)  entry barriers are high. 
C)  there are no close substitutes to the firm's product. 
D)  the firm has market power.

Question 14

The National Football League owns the NFL Network,a 24-hour cable channel devoted entirely to pro football.The network is available through satellite providers but several major cable companies,including Time Warner,do not offer the network.If Taylor chooses to pay a higher monthly charge by switching from cable to a satellite provider so he can watch the NFL Network and Harriet chooses not to do the same,then

Accepted Answer

A)  Taylor has lost some consumer surplus by paying the additional fee. 
B)  Harriet has gained some consumer surplus by not having to pay the additional fee. 
C)  Harriet's demand for sports entertainment is more price elastic than Taylor's demand. 
D)  Taylor's demand for sports entertainment is more price elastic than Harriet's demand. 
A)  Taylor has lost some consumer surplus by paying the additional fee. 
B)  Harriet has gained some consumer surplus by not having to pay the additional fee. 
C)  Harriet's demand for sports entertainment is more price elastic than Taylor's demand. 
D)  Taylor's demand for sports entertainment is more price elastic than Harriet's demand.

Question 15

For a natural monopoly,the marginal cost of producing an additional unit of its product is relatively small.

Accepted Answer

A) True 
 B)False

Question 16

Figure 15-9   
Figure 15-9 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-9.Erickson Power is a natural monopoly because

Accepted Answer

A)  it is a power company and all power companies are natural monopolies. 
B)  average total cost is still declining when it intersects demand. 
C)  of its continually declining marginal revenue curve as output rises. 
D)  its marginal cost lies entirely below its long-run average cost. 
A)  it is a power company and all power companies are natural monopolies. 
B)  average total cost is still declining when it intersects demand. 
C)  of its continually declining marginal revenue curve as output rises. 
D)  its marginal cost lies entirely below its long-run average cost.

Question 17

A merger between U.S.Steel and General Motors would be an example of a

Accepted Answer

A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  conspiracy in restraint of trade. 
A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  conspiracy in restraint of trade.

Question 18

Figure 15-3   Figure 15-3 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-3.What is the profit-maximizing/loss-minimizing output level?

Accepted Answer

A)  600 units 
B)  800 units 
C)  940 units 
D)  1,160 units 
A)  600 units 
B)  800 units 
C)  940 units 
D)  1,160 units

Question 19

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.

Question 20

Figure 15-2   
Figure 15-2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-2.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 subsidize 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 subsidize the monopoly to enable it to break even. 
D)  It will be forced out of business by more efficient producers.

Exam 15: Monopoly and Antitrust Policy

Suppose an industry is made up of 25 firms,all with equal market share.The four-firm concentration ratio of this industry is

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.If the firm's average total cost curve is ATC1,the firm will

The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.

Figure 15-8 -Refer to Figure 15-8.From the monopoly graph above,identify the following: a.The profit maximizing price b.The profit maximizing quantity c.The area representing deadweight loss d.The area representing the transfer of consumer surplus to the monopoly

In a natural monopoly,throughout the range of market demand

A possible advantage of a horizontal merger for the economy is that

The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.

Relative to a perfectly competitive market,a monopoly results in

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.If the firm's average total cost curve is ATC2,the firm will

If a monopolist's price is $50 per unit and its marginal cost is $25,then

Figure 15-3 Figure 15-3 shows the demand and cost curves for a monopolist. -Refer to Figure 15-3.What is the amount of the monopoly's total cost of production?

A monopoly is characterized by all of the following except

For a natural monopoly,the marginal cost of producing an additional unit of its product is relatively small.

Figure 15-9 Figure 15-9 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-9.Erickson Power is a natural monopoly because

A merger between U.S.Steel and General Motors would be an example of a

Figure 15-3 Figure 15-3 shows the demand and cost curves for a monopolist. -Refer to Figure 15-3.What is the profit-maximizing/loss-minimizing output level?

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

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2.What happens to the monopolist represented in the diagram in the long run?

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

Filters

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.If the firm's average total cost curve is ATC₁,the firm will

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.If the firm's average total cost curve is ATC₂,the firm will