Question 1

Figure 15-6  
-Refer to Figure 15-6.What is the area that represents consumer surplus under a monopoly?

Accepted Answer

A)  the triangle P0P1F 
B)  the triangle P0P2E 
C)  the trapezium P1P2EF 
D)  the rectangle P1P3HF 
A)  the triangle P0P1F 
B)  the triangle P0P2E 
C)  the trapezium P1P2EF 
D)  the rectangle P1P3HF

Question 2

A virtuous cycle occurs

Accepted Answer

A)  when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise. 
B)  when monopoly profits are used to create new products for additional monopoly profits. 
C)  when a firm can attract enough buyers initially to increase a product's usefulness to attract even more buyers. 
D)  when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales. 
A)  when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise. 
B)  when monopoly profits are used to create new products for additional monopoly profits. 
C)  when a firm can attract enough buyers initially to increase a product's usefulness to attract even more buyers. 
D)  when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales.

Question 3

Figure 15-9   
Figure 15-9 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-9.What is the economically efficient output level and what is the price at that level?

Accepted Answer

A)  Q4, P1 
B)  Q3, P2 
C)  Q2, P2 
D)  Q2, P3 
A)  Q4, P1 
B)  Q3, P2 
C)  Q2, P2 
D)  Q2, P3

Question 4

Figure 15-10  
-Refer to Figure 15-10 to answer the following questions.
a.What quantity will this monopoly produce and what price will it charge?
b.Suppose the monopoly is regulated.If the regulatory agency wants to achieve economic efficiency,what price should it require the monopoly to charge?
c.To achieve economic efficiency,what quantity will the regulated monopoly produce?
d.Will the regulated monopoly make a profit if it charges the price that will achieve economic efficiency?
e.Suppose the government decides to regulate the monopoly by imposing a price ceiling of $35.What quantity will the monopoly produce and what price will the monopoly charge?
f.With the price ceiling of $35,what profit will the monopoly earn?

Accepted Answer

a.Quantity = 835 units and Price = $59.

Question 5

Figure 15-1  
 Figure 15-1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-1.The firm's profit-maximizing price is

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 6

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Accepted Answer

A network externality exists where the u

Question 7

Table 15-2
  
 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-2 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-2.What is the amount of Shakti's profit?

Accepted Answer

A)  $68 
B)  $72 
C)  $124 
D)  $192 
A)  $68 
B)  $72 
C)  $124 
D)  $192

Question 8

The government estimated that by allowing the merger between AT&T and T-Mobile to go through,the Herfindahl Hirschman Index for the national market would increase from about 2,400 to about 3,100.According to the merger standards of the Department of Justice and the FTC,these index numbers indicate that the market is ________ concentrated,and the merger ________ be challenged.

Accepted Answer

A)  moderately; may 
B)  moderately; will 
C)  highly; may 
D)  highly; will 
A)  moderately; may 
B)  moderately; will 
C)  highly; may 
D)  highly; will

Question 9

A merger between two competitors may be approved by the Department of Justice and the FTC if the two companies can substantiate ________ as a result of the merger.

Accepted Answer

A)  increases in revenue for the merged company 
B)  an increase in the HHI to over 1,800 
C)  decreases in marginal revenue for the merged company 
D)  increases in economic efficiency 
A)  increases in revenue for the merged company 
B)  an increase in the HHI to over 1,800 
C)  decreases in marginal revenue for the merged company 
D)  increases in economic efficiency

Question 10

Market power refers to

Accepted Answer

A)  the ability of consumers to dictate what products should be produced. 
B)  the ability of a firm to advertise its product and succeed in selling more output. 
C)  the ability of a firm to sell at a lower price than rival sellers. 
D)  the ability of a firm to charge a price higher than the marginal cost of production. 
A)  the ability of consumers to dictate what products should be produced. 
B)  the ability of a firm to advertise its product and succeed in selling more output. 
C)  the ability of a firm to sell at a lower price than rival sellers. 
D)  the ability of a firm to charge a price higher than the marginal cost of production.

Question 11

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 12

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopoly's profit will fall.

Accepted Answer

A) True 
 B)False

Question 13

A monopolist faces

Accepted Answer

A)  a perfectly elastic demand curve. 
B)  a perfectly inelastic demand curve. 
C)  a horizontal demand curve. 
D)  a downward-sloping demand curve. 
A)  a perfectly elastic demand curve. 
B)  a perfectly inelastic demand curve. 
C)  a horizontal demand curve. 
D)  a downward-sloping demand curve.

Question 14

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 revenue?

Accepted Answer

A)  $21,600 
B)  $20,400 
C)  $19,740 
D)  $7,800 
A)  $21,600 
B)  $20,400 
C)  $19,740 
D)  $7,800

Question 15

The Aluminum Company of America (Alcoa)had a monopoly until the 1940s because

Accepted Answer

A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite. 
A)  it was a public enterprise. 
B)  it had a patent on the manufacture of aluminum. 
C)  the company had a secret technique for making aluminum from bauxite. 
D)  it had control of almost all the available supply of bauxite.

Question 16

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

Accepted Answer

A)  Each must lower its price to sell more output. 
B)  Each sets a price for its product that will maximize its revenue. 
C)  Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. 
D)  Each maximizes profits by producing a quantity for which price equals marginal cost. 
A)  Each must lower its price to sell more output. 
B)  Each sets a price for its product that will maximize its revenue. 
C)  Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. 
D)  Each maximizes profits by producing a quantity for which price equals marginal cost.

Question 17

One reason patent protection is vitally important to pharmaceutical firms is

Accepted Answer

A)  successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs. 
A)  successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.

Question 18

Figure 15-1   Figure 15-1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-1.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

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance,the

Accepted Answer

A)  marginal revenue of the sixth performance is $48,000. 
B)  marginal revenue of the sixth performance is $38,000. 
C)  cost of staging the sixth performance is probably higher than the cost of staging the previous five. 
D)  company will be making a loss on the sixth performance because its ticket sales will be less than the average received from the previous five. 
A)  marginal revenue of the sixth performance is $48,000. 
B)  marginal revenue of the sixth performance is $38,000. 
C)  cost of staging the sixth performance is probably higher than the cost of staging the previous five. 
D)  company will be making a loss on the sixth performance because its ticket sales will be less than the average received from the previous five.

Question 20

If we use a narrow definition of monopoly,then a monopoly is defined as a firm

Accepted Answer

A)  that has been granted special production rights by the government. 
B)  that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. 
C)  that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. 
D)  that has the largest market share in an industry. 
A)  that has been granted special production rights by the government. 
B)  that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. 
C)  that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. 
D)  that has the largest market share in an industry.

Exam 15: Monopoly and Antitrust Policy

Figure 15-6 -Refer to Figure 15-6.What is the area that represents consumer surplus under a monopoly?

A virtuous cycle occurs

Figure 15-9 Figure 15-9 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-9.What is the economically efficient output level and what is the price at that level?

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.The firm's profit-maximizing price is

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Table 15-2 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-2 shows the demand and the total cost schedule for the firm. -Refer to Table 15-2.What is the amount of Shakti's profit?

A merger between two competitors may be approved by the Department of Justice and the FTC if the two companies can substantiate ________ as a result of the merger.

Market power refers to

Why does a monopoly cause a deadweight loss?

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopoly's profit will fall.

A monopolist faces

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 revenue?

The Aluminum Company of America (Alcoa)had a monopoly until the 1940s because

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

One reason patent protection is vitally important to pharmaceutical firms is

Figure 15-1 Figure 15-1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-1.To maximize profit,the firm will produce

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance,the

If we use a narrow definition of monopoly,then a monopoly is defined as a firm

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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