Question 1

Saudi Arabia has market power in the world's oil markets because:

Accepted Answer

A)  it has innovated technologies in oil production that other oil producing countries do not possess. 
B)  it is able to prevent entry of potential competitors in oil production. 
C)  its oil output is known for its prestige and quality. 
D)  it controls a significant fraction of the world's oil supply. 
A)  it has innovated technologies in oil production that other oil producing countries do not possess. 
B)  it is able to prevent entry of potential competitors in oil production. 
C)  its oil output is known for its prestige and quality. 
D)  it controls a significant fraction of the world's oil supply.

Question 2

Monopolists are people, too. This means that:

Accepted Answer

A)  gains to monopolists count just as much as losses to consumers. 
B)  gains to monopolists don't count as much as losses to consumers. 
C)  it's good when monopolists suffer, because they are evil. 
D)  monopolists are corporations, not people. 
A)  gains to monopolists count just as much as losses to consumers. 
B)  gains to monopolists don't count as much as losses to consumers. 
C)  it's good when monopolists suffer, because they are evil. 
D)  monopolists are corporations, not people.

Question 3

Table: Monopolist
 
Refer to the table. What is the monopolist's profit-maximizing level of output?

Accepted Answer

A)  3 
B)  4 
C)  5 
D)  6 
A)  3 
B)  4 
C)  5 
D)  6

Question 4

Monopolies are bad because they convert deadweight losses into additional sales and profit.

Accepted Answer

A) True 
 B)False

Question 5

A firm with no competition faces a perfectly inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 6

If economies of scale are high and government regulators set prices equal to a monopolist's marginal cost,:

Accepted Answer

A)  the monopolist will still earn a profit, just smaller than with no regulation. 
B)  the monopolist will be taking a loss. 
C)  there will be more incentive to innovate. 
D)  the market will be more efficient than if the government regulators set prices equal to average cost. 
A)  the monopolist will still earn a profit, just smaller than with no regulation. 
B)  the monopolist will be taking a loss. 
C)  there will be more incentive to innovate. 
D)  the market will be more efficient than if the government regulators set prices equal to average cost.

Question 7

Which of the following statements is TRUE?
I. To maximize profit, a monopolist produces where P = MC.
II. Economies of scale are likely important for subways and cable TV.
III. Since producer surplus includes large monopoly profits, total surplus is higher in monopoly markets.

Accepted Answer

A)  I only 
B)  II only 
C)  II and III only 
D)  I, II, and III 
A)  I only 
B)  II only 
C)  II and III only 
D)  I, II, and III

Question 8

Suppose that a monopolist can sell five units of output at a price of $5 or six units of output at a price of $4. What is the marginal revenue of the sixth unit?

Accepted Answer

A)  $24 
B)  $49 
C)  -$1 
D)  $4 
A)  $24 
B)  $49 
C)  -$1 
D)  $4

Question 9

If a monopolist lowers price from $10 to $8 per unit and quantity demanded increases from three to four units, the marginal revenue from the fourth unit is $32.

Accepted Answer

A) True 
 B)False

Question 10

The National Football League (NFL) has long been accused of benefiting from monopoly power. Explain how the NFL protects its monopoly power, and what would you expect to happen to the number of teams and ticket prices if the NFL lost its monopoly?

Accepted Answer

The NFL protects its monopoly power by b

Question 11

What is the profit maximization condition for a monopolist?

Accepted Answer

A)  MR > MC 
B)  MR = MC 
C)  AR = MC 
D)  AR = D 
A)  MR > MC 
B)  MR = MC 
C)  AR = MC 
D)  AR = D

Question 12

The government can create monopolies by legally requiring its citizens to buy from a particular seller.

Accepted Answer

A) True 
 B)False

Question 13

Figure: Monopolist   If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Accepted Answer

A)  $40 
B)  $50 
C)  $60 
D)  $65 
A)  $40 
B)  $50 
C)  $60 
D)  $65

Question 14

Deadweight loss occurs because some consumers are willing to pay at least the marginal cost for the good, even if they are not willing to pay the monopolist's price. If monopolies were able to charge these consumers a lower price without lowering prices to consumers willing to pay more, deadweight loss would ______, some consumers would be ______ off, and the monopolist would be ______ off.

Accepted Answer

A)  increase; worse; better 
B)  increase; better; worse 
C)  decrease; worse; better 
D)  decrease; better; better 
A)  increase; worse; better 
B)  increase; better; worse 
C)  decrease; worse; better 
D)  decrease; better; better

Question 15

Which of the following is always TRUE for monopolies?

Accepted Answer

A) MR > D B) P > MR C) P > AC D) TR < TC A) MR > D B) P > MR C) P > AC D) TR < TC

Question 16

Figure: Monopolist 5    
In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______.

Accepted Answer

A)  $10; $2 
B)  $15; $7.50 
C)  $7.50; $3 
D)  $5; $1 
A)  $10; $2 
B)  $15; $7.50 
C)  $7.50; $3 
D)  $5; $1

Question 17

In a monopoly market:

Accepted Answer

A)  the lack of competition causes the price of the product to equal average cost. 
B)  a firm maximizes profits by producing the level of output that minimizes average cost. 
C)  the additional revenue from selling one more unit of output usually is greater than the price. 
D)  the lure of above-normal profits may give a firm an incentive to develop new products and technologies. 
A)  the lack of competition causes the price of the product to equal average cost. 
B)  a firm maximizes profits by producing the level of output that minimizes average cost. 
C)  the additional revenue from selling one more unit of output usually is greater than the price. 
D)  the lure of above-normal profits may give a firm an incentive to develop new products and technologies.

Question 18

Figure: Paint Market   What is the profit or loss for this monopoly?

Accepted Answer

A)  -$200,000 
B)  $10,000 
C)  $100,000 
D)  $250,000 
A)  -$200,000 
B)  $10,000 
C)  $100,000 
D)  $250,000

Question 19

The economic inefficiency of a monopolist can be measured by the:

Accepted Answer

A)  excess profit generated by monopoly firms. 
B)  poor quality of service offered by monopoly firms. 
C)  number of consumers who are unable to purchase the product because of its high price. 
D)  deadweight loss involved relative to a competitive firm. 
A)  excess profit generated by monopoly firms. 
B)  poor quality of service offered by monopoly firms. 
C)  number of consumers who are unable to purchase the product because of its high price. 
D)  deadweight loss involved relative to a competitive firm.

Question 20

Figure: Monopolist 2   In this figure, the monopolist's marginal revenue curve is:

Accepted Answer

A)  also the demand curve. 
B)  MR1. 
C)  MR2. 
D)  MR3. 
A)  also the demand curve. 
B)  MR1. 
C)  MR2. 
D)  MR3.

Exam 13: Monopoly

Saudi Arabia has market power in the world's oil markets because:

Monopolists are people, too. This means that:

Table: Monopolist Refer to the table. What is the monopolist's profit-maximizing level of output?

Monopolies are bad because they convert deadweight losses into additional sales and profit.

A firm with no competition faces a perfectly inelastic demand curve.

If economies of scale are high and government regulators set prices equal to a monopolist's marginal cost,:

Which of the following statements is TRUE? I. To maximize profit, a monopolist produces where P = MC. II. Economies of scale are likely important for subways and cable TV. III. Since producer surplus includes large monopoly profits, total surplus is higher in monopoly markets.

Suppose that a monopolist can sell five units of output at a price of $5 or six units of output at a price of $4. What is the marginal revenue of the sixth unit?

If a monopolist lowers price from $10 to $8 per unit and quantity demanded increases from three to four units, the marginal revenue from the fourth unit is $32.

The National Football League (NFL) has long been accused of benefiting from monopoly power. Explain how the NFL protects its monopoly power, and what would you expect to happen to the number of teams and ticket prices if the NFL lost its monopoly?

What is the profit maximization condition for a monopolist?

The government can create monopolies by legally requiring its citizens to buy from a particular seller.

Figure: Monopolist If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Which of the following is always TRUE for monopolies?

Figure: Monopolist 5 In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______.

In a monopoly market:

Figure: Paint Market What is the profit or loss for this monopoly?

The economic inefficiency of a monopolist can be measured by the:

Figure: Monopolist 2 In this figure, the monopolist's marginal revenue curve is:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

If a monopolist lowers price from $10 to $8 per unit and quantity demanded increases from three to four units, the marginal revenue from thefourth unit is $32.

Figure: Monopolist 5 In these figures, the markup of price over marginal cost for the relatively inelastic demand is , and the markup of price over marginal cost for the relatively elastic demand is .