Question 1

Figure: Monopoly 7   Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least:

Accepted Answer

A)  $30. 
B)  $40. 
C)  $10. 
D)  $50. 
A)  $30. 
B)  $40. 
C)  $10. 
D)  $50.

Question 2

The trade-off for natural monopolies weighs the benefits of economies of scale against the loss of consumer surplus.

Accepted Answer

A) True 
 B)False

Question 3

In a purely monopolized environment where each monopolist succeeds at raising its price, the result is:

Accepted Answer

A)  demand is lower for all goods and profits fall. 
B)  higher prices spread throughout the economy. 
C)  higher prices lead to increased competition. 
D)  wages increase as well, leading to higher real incomes across the population. 
A)  demand is lower for all goods and profits fall. 
B)  higher prices spread throughout the economy. 
C)  higher prices lead to increased competition. 
D)  wages increase as well, leading to higher real incomes across the population.

Question 4

California deregulated:

Accepted Answer

A)  wholesale electricity prices in 1998. 
B)  retail electricity prices in 1998. 
C)  wholesale and retail electricity prices in 1998. 
D)  retail electricity prices in 2001. 
A)  wholesale electricity prices in 1998. 
B)  retail electricity prices in 1998. 
C)  wholesale and retail electricity prices in 1998. 
D)  retail electricity prices in 2001.

Question 5

Which of the following is NOT a source of monopoly power?

Accepted Answer

A)  government regulations prohibiting entry of new firms 
B)  decreasing marginal costs 
C)  innovation 
D)  economies of scale 
A)  government regulations prohibiting entry of new firms 
B)  decreasing marginal costs 
C)  innovation 
D)  economies of scale

Question 6

If a monopolist chose to maximize social surplus, it would produce at an optimal Q where:

Accepted Answer

A)  AR = MC. 
B)  MR = MC. 
C)  D = AC. 
D)  AR = AC. 
A)  AR = MC. 
B)  MR = MC. 
C)  D = AC. 
D)  AR = AC.

Question 7

Use the following to answer questions:
Figure: Paint Market 2  
-(Figure: Paint Market 2) If the fixed costs were halved, deadweight loss would:

Accepted Answer

A)  double. 
B)  be halved. 
C)  be reduced to zero. 
D)  not change. 
A)  double. 
B)  be halved. 
C)  be reduced to zero. 
D)  not change.

Question 8

A monopolist has a demand function that is described by Qd = 100 - 2P. The monopolist's cost function is simply described by TC = 30 + 2Q. Therefore MC is constant at 2. The marginal revenue function for the monopolist is 100 - 4P. What is the profit-maximizing price and quantity for the monopolist? What is the profit that the monopolist earns at this output level?

Accepted Answer

The profit-maximizing price and quantity

Question 9

If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects?

Accepted Answer

A)  Drug companies would have no incentive to create new and better drugs. 
B)  The price of Combivir would fall. 
C)  The number of people treated with Combivir would rise. 
D)  No one would have a monopoly on Combivir. 
A)  Drug companies would have no incentive to create new and better drugs. 
B)  The price of Combivir would fall. 
C)  The number of people treated with Combivir would rise. 
D)  No one would have a monopoly on Combivir.

Question 10

If the price of the AIDS drug Combivir was driven down to marginal cost by competition:

Accepted Answer

A)  fewer people would use Combivir. 
B)  there would be less incentive to invest in creating the next improved AIDS drug. 
C)  deadweight loss would increase. 
D)  GlaxoSmithKline's profits would increase. 
A)  fewer people would use Combivir. 
B)  there would be less incentive to invest in creating the next improved AIDS drug. 
C)  deadweight loss would increase. 
D)  GlaxoSmithKline's profits would increase.

Question 11

If the economies of scale are large enough, average cost for a natural monopoly can be:

Accepted Answer

A)  higher than the average cost under competition. 
B)  lower than the average cost under competition. 
C)  higher than the price of the natural monopoly. 
D)  higher than the price under competition. 
A)  higher than the average cost under competition. 
B)  lower than the average cost under competition. 
C)  higher than the price of the natural monopoly. 
D)  higher than the price under competition.

Question 12

Use the following to answer questions:
Figure: Monopolist 3  
-(Figure: Monopolist 3) In this figure, the monopolist's maximum profit is:

Accepted Answer

A)  $99. 
B)  $45. 
C)  $36. 
D)  $54. 
A)  $99. 
B)  $45. 
C)  $36. 
D)  $54.

Question 13

One source of monopoly power is a patent granted by government.

Accepted Answer

A) True 
 B)False

Question 14

Apple enjoys an extensive monopoly power in the market for MP3 players since Apple's i-Phone:

Accepted Answer

A)  has many competitors. 
B)  is more expensive. 
C)  is hard to duplicate. 
D)  is produced overseas. 
A)  has many competitors. 
B)  is more expensive. 
C)  is hard to duplicate. 
D)  is produced overseas.

Question 15

Figure: Optimal Output   Refer to the figure. The competitive industry level of output is:

Accepted Answer

A)  40. 
B)  65. 
C)  80. 
D)  100. 
A)  40. 
B)  65. 
C)  80. 
D)  100.

Question 16

Which of the following statements is TRUE?
I. Prices in a competitive market will always be lower than the prices charged by a natural monopolist.
II. A natural monopolist arises because of its ability to reduce average costs with large-scale production methods.
III. A natural monopoly is a firm that can demand more inputs without increasing its costs of production.

Accepted Answer

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

Question 17

In Chicago's Southside (and other places), auto mechanics (who work outside the formal sector, without a business license, advertising, or even a garage) will do work for gang members without charging them. In exchange, gang members chase away other mechanics who wish to operate in the area. These auto mechanics have monopoly power; what type of source does it come from?

Accepted Answer

A)  barriers to entry 
B)  hard to duplicate inputs 
C)  innovation 
D)  economies of scale 
A)  barriers to entry 
B)  hard to duplicate inputs 
C)  innovation 
D)  economies of scale

Question 18

Figure: Deadweight Loss   Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area:

Accepted Answer

A)  abd. 
B)  acdf. 
C)  bcdf. 
D)  def. 
A)  abd. 
B)  acdf. 
C)  bcdf. 
D)  def.

Question 19

A monopolist sells in two different markets and charges the same price of $10 in both markets. In Market A, the demand curve is described by Qd = 50 - 2P. In Market B, the demand curve is described by Qd = 60 - P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change?

Accepted Answer

A)  -$27 
B)  $459 
C)  $767 
D)  $308 
A)  -$27 
B)  $459 
C)  $767 
D)  $308

Question 20

A firm would prefer that its product demand curve is:

Accepted Answer

A)  perfectly elastic. 
B)  elastic. 
C)  inelastic. 
D)  horizontal. 
A)  perfectly elastic. 
B)  elastic. 
C)  inelastic. 
D)  horizontal.

Exam 13: Monopoly

Figure: Monopoly 7 Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least:

The trade-off for natural monopolies weighs the benefits of economies of scale against the loss of consumer surplus.

In a purely monopolized environment where each monopolist succeeds at raising its price, the result is:

California deregulated:

Which of the following is NOT a source of monopoly power?

If a monopolist chose to maximize social surplus, it would produce at an optimal Q where:

Use the following to answer questions: Figure: Paint Market 2 -(Figure: Paint Market 2) If the fixed costs were halved, deadweight loss would:

If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects?

If the price of the AIDS drug Combivir was driven down to marginal cost by competition:

If the economies of scale are large enough, average cost for a natural monopoly can be:

Use the following to answer questions: Figure: Monopolist 3 -(Figure: Monopolist 3) In this figure, the monopolist's maximum profit is:

One source of monopoly power is a patent granted by government.

Apple enjoys an extensive monopoly power in the market for MP3 players since Apple's i-Phone:

Figure: Optimal Output Refer to the figure. The competitive industry level of output is:

Figure: Deadweight Loss Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area:

A firm would prefer that its product demand 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

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