Question 1

The stated reason for resorting to regulation of public utilities rather than promoting competition through antitrust is that the industry in question is believed to be a:

Accepted Answer

A)  profit-maximizing monopoly. 
B)  natural monopoly. 
C)  revenue-maximizing monopoly. 
D)  producer of externalities. 
A)  profit-maximizing monopoly. 
B)  natural monopoly. 
C)  revenue-maximizing monopoly. 
D)  producer of externalities.

Question 2

Which of the following is TRUE for monopolists?

Accepted Answer

A)  They charge a price below average cost, which guarantees above-normal profits. 
B)  Their marginal revenue increases with output. 
C)  They maximize profits by producing at the minimum of average costs. 
D)  They produce all units of output for which marginal revenue is greater than or equal to marginal cost. 
A)  They charge a price below average cost, which guarantees above-normal profits. 
B)  Their marginal revenue increases with output. 
C)  They maximize profits by producing at the minimum of average costs. 
D)  They produce all units of output for which marginal revenue is greater than or equal to marginal cost.

Question 3

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

Accepted Answer

A)  innovation 
B)  patents 
C)  economies of scale 
D)  marketing 
A)  innovation 
B)  patents 
C)  economies of scale 
D)  marketing

Question 4

Figure: Demand Curve   In this figure, the marginal revenue of the third unit is given by area:

Accepted Answer

A)  D. 
B)  C + D. 
C)  D - - B. 
D)  D + C + E. 
A)  D. 
B)  C + D. 
C)  D - - B. 
D)  D + C + E.

Question 5

Use the following to answer questions:
Figure: Monopoly Profits  
-(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of:

Accepted Answer

A)  $630. 
B)  $420. 
C)  $540. 
D)  $480. 
A)  $630. 
B)  $420. 
C)  $540. 
D)  $480.

Question 6

To better feed his army, Napoleon established a technology prize that led to the development of canning in 1809. Napoleon required the inventor-Nicolas Francois Appert-to publish the method. Napoleon's reign as Emperor ended after his defeat at Waterloo, a defeat which might not have been so decisive had canned food not made its way to the enemies' mouths. By demanding Appert publish his method, what did Napoleon force Appert to give up?

Accepted Answer

A)  a monopoly 
B)  consumer surplus 
C)  deadweight loss 
D)  economies of scale 
A)  a monopoly 
B)  consumer surplus 
C)  deadweight loss 
D)  economies of scale

Question 7

Apple's iPod provides an example that market power may arise from:

Accepted Answer

A)  laws preventing entry of competitors. 
B)  hard to duplicate inputs. 
C)  innovation. 
D)  economies of scale. 
A)  laws preventing entry of competitors. 
B)  hard to duplicate inputs. 
C)  innovation. 
D)  economies of scale.

Question 8

To assuage the deadweight loss from a natural monopoly, governments could employ a price control.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements are TRUE?
I. Monopolists can raise prices as high as they want and still earn economic profits.
II. Even with no competitors, firms face a downward-sloping demand curve.
III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost.

Accepted Answer

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

Question 10

Monopoly power is best described as the ability to:

Accepted Answer

A)  charge the profit-maximizing price. 
B)  produce the profit-maximizing output level. 
C)  earn economic profits without causing new firms to enter the market. 
D)  produce where marginal revenue intersects halfway between the origin and the demand curve. 
A)  charge the profit-maximizing price. 
B)  produce the profit-maximizing output level. 
C)  earn economic profits without causing new firms to enter the market. 
D)  produce where marginal revenue intersects halfway between the origin and the demand curve.

Question 11

Use the following to answer questions:
Figure: Monopoly 6  
-(Figure: Monopoly 6) If the market in this figure is a competitive market, consumer surplus is given by area(s):

Accepted Answer

A)  A + B + C. 
B)  B + C. 
C)  A. 
D)  A + B. 
A)  A + B + C. 
B)  B + C. 
C)  A. 
D)  A + B.

Question 12

Patent buyouts could reduce deadweight loss from monopolies, while still protecting the incentive to innovate.

Accepted Answer

A) True 
 B)False

Question 13

In comparison to competitive firms, monopolies do not maximize the sum of producer and consumer surplus and thus create deadweight loss.

Accepted Answer

A) True 
 B)False

Question 14

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions:
Figure: Monopolist 3  
-(Figure: Monopolist 3) In this figure, the profit-maximizing monopolist sells:

Accepted Answer

A)  9 units of output at $11 per unit. 
B)  16 units of output at $4 per unit. 
C)  9 units of output at $20 per unit. 
D)  18 units of output at $2 per unit. 
A)  9 units of output at $11 per unit. 
B)  16 units of output at $4 per unit. 
C)  9 units of output at $20 per unit. 
D)  18 units of output at $2 per unit.

Question 16

Today anything beyond the most basic tier cable service is predominantly free of regulation, and cable companies are free to charge a market rate for their services. As a result:

Accepted Answer

A)  prices have risen since deregulation, but so have the number of channels and the quality of programming. 
B)  prices have risen since deregulation, and the number of channels and the quality of programming have declined. 
C)  regulation has eliminated many of the excess profits previously enjoyed by cable companies. 
D)  fewer people now sign up for cable television service. 
A)  prices have risen since deregulation, but so have the number of channels and the quality of programming. 
B)  prices have risen since deregulation, and the number of channels and the quality of programming have declined. 
C)  regulation has eliminated many of the excess profits previously enjoyed by cable companies. 
D)  fewer people now sign up for cable television service.

Question 17

Patents may be beneficial in that they encourage firms to innovate and develop new products.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions:
Figure: Paint Market 2  
-(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity?

Accepted Answer

A)  $125,000 
B)  $250,000 
C)  $300,000 
D)  No deadweight loss 
A)  $125,000 
B)  $250,000 
C)  $300,000 
D)  No deadweight loss

Question 19

If you had the opportunity to operate a firm with market power either in the market for fast-food or for pharmaceuticals, which market should you choose in order to earn the highest profits and why?

Accepted Answer

Profit-maximizing firms should choose to

Question 20

GlaxoSmithKline prices Combivir, its AIDS drug:

Accepted Answer

A)  at marginal cost. 
B)  at the same price as other firms do. 
C)  25 times higher than the price of equivalent drugs in countries in which its patent is not recognized. 
D)  where supply intersects demand. 
A)  at marginal cost. 
B)  at the same price as other firms do. 
C)  25 times higher than the price of equivalent drugs in countries in which its patent is not recognized. 
D)  where supply intersects demand.

Exam 13: Monopoly

The stated reason for resorting to regulation of public utilities rather than promoting competition through antitrust is that the industry in question is believed to be a:

Which of the following is TRUE for monopolists?

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

Figure: Demand Curve In this figure, the marginal revenue of the third unit is given by area:

Use the following to answer questions: Figure: Monopoly Profits -(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of:

Apple's iPod provides an example that market power may arise from:

To assuage the deadweight loss from a natural monopoly, governments could employ a price control.

Monopoly power is best described as the ability to:

Use the following to answer questions: Figure: Monopoly 6 -(Figure: Monopoly 6) If the market in this figure is a competitive market, consumer surplus is given by area(s):

Patent buyouts could reduce deadweight loss from monopolies, while still protecting the incentive to innovate.

In comparison to competitive firms, monopolies do not maximize the sum of producer and consumer surplus and thus create deadweight loss.

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation.

Use the following to answer questions: Figure: Monopolist 3 -(Figure: Monopolist 3) In this figure, the profit-maximizing monopolist sells:

Today anything beyond the most basic tier cable service is predominantly free of regulation, and cable companies are free to charge a market rate for their services. As a result:

Patents may be beneficial in that they encourage firms to innovate and develop new products.

Use the following to answer questions: Figure: Paint Market 2 -(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity?

If you had the opportunity to operate a firm with market power either in the market for fast-food or for pharmaceuticals, which market should you choose in order to earn the highest profits and why?

GlaxoSmithKline prices Combivir, its AIDS drug:

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