Question 1

A profit-maximizing monopolist's total profit can be found by calculating:

Accepted Answer

A)  MR - MC. 
B)  TR - TC. 
C)  AR - AC. 
D)  MC - MR. 
A)  MR - MC. 
B)  TR - TC. 
C)  AR - AC. 
D)  MC - MR.

Question 2

If the government sets the price of all pharmaceutical drugs equal to marginal cost, which of the following statements is TRUE?
I. Drug company profits will increase.
II. Consumers will pay lower prices for drugs today.
III. In the future, there will be fewer new drugs.

Accepted Answer

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

Question 3

Which of the following statements about monopoly power is correct?

Accepted Answer

A)  Monopoly power is the power attained solely by dual firm monopolists. 
B)  Monopoly power is the power to raise prices above average cost without facing new entry of firms. 
C)  Monopoly power is only generated by governments. 
D)  Firms attaining monopoly power always set the price at the marginal cost. 
A)  Monopoly power is the power attained solely by dual firm monopolists. 
B)  Monopoly power is the power to raise prices above average cost without facing new entry of firms. 
C)  Monopoly power is only generated by governments. 
D)  Firms attaining monopoly power always set the price at the marginal cost.

Question 4

A firm can sell 1 unit at $9 or 2 units at $8 or 3 units at $7, and so on. What is the marginal revenue from the sale of the fifth unit?

Accepted Answer

A)  $0 
B)  $1 
C)  $4 
D)  $5 
A)  $0 
B)  $1 
C)  $4 
D)  $5

Question 5

Counterfeit brands carry labels from companies that did not actually make the product in question (for example, a purse not made by Gucci but carrying a Gucci label). With what kind of monopoly are the makers of these items trying to compete?

Accepted Answer

A)  one with hard to duplicate products 
B)  one with laws preventing entry 
C)  one with economies of scale 
D)  one with patents 
A)  one with hard to duplicate products 
B)  one with laws preventing entry 
C)  one with economies of scale 
D)  one with patents

Question 6

A monopoly can be defined as a single firm in a given market.

Accepted Answer

A) True 
 B)False

Question 7

Other things being equal, the markup above marginal cost that a monopolist charges will be:

Accepted Answer

A)  higher when there are more substitutes for the monopolist's product. 
B)  lower when there are more substitutes for the monopolist's product. 
C)  the same, no matter the number of substitutes for the monopolist's product. 
D)  zero if there are any substitutes for the monopolist's product. 
A)  higher when there are more substitutes for the monopolist's product. 
B)  lower when there are more substitutes for the monopolist's product. 
C)  the same, no matter the number of substitutes for the monopolist's product. 
D)  zero if there are any substitutes for the monopolist's product.

Question 8

The "You can't take it with you" effect potentially increases market power for pharmaceuticals if consumers who are dying of disease are also:

Accepted Answer

A)  more inclined to spend their money on medicine than to save it. 
B)  more inclined to bequeath their money than spend it on medicine. 
C)  relatively sensitive to the price of life-saving pharmaceuticals. 
D)  relatively sensitive to how they spend money. 
A)  more inclined to spend their money on medicine than to save it. 
B)  more inclined to bequeath their money than spend it on medicine. 
C)  relatively sensitive to the price of life-saving pharmaceuticals. 
D)  relatively sensitive to how they spend money.

Question 9

Use the following to answer questions:
Figure: Monopoly Markup  
-(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under monopoly is represented by:

Accepted Answer

A)  triangle abc. 
B)  triangle cef. 
C)  square bcde. 
D)  triangle adf. 
A)  triangle abc. 
B)  triangle cef. 
C)  square bcde. 
D)  triangle adf.

Question 10

Monopoly is the most common form of market organization.

Accepted Answer

A) True 
 B)False

Question 11

When the demand curve for the profit-maximizing monopolist's product is relatively inelastic:

Accepted Answer

A)  it cannot raise the price of the product above the marginal cost of the product. 
B)  raising the product's price will lower the total revenue for the product. 
C)  the product does not have good substitutes. 
D)  All of these choices are correct. 
A)  it cannot raise the price of the product above the marginal cost of the product. 
B)  raising the product's price will lower the total revenue for the product. 
C)  the product does not have good substitutes. 
D)  All of these choices are correct.

Question 12

Economist Michael Kremer offered a unique solution to the problem of deadweight loss created by monopolies that have control of an innovation. What solution did he propose that would leave the drive to innovate uncompromised?

Accepted Answer

A)  The government should buy the innovation created by the monopoly. 
B)  The government should sell a patent to the monopoly that creates the innovative technology. 
C)  The government should buy out the rights of the patent from the monopoly and destroy the patent. 
D)  The government should place a price control on the monopoly's product. 
A)  The government should buy the innovation created by the monopoly. 
B)  The government should sell a patent to the monopoly that creates the innovative technology. 
C)  The government should buy out the rights of the patent from the monopoly and destroy the patent. 
D)  The government should place a price control on the monopoly's product.

Question 13

Which of the following statements is TRUE?

Accepted Answer

A)  Monopolized economies tend to have more poverty and less economic growth. 
B)  Competitive market economies lead to higher prices for everyone. 
C)  Social prosperity is typically the result of government-created monopolies. 
D)  Business leaders in the United States are more self-interested than business leaders in lesser-developed nations. 
A)  Monopolized economies tend to have more poverty and less economic growth. 
B)  Competitive market economies lead to higher prices for everyone. 
C)  Social prosperity is typically the result of government-created monopolies. 
D)  Business leaders in the United States are more self-interested than business leaders in lesser-developed nations.

Question 14

For a monopolist, MR is always less than P because:

Accepted Answer

A)  when a monopolist lowers the price to sell more units, it must lower the prices of all units sold. 
B)  MR is always less than P regardless of what type of firm we are discussing. 
C)  marginal revenue is always lower for the next unit sold. 
D)  when a monopolist needs to sell more units, it must lower marginal revenue in order to do so. 
A)  when a monopolist lowers the price to sell more units, it must lower the prices of all units sold. 
B)  MR is always less than P regardless of what type of firm we are discussing. 
C)  marginal revenue is always lower for the next unit sold. 
D)  when a monopolist needs to sell more units, it must lower marginal revenue in order to do so.

Question 15

The rising demand for electricity in California during the year 2000:

Accepted Answer

A)  prevented electricity generators from benefiting from economies of scale, lead to reduced supply, and intermittent blackouts. 
B)  increased the elasticity of demand for electricity generators, causing some power companies to go out of business. 
C)  decreased the elasticity of demand curve for electricity generators, giving the generating companies an incentive to close down plants and send electricity prices soaring. 
D)  made it difficult for electricity companies to use their market power to bargain down prices of key inputs, increasing the cost of electricity generation, which led to subsequent blackouts. 
A)  prevented electricity generators from benefiting from economies of scale, lead to reduced supply, and intermittent blackouts. 
B)  increased the elasticity of demand for electricity generators, causing some power companies to go out of business. 
C)  decreased the elasticity of demand curve for electricity generators, giving the generating companies an incentive to close down plants and send electricity prices soaring. 
D)  made it difficult for electricity companies to use their market power to bargain down prices of key inputs, increasing the cost of electricity generation, which led to subsequent blackouts.

Question 16

Cable deregulation has ________, whereas deregulation of electricity has ________.

Accepted Answer

A)  resulted in more inefficiency; increased efficiency in the market 
B)  resulted in lower prices; resulted in higher prices 
C)  worked well; not worked well 
D)  resulted in less innovation; resulted in more innovation 
A)  resulted in more inefficiency; increased efficiency in the market 
B)  resulted in lower prices; resulted in higher prices 
C)  worked well; not worked well 
D)  resulted in less innovation; resulted in more innovation

Question 17

Use the following to answer questions:
Figure: Monopoly 8  
-(Figure: Monopoly 8) If the government set price equal to average cost, the natural monopolist in this figure would produce:

Accepted Answer

A)  9 units of output. 
B)  10 units of output. 
C)  14 units of output. 
D)  17.5 units of output. 
A)  9 units of output. 
B)  10 units of output. 
C)  14 units of output. 
D)  17.5 units of output.

Question 18

In a graph showing a straight-line market demand curve, the marginal revenue curve is:

Accepted Answer

A)  a straight line that begins at the same point as the demand curve on the y-axis but with twice the slope. 
B)  a straight line that begins at the origin but with twice the slope of the demand curve. 
C)  the same straight line as the demand curve. 
D)  There is not enough information to complete the statement. 
A)  a straight line that begins at the same point as the demand curve on the y-axis but with twice the slope. 
B)  a straight line that begins at the origin but with twice the slope of the demand curve. 
C)  the same straight line as the demand curve. 
D)  There is not enough information to complete the statement.

Question 19

Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the:

Accepted Answer

A)  demand for the product is elastic. 
B)  demand for the product is inelastic. 
C)  supply of the product is elastic. 
D)  supply of the product is inelastic. 
A)  demand for the product is elastic. 
B)  demand for the product is inelastic. 
C)  supply of the product is elastic. 
D)  supply of the product is inelastic.

Question 20

The primary reason that AIDS drugs are priced well above cost is monopoly power.

Accepted Answer

A) True 
 B)False

Exam 13: Monopoly

A profit-maximizing monopolist's total profit can be found by calculating:

If the government sets the price of all pharmaceutical drugs equal to marginal cost, which of the following statements is TRUE? I. Drug company profits will increase. II. Consumers will pay lower prices for drugs today. III. In the future, there will be fewer new drugs.

Which of the following statements about monopoly power is correct?

A firm can sell 1 unit at $9 or 2 units at $8 or 3 units at $7, and so on. What is the marginal revenue from the sale of the fifth unit?

Counterfeit brands carry labels from companies that did not actually make the product in question (for example, a purse not made by Gucci but carrying a Gucci label). With what kind of monopoly are the makers of these items trying to compete?

A monopoly can be defined as a single firm in a given market.

Other things being equal, the markup above marginal cost that a monopolist charges will be:

The "You can't take it with you" effect potentially increases market power for pharmaceuticals if consumers who are dying of disease are also:

Use the following to answer questions: Figure: Monopoly Markup -(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under monopoly is represented by:

Monopoly is the most common form of market organization.

When the demand curve for the profit-maximizing monopolist's product is relatively inelastic:

Economist Michael Kremer offered a unique solution to the problem of deadweight loss created by monopolies that have control of an innovation. What solution did he propose that would leave the drive to innovate uncompromised?

Which of the following statements is TRUE?

For a monopolist, MR is always less than P because:

The rising demand for electricity in California during the year 2000:

Cable deregulation has ________, whereas deregulation of electricity has ________.

Use the following to answer questions: Figure: Monopoly 8 -(Figure: Monopoly 8) If the government set price equal to average cost, the natural monopolist in this figure would produce:

In a graph showing a straight-line market demand curve, the marginal revenue curve is:

Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the:

The primary reason that AIDS drugs are priced well above cost is monopoly power.

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

Cable deregulation has , whereas deregulation of electricity has .