Question 1

Graphically depict a monopolist enjoying abnormal profits.

Accepted Answer

The profit can be found by TR

Question 2

If these were monopolistic markets, which one would clearly have a greater markup than a monopolized banana industry?

Accepted Answer

A)  organic bananas 
B)  pencils 
C)  electric car 
D)  laptop computers 
A)  organic bananas 
B)  pencils 
C)  electric car 
D)  laptop computers

Question 3

Since the popular video game Grand Theft Auto IV cost more than $100 million to develop,:

Accepted Answer

A)  marginal cost pricing of $1 per game will most likely generate an unsuitable return on investment. 
B)  pricing above marginal cost will not create deadweight losses because of the large development costs. 
C)  pricing above marginal costs is not necessary to earn above-normal profits. 
D)  marginal revenue will be negative on the first 100 million games sold. 
A)  marginal cost pricing of $1 per game will most likely generate an unsuitable return on investment. 
B)  pricing above marginal cost will not create deadweight losses because of the large development costs. 
C)  pricing above marginal costs is not necessary to earn above-normal profits. 
D)  marginal revenue will be negative on the first 100 million games sold.

Question 4

A firm with monopoly power is able to set a markup price that is:

Accepted Answer

A)  lower than prices on similar goods sold by competitive firms. 
B)  the same as the prices on similar goods sold by competitive firms. 
C)  higher than prices on similar goods sold by competitive firms. 
D)  the maximum price all market participants will pay for similar goods. 
A)  lower than prices on similar goods sold by competitive firms. 
B)  the same as the prices on similar goods sold by competitive firms. 
C)  higher than prices on similar goods sold by competitive firms. 
D)  the maximum price all market participants will pay for similar goods.

Question 5

Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy?

Accepted Answer

A)  There would be an increase in consumer surplus. 
B)  The deadweight loss in the market would decline. 
C)  The future supply of new drugs would decrease. 
D)  All of these statements are correct. 
A)  There would be an increase in consumer surplus. 
B)  The deadweight loss in the market would decline. 
C)  The future supply of new drugs would decrease. 
D)  All of these statements are correct.

Question 6

Many people argue that the U.S. government should control pharmaceutical prices. What would most likely happen as a result of this policy?

Accepted Answer

A)  Lower prices would mean lower profits and hence less incentive for firms to engage in research and development of new drugs. 
B)  Government price controls on pharmaceuticals would lead to an increased standard of living. 
C)  The number of new drugs would increase as firms would compete for new markets. 
D)  Demand for pharmaceuticals would decrease as a result of the lower prices. 
A)  Lower prices would mean lower profits and hence less incentive for firms to engage in research and development of new drugs. 
B)  Government price controls on pharmaceuticals would lead to an increased standard of living. 
C)  The number of new drugs would increase as firms would compete for new markets. 
D)  Demand for pharmaceuticals would decrease as a result of the lower prices.

Question 7

Which of the following is NOT perceived as a problem with monopolies?

Accepted Answer

A)  They charge too high of prices. 
B)  They make too much profit. 
C)  The gains to the sellers are greater than the value to buyers. 
D)  They create deadweight loss. 
A)  They charge too high of prices. 
B)  They make too much profit. 
C)  The gains to the sellers are greater than the value to buyers. 
D)  They create deadweight loss.

Question 8

A monopolist's demand curve is described by the equation Q = 50 - 0.5P. The marginal revenue curve is described by the equation MR = 50 - Q. Marginal cost per unit is constant at $5, and there are no fixed costs to be considered here. What is the monopolist's profit-maximizing quantity and profit level? Show all your calculations.

Accepted Answer

The profit-maximization condition holds

Question 9

Figure: Monopolist 4   What is the profit-maximizing price and output level for the monopolist in this figure?

Accepted Answer

A)  P = $8; Q = 6 
B)  P = $14; Q = 6 
C)  P = $8; Q = 12 
D)  P = $10; Q = 10 
A)  P = $8; Q = 6 
B)  P = $14; Q = 6 
C)  P = $8; Q = 12 
D)  P = $10; Q = 10

Question 10

A natural monopoly occurs when:

Accepted Answer

A)  the product is sold in its natural state (such as water or diamonds). 
B)  there are economies of scale over the relevant range of output. 
C)  the firm is characterized by a rising marginal cost curve. 
D)  production requires the use of free natural resources, such as water or air. 
A)  the product is sold in its natural state (such as water or diamonds). 
B)  there are economies of scale over the relevant range of output. 
C)  the firm is characterized by a rising marginal cost curve. 
D)  production requires the use of free natural resources, such as water or air.

Question 11

If the quantity demanded for a hand-carved pineapple is two at a price of $16, and the quantity demanded will increase to three if the seller lowers the price to $14, what is the seller's marginal revenue from selling 3 units of pineapple?

Accepted Answer

A)  $8 
B)  $24 
C)  $10 
D)  $14 
A)  $8 
B)  $24 
C)  $10 
D)  $14

Question 12

Which of the following statements is TRUE?
I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit.
II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result.
III. Deregulation of cable television caused higher prices and fewer programming choices for customers.

Accepted Answer

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

Question 13

Which of the following statements is TRUE?

Accepted Answer

A)  Monopolies are always inefficient since they create higher prices for consumers. 
B)  Monopolies create incentives for additional research and development. 
C)  Monopolies decrease consumer surplus but increase total surplus in an economy. 
D)  Consumers typically lose less than producers gain in monopoly markets. 
A)  Monopolies are always inefficient since they create higher prices for consumers. 
B)  Monopolies create incentives for additional research and development. 
C)  Monopolies decrease consumer surplus but increase total surplus in an economy. 
D)  Consumers typically lose less than producers gain in monopoly markets.

Question 14

When a monopolist's demand curve is inelastic, raising the price:

Accepted Answer

A)  increases total revenue and increases total cost. 
B)  decreases total revenue and increases total cost. 
C)  increases total revenue and decreases total cost. 
D)  decreases total revenue and decreases total cost. 
A)  increases total revenue and increases total cost. 
B)  decreases total revenue and increases total cost. 
C)  increases total revenue and decreases total cost. 
D)  decreases total revenue and decreases total cost.

Question 15

The more inelastic the demand curve for a product is, the:

Accepted Answer

A)  higher is the monopolist's price markup. 
B)  smaller is the monopolist's price markup. 
C)  more responsive buyers are to a change in the price. 
D)  less chance monopolists will have to earn above-normal profits. 
A)  higher is the monopolist's price markup. 
B)  smaller is the monopolist's price markup. 
C)  more responsive buyers are to a change in the price. 
D)  less chance monopolists will have to earn above-normal profits.

Question 16

Monopolies may arise from economies of scale, government regulation, patent protection, and control over key inputs that are difficult to duplicate.

Accepted Answer

A) True 
 B)False

Question 17

Deregulation of cable TV rates led to:

Accepted Answer

A)  lower prices and better service. 
B)  higher prices, more stations, and better quality programming. 
C)  lower prices, fewer stations, and lower quality programming. 
D)  the proliferation of amateur programming. 
A)  lower prices and better service. 
B)  higher prices, more stations, and better quality programming. 
C)  lower prices, fewer stations, and lower quality programming. 
D)  the proliferation of amateur programming.

Question 18

A government can maximize efficiency in monopoly markets by setting prices equal to the monopolist's average cost of production albeit at the cost of reduced long term innovation.

Accepted Answer

A) True 
 B)False

Question 19

'When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics?

Accepted Answer

A)  It must be producing at the socially optimal level of output. 
B)  It is a natural monopoly. 
C)  The marginal cost curve rises at an increasing rate. 
D)  It is one of two firms in the industry. 
A)  It must be producing at the socially optimal level of output. 
B)  It is a natural monopoly. 
C)  The marginal cost curve rises at an increasing rate. 
D)  It is one of two firms in the industry.

Question 20

Which of the following statements is TRUE?
I. Government ownership is a potential solution to the natural monopoly problem but it stifles innovation.
II. Regulated monopolies have little incentive to reduce costs, as they simply pass the higher costs on to consumers.
III. Government ownership of utilities worked well for several decades.

Accepted Answer

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

Exam 13: Monopoly

Graphically depict a monopolist enjoying abnormal profits.

If these were monopolistic markets, which one would clearly have a greater markup than a monopolized banana industry?

Since the popular video game Grand Theft Auto IV cost more than $100 million to develop,:

A firm with monopoly power is able to set a markup price that is:

Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy?

Many people argue that the U.S. government should control pharmaceutical prices. What would most likely happen as a result of this policy?

Which of the following is NOT perceived as a problem with monopolies?

Figure: Monopolist 4 What is the profit-maximizing price and output level for the monopolist in this figure?

A natural monopoly occurs when:

If the quantity demanded for a hand-carved pineapple is two at a price of $16, and the quantity demanded will increase to three if the seller lowers the price to $14, what is the seller's marginal revenue from selling 3 units of pineapple?

Which of the following statements is TRUE?

When a monopolist's demand curve is inelastic, raising the price:

The more inelastic the demand curve for a product is, the:

Monopolies may arise from economies of scale, government regulation, patent protection, and control over key inputs that are difficult to duplicate.

Deregulation of cable TV rates led to:

A government can maximize efficiency in monopoly markets by setting prices equal to the monopolist's average cost of production albeit at the cost of reduced long term innovation.

'When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics?

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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