Question 1

A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.

Accepted Answer

A) True 
 B)False

Question 2

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

Accepted Answer

A) the Clayton Act 
B) the Securities and Exchange Act 
C) the Sherman Act 
D) the Robinson-Patman Act 
A) the Clayton Act 
B) the Securities and Exchange Act 
C) the Sherman Act 
D) the Robinson-Patman Act

Question 3

The De Beers diamond mining and marketing company of South Africa became one of the most profitable and longest-lived monopolies in history.Which of the following has always threatened De Beers' control of the diamond market?

Accepted Answer

A) Since few diamonds are ever destroyed,De Beers has constantly faced possible competition from other firms reselling diamonds. 
B) Competition from imitation diamonds.Technology has made it possible to make fake diamonds look exactly like real diamonds. 
C) Competition from other gemstones,including rubies and emeralds,that have become more popular over time. 
D) At different times in the past some countries have banned the importation of diamonds from South Africa for political reasons. 
A) Since few diamonds are ever destroyed,De Beers has constantly faced possible competition from other firms reselling diamonds. 
B) Competition from imitation diamonds.Technology has made it possible to make fake diamonds look exactly like real diamonds. 
C) Competition from other gemstones,including rubies and emeralds,that have become more popular over time. 
D) At different times in the past some countries have banned the importation of diamonds from South Africa for political reasons.

Question 4

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.What is the amount of Shakti's profit?

Accepted Answer

A) $68 
B) $72 
C) $124 
D) $192 
A) $68 
B) $72 
C) $124 
D) $192

Question 5

A monopoly firm's demand curve

Accepted Answer

A) is the same as the market demand curve. 
B) is perfectly inelastic. 
C) is more inelastic than the demand curve for the product. 
D) is inelastic at high prices and elastic at lower prices. 
A) is the same as the market demand curve. 
B) is perfectly inelastic. 
C) is more inelastic than the demand curve for the product. 
D) is inelastic at high prices and elastic at lower prices.

Question 6

The first important federal law passed to regulate monopolies in the United States was the

Accepted Answer

A) Cellar-Kefauver Act. 
B) Clayton Act. 
C) Federal Trade Commission Act. 
D) Sherman Act. 
A) Cellar-Kefauver Act. 
B) Clayton Act. 
C) Federal Trade Commission Act. 
D) Sherman Act.

Question 7

Consider two industries,industry Q and industry Z.In industry Q there are 10 companies,each with a market share of 10% of total sales.In industry Z,there are eight companies.One company has a 65% market share and each of the other seven firms has a market share of 5%.
a.Calculate the four-firm concentration ratio for each industry.
b.Calculate the Herfindahl-Hirschman Index (HHI)for each industry.
c.What do the values of the two concentration measures imply about the degree of market power in the two industries?

Accepted Answer

a.The concentration ratio in industry Q

Question 8

The International Nickel Company of Canada is often cited as an example of monopoly,but International Nickel eventually lost its monopoly.What event was responsible for this?

Accepted Answer

A) New technology allowed other firms to achieve network externalities after World War II. 
B) The Canadian government,which had owned International Nickel,sold the company after World War II.The government no longer blocked entry into the market for nickel. 
C) Competition in the market for nickel increased after nickel fields were developed in Russia after World War II. 
D) Competition in the market for nickel increased after Canada signed the North American Free Trade Agreement with the United States and Mexico in 1994. 
A) New technology allowed other firms to achieve network externalities after World War II. 
B) The Canadian government,which had owned International Nickel,sold the company after World War II.The government no longer blocked entry into the market for nickel. 
C) Competition in the market for nickel increased after nickel fields were developed in Russia after World War II. 
D) Competition in the market for nickel increased after Canada signed the North American Free Trade Agreement with the United States and Mexico in 1994.

Question 9

In 2011,Verizon was granted permission to enter the market for cable TV in Upstate New York,ending the virtual monopoly that Time Warner Cable had in most local communities in the region.Figure 15-11 shows the cable television market in Upstate New York.
-Refer to Figure 15-11.What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?

Accepted Answer

A) The deadweight loss of area D is converted to consumer surplus. 
B) The deadweight loss of area C+D is converted to consumer surplus 
C) The deadweight loss of area D is converted to producer surplus. 
D) The total deadweight loss is the area D+F;D is converted to consumer surplus and F to producer surplus. 
A) The deadweight loss of area D is converted to consumer surplus. 
B) The deadweight loss of area C+D is converted to consumer surplus 
C) The deadweight loss of area D is converted to producer surplus. 
D) The total deadweight loss is the area D+F;D is converted to consumer surplus and F to producer surplus.

Question 10

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ Shakti Inc.has been granted a patent for its Arnica toothache balm.Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4.What is the amount of the deadweight loss generated by Shakti when it produces the monopoly output?

Accepted Answer

A) $124 
B) $42 
C) $36 
D) $12 
A) $124 
B) $42 
C) $36 
D) $12

Question 11

Figure 15-7  
-Refer to Figure 15-7.Use the figure above to answer the following questions.
a.What is the profit-maximizing quantity and what price will the monopolist charge?
b.What is the total revenue at the profit-maximizing output level?
c.What is the total cost at the profit-maximizing output level?
d.What is the profit?
e.What is the profit per unit (average profit)at the profit-maximizing output level?
f.If this industry was organized as a perfectly competitive industry,what would be the profit-maximizing price and quantity?

Accepted Answer

a.Quantity = 50;price = 32
b.Total reven

Question 12

There are several types of barriers to entry that can create a monopoly.Which of the following barriers is the result of government action?

Accepted Answer

A) network externalities 
B) public franchise 
C) economies of scale 
D) control of a key resource 
A) network externalities 
B) public franchise 
C) economies of scale 
D) control of a key resource

Question 13

Which of the following statements is true?

Accepted Answer

A) If a tax is imposed on a product sold by a monopolist,the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B) A monopolist will always charge the highest possible price. 
C) If a tax is imposed on a product sold by a monopolist,the monopolist can increase its price to pass along the entire tax to consumers. 
D) Because a monopolist faces no competition,the demand for its product is perfectly inelastic. 
A) If a tax is imposed on a product sold by a monopolist,the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B) A monopolist will always charge the highest possible price. 
C) If a tax is imposed on a product sold by a monopolist,the monopolist can increase its price to pass along the entire tax to consumers. 
D) Because a monopolist faces no competition,the demand for its product is perfectly inelastic.

Question 14

A merger between U.S.Steel and General Motors would be an example of a

Accepted Answer

A) vertical merger. 
B) horizontal merger. 
C) conglomerate merger. 
D) conspiracy in restraint of trade. 
A) vertical merger. 
B) horizontal merger. 
C) conglomerate merger. 
D) conspiracy in restraint of trade.

Question 15

A monopoly firm is the only seller of a good or service that

Accepted Answer

A) has a perfectly elastic demand. 
B) has no close complements. 
C) does not need to be advertised. 
D) does not have a close substitute. 
A) has a perfectly elastic demand. 
B) has no close complements. 
C) does not need to be advertised. 
D) does not have a close substitute.

Question 16

To maintain a monopoly,a firm must have

Accepted Answer

A) a perfectly inelastic demand. 
B) an insurmountable barrier to entry. 
C) marginal revenue equal to demand. 
D) few competitors. 
A) a perfectly inelastic demand. 
B) an insurmountable barrier to entry. 
C) marginal revenue equal to demand. 
D) few competitors.

Question 17

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

Accepted Answer

A) True 
 B)False

Question 18

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.

Accepted Answer

A) True 
 B)False

Question 19

Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15.The firm would maximize profit by producing

Accepted Answer

A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units. 
A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units.

Question 20

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?

Accepted Answer

A) Marginal revenue is less than price. 
B) Marginal revenue equals marginal cost. 
C) Price equals marginal cost. 
D) Average revenue equals average cost. 
A) Marginal revenue is less than price. 
B) Marginal revenue equals marginal cost. 
C) Price equals marginal cost. 
D) Average revenue equals average cost.

Exam 15: Monopoly and Antitrust Policy

A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

The De Beers diamond mining and marketing company of South Africa became one of the most profitable and longest-lived monopolies in history.Which of the following has always threatened De Beers' control of the diamond market?

A monopoly firm's demand curve

The first important federal law passed to regulate monopolies in the United States was the

The International Nickel Company of Canada is often cited as an example of monopoly,but International Nickel eventually lost its monopoly.What event was responsible for this?

There are several types of barriers to entry that can create a monopoly.Which of the following barriers is the result of government action?

Which of the following statements is true?

A merger between U.S.Steel and General Motors would be an example of a

A monopoly firm is the only seller of a good or service that

To maintain a monopoly,a firm must have

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.

Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15.The firm would maximize profit by producing

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters