Question 1

Figure 15-5  
-Refer to Figure 15-5.If the monopolist charges price P* for output Q*,in order to maximize profit or minimize loss in the short run,it should

Accepted Answer

A) continue to produce because price is greater than average variable cost. 
B) shut down because price is greater than marginal cost. 
C) shut down because price is less than average total cost. 
D) continue to produce because a monopolist always earns a profit. 
A) continue to produce because price is greater than average variable cost. 
B) shut down because price is greater than marginal cost. 
C) shut down because price is less than average total cost. 
D) continue to produce because a monopolist always earns a profit.

Question 2

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Harberger found that

Accepted Answer

A) the loss of economic efficiency in the U.S.economy due to market power was less than 1 percent of the value of production. 
B) because of the increase in the average size of firms since World War II,the loss of economic efficiency has been relatively large,about 10 percent of the value of total production in the United States. 
C) although the number of monopolies was small,the large number of other non-competitive firms in the United States resulted in a large loss of economic efficiency,about 20 percent of the value of total production. 
D) the loss of economic efficiency in the U.S.economy due to market power was small around 1973,about 1 percent of the value of production,but has since grown to about 10 percent. 
A) the loss of economic efficiency in the U.S.economy due to market power was less than 1 percent of the value of production. 
B) because of the increase in the average size of firms since World War II,the loss of economic efficiency has been relatively large,about 10 percent of the value of total production in the United States. 
C) although the number of monopolies was small,the large number of other non-competitive firms in the United States resulted in a large loss of economic efficiency,about 20 percent of the value of total production. 
D) the loss of economic efficiency in the U.S.economy due to market power was small around 1973,about 1 percent of the value of production,but has since grown to about 10 percent.

Question 3

Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4.What is the price charged for the profit-maximizing output level?

Accepted Answer

A) $13 
B) $21 
C) $27 
D) $34 
A) $13 
B) $21 
C) $27 
D) $34

Question 4

Network externalities

Accepted Answer

A) can only exist when there are economies of scale. 
B) prevent the dominance of a market by one firm. 
C) exist when the usefulness of a product increases with the number of consumers who use it. 
D) are created when celebrity endorsements of products lead to a surge in the demand for those products. 
A) can only exist when there are economies of scale. 
B) prevent the dominance of a market by one firm. 
C) exist when the usefulness of a product increases with the number of consumers who use it. 
D) are created when celebrity endorsements of products lead to a surge in the demand for those products.

Question 5

Collusion is

Accepted Answer

A) common among monopoly firms. 
B) an agreement among firms to charge the same price or otherwise not to compete. 
C) necessary for firms to raise money by borrowing from investors or from banks in order to fund research and development required to develop new products. 
D) legal under U.S.antitrust laws if the intent is to increase competition. 
A) common among monopoly firms. 
B) an agreement among firms to charge the same price or otherwise not to compete. 
C) necessary for firms to raise money by borrowing from investors or from banks in order to fund research and development required to develop new products. 
D) legal under U.S.antitrust laws if the intent is to increase competition.

Question 6

Market power refers to

Accepted Answer

A) the ability of consumers to dictate what products should be produced. 
B) the ability of a firm to advertise its product and succeed in selling more output. 
C) the ability of a firm to sell at a lower price than rival sellers. 
D) the ability of a firm to charge a price higher than the marginal cost of production. 
A) the ability of consumers to dictate what products should be produced. 
B) the ability of a firm to advertise its product and succeed in selling more output. 
C) the ability of a firm to sell at a lower price than rival sellers. 
D) the ability of a firm to charge a price higher than the marginal cost of production.

Question 7

Figure 15-12 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-12.Assume the firm maximizes its profits.What is the amount of consumer surplus?

Accepted Answer

A) $21 
B) $124 
C) $186 
D) $332 
A) $21 
B) $124 
C) $186 
D) $332

Question 8

Figure 15-14  
-Refer to Figure 15-14.From the monopoly graph above,identify the following:
a.The profit maximizing price
b.The profit maximizing quantity
c.The area representing deadweight loss
d.The area representing the transfer of consumer surplus to the monopoly

Accepted Answer

a.Price = P3
b.Quantity = Q1
c

Question 9

$$\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \begin{array} { l } 
\text { Total } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue }
\end{array} & \text { Total Cost } & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline \$ 17 & 3 & \$ 51 & - - - - & \$ 56 & - - - - \
\hline 16 & 4 & 64 & \$ 13 & 63 & \$ 7 \
\hline 15 & 5 & 75 & 11 & 71 & 8 \
\hline 14 & 6 & 84 & 9 & 80 & 9 \
\hline 13 & 7 & 91 & 7 & 90 & 10 \
\hline 12 & 8 & 96 & 5 & 101 & 11 \
\hline
\end{array}$$ Assume Table 15-3 gives the monthly demand and costs for subscriptions to basic cable for Comcast,a cable television monopoly in Philadelphia.
-Refer to Table 15-3.If Comcast wants to maximize its profits,what price (P)should it charge and how many cable subscriptions per month (Q)should it sell?

Accepted Answer

A) P = $12;Q = 8 
B) P = $14;Q = 6 
C) P = $16;Q = 4 
D) P = $15: Q = 5 
A) P = $12;Q = 8 
B) P = $14;Q = 6 
C) P = $16;Q = 4 
D) P = $15: Q = 5

Question 10

Economic efficiency requires that a natural monopoly's price be

Accepted Answer

A) equal to average total cost where it intersects the demand curve. 
B) equal to marginal cost where it intersects the demand curve. 
C) equal to average variable cost where it intersects the demand curve. 
D) equal to the lowest price the firm can charge and still make a normal profit. 
A) equal to average total cost where it intersects the demand curve. 
B) equal to marginal cost where it intersects the demand curve. 
C) equal to average variable cost where it intersects the demand curve. 
D) equal to the lowest price the firm can charge and still make a normal profit.

Question 11

Figure 15-17   Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world,whether they are actually enrolled in your college or not.The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 15-17.An economics professor argues: "I think the course should be priced so as to achieve economic efficiency." Which price should this faculty member favor?

Accepted Answer

A) $0 
B) $40 
C) $88 
D) $150 
A) $0 
B) $40 
C) $88 
D) $150

Question 12

Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Accepted Answer

A) Q4 units;P6 
B) Q1 units;P4 
C) Q1 units;P1 
D) Q3 units;P3 
A) Q4 units;P6 
B) Q1 units;P4 
C) Q1 units;P1 
D) Q3 units;P3

Question 13

a.What is the difference between a horizontal merger and a vertical merger?
b.Give an example of each type of merger.
c.Could a horizontal merger be welfare improving?

Accepted Answer

a.A horizontal merger is a merger betwee

Question 14

A monopolist faces

Accepted Answer

A) a perfectly elastic demand curve. 
B) a perfectly inelastic demand curve. 
C) a horizontal demand curve. 
D) a downward-sloping demand curve. 
A) a perfectly elastic demand curve. 
B) a perfectly inelastic demand curve. 
C) a horizontal demand curve. 
D) a downward-sloping demand curve.

Question 15

A profit maximizing monopoly's price is

Accepted Answer

A) the same as the price that would prevail if the industry was perfectly competitive. 
B) less than the price that would prevail if the industry was perfectly competitive. 
C) greater than the price that would prevail if the industry was perfectly competitive. 
D) not consistently related to price that would prevail if the market was perfectly competitive. 
A) the same as the price that would prevail if the industry was perfectly competitive. 
B) less than the price that would prevail if the industry was perfectly competitive. 
C) greater than the price that would prevail if the industry was perfectly competitive. 
D) not consistently related to price that would prevail if the market was perfectly competitive.

Question 16

Governments grant patents to

Accepted Answer

A) compensate firms for research and development costs. 
B) encourage competition. 
C) encourage low prices. 
D) encourage firms to reveal secret production techniques. 
A) compensate firms for research and development costs. 
B) encourage competition. 
C) encourage low prices. 
D) encourage firms to reveal secret production techniques.

Question 17

Which of the following statements is consistent with the views of Joseph Schumpeter?

Accepted Answer

A) Research and development by competitive firms is responsible for most technological changes. 
B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development. 
C) Enforcement of antitrust laws is necessary to promote competition among firms. 
D) A lack of competition discourages firms from developing new technologies. 
A) Research and development by competitive firms is responsible for most technological changes. 
B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development. 
C) Enforcement of antitrust laws is necessary to promote competition among firms. 
D) A lack of competition discourages firms from developing new technologies.

Question 18

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Accepted Answer

A) concentration ratios;the Herfindahl-Hirschman Index;market standards 
B) concentration standards;concentration ratios;competitive analysis 
C) economic analysis;political analysis;dynamic analysis 
D) market definition;measure of concentration;merger standards 
A) concentration ratios;the Herfindahl-Hirschman Index;market standards 
B) concentration standards;concentration ratios;competitive analysis 
C) economic analysis;political analysis;dynamic analysis 
D) market definition;measure of concentration;merger standards

Question 19

Figure 15-12 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-12.If this industry was organized as a perfectly competitive industry,the market output and market price would be

Accepted Answer

A) output = 62;price = $24. 
B) output = 83;price = $22. 
C) output = 62;price = $18. 
D) output = 104;price = $20.80. 
A) output = 62;price = $24. 
B) output = 83;price = $22. 
C) output = 62;price = $18. 
D) output = 104;price = $20.80.

Question 20

Merger guidelines developed by the Antitrust Division of the U.S.Department of Justice use four-firm concentration ratios as measures of concentration.

Accepted Answer

A) True 
 B)False

Exam 15: Monopoly and Antitrust Policy

Figure 15-5 -Refer to Figure 15-5.If the monopolist charges price P* for output Q*,in order to maximize profit or minimize loss in the short run,it should

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Harberger found that

Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4.What is the price charged for the profit-maximizing output level?

Network externalities

Collusion is

Market power refers to

Figure 15-12 shows the cost and demand curves for a monopolist. -Refer to Figure 15-12.Assume the firm maximizes its profits.What is the amount of consumer surplus?

Figure 15-14 -Refer to Figure 15-14.From the monopoly graph above,identify the following: a.The profit maximizing price b.The profit maximizing quantity c.The area representing deadweight loss d.The area representing the transfer of consumer surplus to the monopoly

Economic efficiency requires that a natural monopoly's price be

a.What is the difference between a horizontal merger and a vertical merger? b.Give an example of each type of merger. c.Could a horizontal merger be welfare improving?

A monopolist faces

A profit maximizing monopoly's price is

Governments grant patents to

Which of the following statements is consistent with the views of Joseph Schumpeter?

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Figure 15-12 shows the cost and demand curves for a monopolist. -Refer to Figure 15-12.If this industry was organized as a perfectly competitive industry,the market output and market price would be

Merger guidelines developed by the Antitrust Division of the U.S.Department of Justice use four-firm concentration ratios as measures of concentration.

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

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