Question 1

Which of the following statements is TRUE?

Accepted Answer

A) A monopoly cannot set price and quantity such that the point lies above the demand curve. 
B) A monopoly can charge whatever it wants. 
C) Profit maximization occurs by setting price first. 
D) Both A and B.

Question 2

An exclusive right to sell a new and useful product, process, substance, or design for a fixed period of time is called a

Accepted Answer

A) patent. 
B) barrier to entry. 
C) monopoly. 
D) research disincentive.

Question 3

If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly sets price equal to

Accepted Answer

A) 16. 
B) 21. 
C) 25. 
D) 58.

Question 4

A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization, the implicit demand elasticity is

Accepted Answer

A) -0.2. 
B) -0.8. 
C) -1.25. 
D) -5.0.

Question 5

A monopoly that is maximizing profits never operates in the ________ portion of the demand curve.

Accepted Answer

A) unitary elastic 
B) elastic 
C) inelastic 
D) horizontal

Question 6

In a recent court case, an expert witness defined a monopoly as a firm that can "raise price without reducing its total revenue." What does this imply about the elasticity of demand? Would this definition hold for a profit-maximizing monopoly? Explain.

Accepted Answer

The answer of In a recent court case, an expert...

Question 7

One difference between a monopoly and a competitive firm is that

Accepted Answer

A) a monopoly is a price taker. 
B) a monopoly maximizes profit by setting marginal revenue equal to marginal cost. 
C) a monopoly faces a downward-sloping demand curve. 
D) None of the above.

Question 8

The monopoly can shift the demand for its product rightward by

Accepted Answer

A) accommodating entry. 
B) advertising new uses for its product. 
C) moving along the learning curve. 
D) All of the above.

Question 9

For there to be positive network externalities,

Accepted Answer

A) there must be a direct size effect. 
B) there must be an indirect size effect. 
C) introductory prices are required. 
D) None of the above.

Question 10

Two-sided markets

Accepted Answer

A) have twice as many users as one-sided markets. 
B) have two or more user groups that provide each other with network externalities. 
C) require the internet to function properly. 
D) are more efficient than other market types.

Question 11

For a monopoly, marginal revenue is less than price because

Accepted Answer

A) the demand for the firm's output is downward sloping. 
B) the firm has no supply curve. 
C) the firm can sell all of its output at any price. 
D) the demand for the firm's output is perfectly elastic.

Question 12

The situation in which a person places greater value on a good as fewer and fewer people possess it is called the

Accepted Answer

A) Bandwagon Effect. 
B) Greater Value Effect. 
C) Snob Effect. 
D) Behavioral Effect.

Question 13

The monopoly maximizes profit by setting

Accepted Answer

A) price equal to marginal cost. 
B) price equal to marginal revenue. 
C) marginal revenue equal to marginal cost. 
D) revenue equal to zero.

Question 14

Privatization of a state-owned monopoly can

Accepted Answer

A) allow governments to capture future monopoly earnings. 
B) allow governments to be more efficient. 
C) reduce bribery of government officials. 
D) increases chances of reelection for politicians.

Question 15

Suppose a monopolist has TC = 100 + 10Q + 2Q², and the demand curve it faces is p = 90 - 2Q. What will be the price, quantity, and profit for this firm?

Accepted Answer

The answer of Suppose a monopolist has TC = 100...

Question 16

As other firms enter a monopoly's market, the demand curve a monopoly faces

Accepted Answer

A) is unaffected. 
B) becomes more inelastic. 
C) becomes more elastic. 
D) may become more or less elastic, depending on its Lerner Index.

Question 17

When the marginal revenue curve intersects the horizontal axis

Accepted Answer

A) demand is relatively elastic. 
B) demand is relatively inelastic. 
C) demand is perfectly elastic. 
D) demand is unitary elastic.

Question 18

Market power is illegal.

Accepted Answer

A) True, no one is allowed to charge a price greater than marginal cost. 
B) False. 
C) True, no one is allowed to charge a price greater than average cost. 
D) False, because market power guarantees price equal to average cost.

Question 19

Which of the following products benefits from network externalities?

Accepted Answer

A) Cable TV service 
B) Fashion clothing 
C) All-electric cars 
D) High-speed trains

Question 20

A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2.0, the monopoly maximizes profit by charging a price of

Accepted Answer

A) $1.00. 
B) $1.50. 
C) $2.00. 
D) $3.00.

Exam 9: Monopoly