Question 1

Which one of the following statements is NOT true for a monopolist?

Accepted Answer

A)  A monopolist is the only firm in a market. 
B)  A monopolist faces a downward-sloping demand. 
C)  The marginal revenue falls as more units are sold. 
D)  The price and marginal revenue are equal for a monopolist.

Question 2

Which of the following is NOT a legal barrier to entry in a market?

Accepted Answer

A)  patent 
B)  high start-up cost 
C)  copyright 
D)  trademark

Question 3

By charging each customer according to its maximum willingness to pay, a perfectly price-discriminating monopolist leads to zero _____ in the market.

Accepted Answer

A)  economic profit 
B)  producer surplus 
C)  consumer surplus 
D)  economic efficiency

Question 4

Economies of scale refers to the situation where an increase in the output of a firm leads to a decrease in:

Accepted Answer

A)  the total cost. 
B)  the total revenue. 
C)  average revenue. 
D)  the average cost.

Question 5

A perfectly competitive market produces a _____ level of output and charges a _____ price compared to a monopoly market.

Accepted Answer

A)  higher; lower 
B)  lower; higher 
C)  higher; higher 
D)  lower; lower

Question 6

When the long-run average total costs of an industry decline with an increase in output, its market is:

Accepted Answer

A)  perfectly competitive. 
B)  monopolistically competitive. 
C)  a natural monopoly. 
D)  a duopoly.

Question 7

Economists use the tools of _____ theory to study behavior among economic agents whose decisions are interdependent.

Accepted Answer

A)  auction 
B)  game 
C)  macro 
D)  social-choice

Question 8

Suppose that a movie theater has a pricing policy where it charges a lower rate to students and a higher rate to everyone else. This is an example of:

Accepted Answer

A)  a perfectly competitive market. 
B)  price discrimination. 
C)  legal barrier to entry. 
D)  duopoly.

Question 9

Which one of the following statements is FALSE about a firm in a monopolistically competitive market at its long-run equilibrium?

Accepted Answer

A)  It has zero economic profit per unit. 
B)  The price of its product equals the average total cost. 
C)  The price of its product equals the marginal cost. 
D)  Marginal revenue equals the marginal cost.

Question 10

A group of producers that collude to restrict the quantity of output to maximize profits is called a:

Accepted Answer

A)  monopolistically competitive market. 
B)  cartel. 
C)  duopoly. 
D)  natural monopoly.

Question 11

Suppose that a firm in a monopolistically competitive market is operating at its profit-maximizing point in the long run. The firm has a total revenue of $800, its marginal revenue is $10, and it sells 50 units of output. Given this, we can conclude that the average total cost of the firm is _____ and the marginal cost of production is:

Accepted Answer

A)  $16; $16. 
B)  $16; $10. 
C)  $10; $16. 
D)  $10; $10.

Question 12

Because a monopolist charges a price that is ____ than marginal cost, a monopoly market allocates _____ resources to the production of a good than is socially optimal.

Accepted Answer

A)  less; fewer 
B)  greater; fewer 
C)  less; more 
D)  greater; more

Question 13

Why is the marginal revenue for a monopolist different from the price or the average revenue? Given this, show why the profit-maximizing quantity for a monopolist is different from the socially optimal output. Provide a graph for your explanation.

Accepted Answer

The answer of Why is the marginal revenue for a...

Question 14

Flying Carpet Airlines operates the only early Monday morning flight from Stewarton, which arrives at Colberton at 9 a.m. Through market research, it discovers that the flight is taken by two groups of customers - busy business executives who must reach Colberton on Monday morning by 9 a.m. and students who have a more elastic demand and do not care about when they arrive. Given that Flying Carpet has a monopoly on this early morning flying route, what is the best way that it can price tickets to maximize profits?

Accepted Answer

The answer of Flying Carpet Airlines operates the only early...

Question 15

Use Figure: Payoff Matrix Shell & BP I. The figure shows the payoff matrix where the hypothetical daily profits of BP and Shell (in millions of dollars) depend on each other's decision about whether to lower prices. Based on the payoffs, BP's dominant strategy is _____ the price, and Shell's dominant strategy is _____ the price.
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Figure: Payoff Matrix Shell & BP I

Accepted Answer

A)  to lower; not to lower 
B)  not to lower; to lower 
C)  to lower; to lower 
D)  not to lower; not to lower

Question 16

Suppose that a firm in a monopolistically market charges $8 for its good and sells 100 units of output in the long-run. Given this, we can conclude that the total cost of production for the firm is _____ and the average cost of production is:

Accepted Answer

A)  $800; $10. 
B)  $600; $12. 
C)  $800; $8. 
D)  $600; $8.

Question 17

Relative to a perfectly competitive market, a monopolist produces a_____ level of output and charges a _____ price.

Accepted Answer

A)  higher; lower 
B)  higher; higher 
C)  lower; lower 
D)  lower; higher

Question 18

Suppose that a monopolist is operating at its profit-maximizing point by charging a price of $18 and selling 50 units of output. If the marginal revenue of the firm is $10 and the average total cost is $12, then the firm's marginal cost is _____, and the total profit is:

Accepted Answer

A)  $10; $300. 
B)  $12; $300. 
C)  $10; $400. 
D)  $12; $400.

Question 19

Use Figure: Profit-Maximizing Quantity and Price. The figure depicts the demand curve, marginal revenue curve, and marginal cost curve that are facing a monopolist. Assume that the monopolist is operating at its profit-maximizing point. If the total profit of the monopolist is $200, then the average total cost of production is:
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Figure: Profit-Maximizing Quantity and Price

Accepted Answer

A)  $5. 
B)  $6. 
C)  $7. 
D)  $8.

Question 20

Which of the following can give rise to economies of scale for a firm?

Accepted Answer

A)  patents 
B)  high start-up costs 
C)  trademarks 
D)  copyrights

Exam 10: Market Power