Question 1

A firm that realizes minimum average costs at an output rate sufficient to satisfy the entire market is an example of

Accepted Answer

A)   monopolistic competition.
B)   natural monopoly.
C)   nonprice competition.
D)   the crowding-out effect.
E)   supply-side economics. B

Question 2

The calculation of marginal revenue is best described by which of the following equations if R(q)equals total revenue for a given level of output (q)?

Accepted Answer

A)   marginal revenue = R(q)  × R(q - 1) 
B)   marginal revenue = R(q)  + R(q - 1) 
C)   marginal revenue = R(q) /R(q - 1) 
D)   marginal revenue = R(q)  - R(q - 1) 
E)   marginal revenue = [R(q)  + R(q - 1) ]/R(q)  D

Question 3

For a perfectly competitive firm,at any output rate

Accepted Answer

A)   total cost equals total revenue.
B)   price and total revenue are the same.
C)   marginal cost and price are the same.
D)   total cost equals supply.
E)   price and marginal revenue are the same. E

Question 4

The following question are based on the following diagram of a monopolist:
 
-If a perfectly competitive,constant-cost industry is monopolized,the

Accepted Answer

A)   number of firms in the industry will rise.
B)   industry price and output will remain unchanged.
C)   industry price and output will rise.
D)   price will fall and industry output will rise.
E)   price will rise and industry output will fall.

Question 5

A natural monopoly is a likely result whenever

Accepted Answer

A)  the market demand curve is downward sloping to the right.
B)  the market demand curve is horizontal.
C)  a firm is granted a patent on a new product or process.
D)  long-run marginal costs increase as output rises.
E)  there are significant economies of scale.

Question 6

If people are willing to pay $130 for a particular bicycle and its marginal cost is $80

Accepted Answer

A)   bicycle producers enjoy a profit of $50.
B)   bicycle production will be unprofitable.
C)   too many resources are being allocated to the production of bicycles.
D)   the social value of one more bicycle is $130.
E)   the bicycle industry is perfectly competitive.

Question 7

Among the arguments against monopoly is that

Accepted Answer

A)   compared to a perfectly competitive industry, a monopolist produces too much of a good.
B)   a monopolist charges a price that is less than the cost to society of producing the extra unit.
C)   a monopolist redistributes income in its favor by charging a price above marginal cost.
D)   as monopoly profits disappear, a monopolist must raise price to increase sales.
E)   the socially optimal output rate is frequently too high for a single firm to produce at minimum unit costs.

Question 8

Which of the following firms is the best example of one that has achieved its monopoly advantage because of network externalities?

Accepted Answer

A)   General Motors
B)   General Electric
C)   Alcoa
D)   Union Pacific Railroad
E)   Microsoft

Question 9

When marginal revenue exceeds marginal cost,a monopolist should reduce

Accepted Answer

A)   output.
B)   price.
C)   demand.
D)   revenue.
E)   employment.

Question 10

The following question are based on the following graph:
 
-The total profit at the profit-maximizing output is

Accepted Answer

A)   0V.
B)   PR.
C)   QT.
D)   UV.
E)   RS.

Question 11

When marginal revenue exceeds marginal cost,a monopolist should

Accepted Answer

A)   expand output.
B)   discontinue production.
C)   raise price.
D)   reduce demand.
E)   encourage new firms to compete with it.

Question 12

A major factor that weakened Standard Oil's monopoly power prior to being broken up by the Supreme Court in 1911 was

Accepted Answer

A)   the discovery and development of the Texas and Oklahoma oil fields.
B)   an increase in the demand for oil brought about by the increase in automobile ownership.
C)   the government regulation of Standard Oil as a natural monopoly.
D)   the increased use of ethanol, which is made from corn, as a source of fuel.
E)   the significant losses incurred while searching and drilling for oil.

Question 13

When price exceeds marginal cost

Accepted Answer

A)   the market structure is perfectly competitive.
B)   resources are optimally allocated from society's point of view.
C)   too much output is being produced, resulting in losses to businesses.
D)   a 1-unit increase in output increases the social value of output by more than the social costs of production.
E)   the costs of production are greater than the demand.

Question 14

The following question are based on the following data for a monopolist:
 
-The profit-maximizing output rate is

Accepted Answer

A)   7.
B)   8.
C)   9.
D)   10.
E)   11.

Question 15

For a monopolist the Golden Rule of Output Determination is to set the output rate at the point where marginal revenue equals

Accepted Answer

A)   price.
B)   marginal cost.
C)   profits.
D)   output.
E)   zero.

Question 16

One problem associated with public regulation of industries has been the tendency for

Accepted Answer

A)   regulators to set prices below average variable costs.
B)   most regulatory agencies to be incapable of carrying out their duties.
C)   regulatory commissions to accommodate the requests of the businesses they are supposed to regulate at the expense of the public.
D)   regulatory agencies and legislation to be ruled unconstitutional by the courts.
E)   public regulation to be introduced in markets characterized as natural monopolies, where such regulation is least appropriate.

Question 17

In general,as a monopolist increases its output rate,its profit

Accepted Answer

A)   rises steadily.
B)   falls steadily.
C)   first rises but then falls.
D)   first falls but then rises.
E)   remains constant.

Question 18

The following question are based on the following data for a monopolist:
 
-At the profit-maximizing output rate,marginal costs are

Accepted Answer

A)   $12.50.
B)   $7.50.
C)   $5.00.
D)   $0.50.
E)   impossible to calculate from the information given.

Question 19

A monopolist seeking to maximize total profits will

Accepted Answer

A)   maximize profit per unit.
B)   minimize cost per unit.
C)   charge the highest possible price.
D)   set price equal to average total cost.
E)   set marginal cost equal to marginal revenue.

Question 20

The following question are based on the following demand schedule for a monopolist:
 
-The marginal revenue associated with the sale of the third unit is

Accepted Answer

A)   $390.
B)   $130.
C)   $110.
D)   $10.
E)   $3.

Exam 7: Monopoly and Its Regulation