Question 1

If a monopoly's Lerner Index exceeds 1, then

Accepted Answer

A) it is earning maximum profit. 
B) it has ultimate market power. 
C) it must be pricing below marginal cost. 
D) marginal revenue is negative.

Question 2

If the inverse demand curve a monopoly faces is p = 100 - 2Q, then profit maximization

Accepted Answer

A) is achieved when 25 units are produced. 
B) is achieved by setting price equal to 25. 
C) is achieved only by shutting down in the short run. 
D) cannot be determined solely from the information provided.

Question 3

Since a monopoly can set any price it wants, it always makes a profit?

Accepted Answer

A) True 
 B)False

Question 4

-The above figure shows the demand and marginal cost curves for a monopoly. Under monopoly, consumer surplus equals

Accepted Answer

A) a + b. 
B) a + b + c. 
C) a + b + c + d + e + f. 
D) None of the above.

Question 5

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 6

Which of the following would force a monopoly to charge a lower price?

Accepted Answer

A) A new firm selling the same enters the market. 
B) A new firm selling the same product locates close to the monopoly. 
C) A new firm introduces a better substitute for the firm's product. 
D) All of the above.

Question 7

Limited government licenses that create a monopoly do so because

Accepted Answer

A) the license generates a marginal cost advantage. 
B) the monopoly will become a natural monopoly. 
C) a barrier to enter the market exists. 
D) All of the above.

Question 8

The less elastic is the demand for a firm's product, the greater is that firm's market power.

Accepted Answer

A) True 
 B)False

Question 9

If a firm uses introductory pricing, it is likely ________ short run profit and ________ long run profit.

Accepted Answer

A) minimizing; maximizing 
B) maximizing; maximizing 
C) maximizing; reducing 
D) reducing; maximizing

Question 10

The Lerner Index is

Accepted Answer

A) the ratio of the difference between price and marginal cost to price. 
B) equal to (Price - M
C) /Price 
C) a measure of market power. 
D) All of the above.

Question 11

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 12

-The above figure shows the demand and marginal cost curves for a monopoly. The deadweight loss of this monopoly equals

Accepted Answer

A) h. 
B) c. 
C) c + f. 
D) c + d + e + f.

Question 13

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 14

A market failure occurs when

Accepted Answer

A) price equals marginal cost. 
B) there is a non-optimal allocation that leads to an inefficient market. 
C) deadweight loss is maximized. 
D) a firm shuts down.

Question 15

Marginal Revenue is

Accepted Answer

A) the increase in total revenue from selling one more unit of output. 
B) equal to P(1+1/e) 
C) equal to P when the price elasticity of demand is infinite. 
D) All of the above.

Question 16

The monopolist's marginal revenue curve

Accepted Answer

A) doesn't exist. 
B) lies below the demand curve. 
C) is identical to the demand curve. 
D) lies above the demand curve.

Question 17

If a monopoly's demand curve shifts to the right, the monopoly

Accepted Answer

A) will charge a higher price. 
B) will charge a lower price. 
C) will sell more. 
D) decision cannot be determined.

Question 18

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 19

-If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then the deadweight loss from monopoly equals

Accepted Answer

A) $21. 
B) $441. 
C) $882. 
D) $1,764.

Question 20

If the demand for a firm's output is perfectly elastic, then the firm's Lerner Index equals

Accepted Answer

A) zero. 
B) one. 
C) infinity. 
D) one-half.

Exam 9: Monopoly