Monopoly Chapter.12 Test Bank 14th Edition - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. It is possible to distinguish a monopoly from perfect competition by noting that only competitive firms can earn economic profits in the short run.
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2. A monopolist is willing to lose some customers by charging higher prices, since this results in higher profits.
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3. A monopolist’s total profit is shown by the difference between price and average cost per unit times the number of units sold.
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4. There exist only two causes of monopoly: barriers to entry and government restrictions.
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5. A monopolist is a price maker.
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6. Natural monopolies are of theoretical, but not practical interest.
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7. Adam Smith believed that monopoly is the most efficient market structure.
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8. A monopoly firm always devotes some of its profits to research.
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9. A monopolist is a price maker who will lose some business if the price is increased.
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10. The difference in prices for first-class and coach airline tickets exemplifies price discrimination.
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11. A natural monopoly market is characterized diseconomies of scale over the entire range of output.
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12. When a patent expires, the firm holding the patent is able to maintain its monopoly control over the market.
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13. Price discrimination allows a monopolist to make higher profits.
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14. If the monopolist’s supply curve is drawn, it is a positively sloped curve similar to that for the perfectly competitive market.
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15. A major difference between a monopoly and perfect competition is that monopolies can earn an economic profit in the long run and a perfectly competitive firm cannot.
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16. The U.S. Postal Service engages in price discrimination.
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17. A monopolist faces a horizontal demand schedule.
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18. A monopolist is a price taker, just like a perfect competitor.
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19. Only government restrictions serve as entry barriers.
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20. The U.S. Postal Service enjoys a monopoly position because of patent rights.
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21. For a monopoly, MC = MR < P so that MC < MU.
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22. In cases of natural monopoly, it is best to have only one firm producing all of the output in a market.
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23. Pure monopoly is not studied because of its descriptive realism, but because it is a stepping stone toward more realistic models.
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24. The two basic reasons why a monopoly exists are barriers to entry and cost advantages.
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25. A monopolist can earn a positive economic profit, even in the long run.
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26. The rule of MC = MR does not apply to a monopolist.
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27. A monopolist’s profit per unit is shown by the difference between price and marginal cost per unit.
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28. The key element in preserving a monopoly is keeping rivals out of the market.
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29. Owning a patent can provide a firm with monopolistic power.
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30. A profit-maximizing monopolist will stop production while MR is still greater than MC.
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31. A monopolist will maximize profits by producing a quantity specified by setting marginal revenue equal to marginal cost.
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32. A monopolist supply curve can be defined in the same way that it can for a perfectly competitive firm.
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33. Under monopoly, resources are allocated as efficiently as in perfect competition.
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34. The ability to control a scarce resource or input is a characteristic of perfect competition.
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35. Although monopoly has lower output than competition, the level of output is efficient.
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36. In cases of natural monopolies, society would be better off with many firms competing with each other.
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37. Technical superiority can be a source of entry barriers.
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38. For natural monopoly markets, government regulators frequently encourage competition among a number of firms.
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39. Since a monopolist has a unique product, it makes no sense for the firm to advertise.
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40. Owning a patent can always provide a firm with monopoly control of a market.
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41. In the long-run, a monopolist charges the same price as a perfectly competitive firm.
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42. Inefficient resource allocation is a major problem with monopolies.
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43. The marginal revenue curve for a monopolist is always below the demand curve.
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44. Entry barriers are present in monopoly markets but are not in perfectly competitive markets.
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45. The marginal revenue curve for a monopolist is the same as its demand curve.
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46. Pure monopoly is able to exist because the firm’s product is better than the substitutes that are available in the market.
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47. A monopolist firm may be more innovative than a competitive firm.
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48. The single source of monopolies is economies of scale.
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49. The ability to keep rivals out of the market is the recipe for creating and maintaining a monopoly.
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50. Since a monopolist firm will lose some customers when the price is increased, it will make every effort to keep the price as low as possible.
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51. Public utilities, due to their economies of scale, are permitted by government to charge whatever price that they wish.
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52. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms.
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53. A positive aspect of monopolies is that they may aid innovation in the marketplace.
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54. The monopoly’s ability to restrict output results in lower profits than other types of firms.
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55. A natural monopoly is one that deliberately erects entry barriers.
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56. Monopolies are always large firms with great economies of scale.
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57. Price discrimination only occurs under monopoly.
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58. Many public utilities are permitted to operate as monopolies because they enjoy economies of large-scale production.
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59. The software industry has traits in common with monopoly markets.
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60. A monopolist maximizes profit by producing the quantity at which MC = MR, just like a perfect competitor.
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61. A monopoly may breed inefficiency by reducing competition and restricting production.
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62. Economists consider price discrimination to always be undesirable.
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63. Monopoly firms may lead to higher costs than perfectly competitive firms.
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64. Too much of society’s scarce resources are used to produce goods in monopoly markets.
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65. Control of a scarce resource or input can serve as an entry barrier.
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66. A monopolist can maximize profits by determining the quantity where price is equal to marginal cost.
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67. Entry barriers can lead to long-run economic profits.
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68. When theaters charge lower prices for matinee showing, it is not price discrimination, since it is more expensive to operate a theater during the day, as compared to the evening hours.
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69. The presence of large sunk costs often serves as a naturally imposed barrier to entry.
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70. Pure monopoly markets are very common in the real world.
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71. A monopolist’s profit per unit is shown by the difference between price and average cost per unit.
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72. A similarity between monopoly and perfect competition is that both types of firms are able to earn economic profits in the short run.
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73. A monopolist will increase output to the point where MR equals MC and not beyond.
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74. A natural monopoly is characterized by the fact that its average costs increase rather than decrease when its output expands.
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75. It is possible that if a monopoly is broken up, the cost of production for that product could increase.
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76. A monopoly restricts output and charges a higher price than other types of firms.
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77. Compared to a perfectly competitive industry, a monopoly produces a smaller output and charges a higher price.
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78. Until recently, the drug maker Pfizer enjoyed a monopoly of the cholesterol-control drug Lipitor because of patent rights.
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79. Perfect Competition is an industry in which there is only one supplier of a product that has no close substitutes.
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80. A pure monopoly is defined as having only one seller.
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81. Price discrimination leads to higher prices for all consumers.
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82. The existence of a natural monopoly stems from the size of the firm relative to the total market demand for the product of that firm.
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83. A natural monopoly would benefit by being broken into many smaller firms.
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84. High sunk costs in the jet aircraft market has assured Boeing of a monopoly in the production of jets for the air travel market.
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Indicate the answer choice that best completes the statement or answers the question. |
Table 12-2
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85. In Table 12-2, average cost at the profit-maximizing output is how much?
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86. What is true for both a monopolist and a perfect competitor?
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87. A monopolist can sell 10 lunchboxes if he or she charges $10 per lunchbox and 11 lunchboxes if he or she charges $9. The MR from selling the 11th lunchbox is
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88. Since the Red Cross supplies 95 percent of the blood in the United States, it can be considered a monopolist. Assume that it, in fact, operates like a monopolist. The Red Cross currently charges hospitals and other users $21 for a pint of blood. In order to increase the supply of blood, the government offers the Red Cross a $10 million, lump-sum subsidy. How much more blood supply will the subsidy generate?
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89. It is true in monopoly pricing that the
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90. Which of the following can serve as an entry barrier?
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91. A monopolist’s cost curves may shift down because
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Figure 12-7  |
92. For the firm in Figure 12-7, an unregulated monopolist, profit-maximizing output is below the long-run competitive level by how much?
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93. ____ mean that the costs involved cannot be recouped for a considerable period of time.
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Table 12-1
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94. Table 12-1 shows demand and total cost schedules for Monopoliteria. At its profit-maximizing level of output, Monopoliteria’s profit is
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95. The South African diamond production monopoly is an example of monopoly through
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96. A monopolist’s cost curves may shift up because of
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Figure 12-2  |
97. For the monopolist show in Figure 12-2, how much profit is the monopolist making per unit?
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98. The key element in preserving a monopoly is
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99. A monopolist is best described as a price
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100. Which of these contributes to the existence of monopoly power?
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101. The marginal revenue curve for a monopolist is
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102. A monopoly firm’s supply curve
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103. Offering discounts to senior citizens is
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Figure 12-5  |
104. In Figure 12-5, Crown Theater, a monopolist movie theater, has chosen the profit-maximizing output. At this output level, the value of MR is what value?
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105. Crown Theater is the only movie theater in the city. Its cost and revenue curves are shown in Figure 12-5. Monopolist Crown Theater would set the price of its tickets at
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Figure 12-8  |
106. Consider the average cost curve shown in Figure 12-8, for the production of cleaning. If the firm serves the entire market and sells Q1 units. Based upon this information, the firm is experiencing
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107. The U.S. government
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108. The demand curve facing a monopolist is
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Figure 12-3  |
109. In Figure 12-3, which of the following is true, whether or not the monopolist is maximizing profits?
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110. The demand curve of the monopoly firm is always the
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Figure 11-4  |
111. Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 12-4. Units of medical service (say, number of patients × number of visits) are measured on the horizontal axis. How many units of medical service will Dr. Casey deliver?
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112. A profit-maximizing monopolist
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113. What is true for monopoly that is not true for perfect competition?
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114. If a monopoly firm reduced the price of its product, which of following must have been true?
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115. Which of the following is NOT a characteristic of a pure monopoly?
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116. Which of the following is true for a profit-maximizing competitive firm in the long run but not a monopolist?
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117. As the demand for a product falls, it is not uncommon for the industry to become a monopoly. This is most likely due to
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118. In the long run, a profit-maximizing monopolist
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119. At a given output level, a monopolist earns a profit only if the
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120. In which of the following ways is a monopolist different from a perfect competitor?
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121. Advertising by the monopolist
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122. Because a monopolist must cut its price to increase its sales by one unit,
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123. Under what circumstances would having multiple firms in a market result in higher prices for all customers?
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124. Which of the following is not a barrier to entry?
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125. Compared to perfect competition, monopoly
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Table 12-2
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126. In Table 12-2, the price at the profit-maximizing output is how much?
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Figure 12-5 |
127. In Figure 12-5, Crown Theater, a monopolist movie theater, has chosen the profit-maximizing output. At this output level, what is total cost for the firm?
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Figure 12-7 |
128. For the firm in Figure 12-7, an unregulated monopolist, output falls below the efficient level in the short run by how much?
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129. Which of the following observations concerning price discrimination is true?
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130. In order for a natural monopoly to develop, it
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131. A monopoly firm
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132. In Figure 12-9, which of the following is true?
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Figure 12-6  |
133. The profit-maximizing monopolist in Figure 12-6 will produce ____ units of output.
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134. Under monopoly
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135. Which of the following is not potentially a barrier to entry into the widget market?
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Figure 12-6 |
136. At its optimal output level, the profit-maximizing monopolist in Figure 12-6 will earn a profit equal to
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137. When airlines offer lower fares to passengers who stay over a Saturday night, compared to regular fares, is an example of
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Figure 12-9  |
138. In Figure 12-9, how much more than the short-run competitive price will the profit-maximizing monopolist charge?
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139. Firms that engage in price discrimination
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140. The monopoly producer
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Table 12-1
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141. Table 12-1 shows demand and total cost schedules for Monopoliteria. At the profit-maximizing output, what quantity is Monopoliteria producing?
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142. Monopoly as a market structure leads to
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143. Price discrimination
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144. What is a key criterion involved in deciding a natural monopoly?
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145. A patent
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146. A monopolist in the radio industry has two radio-making plants. The marginal cost of radio production by Plant A is $4Q (where Q is the number of radios produced) and the marginal cost of radio production by Plant B is always $16. If the demand curve for radios is downward sloping, the monopolist will
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147. To be a natural monopoly, a firm must
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148. Successful advertising by a monopolist will
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Figure 12-6 |
149. At its optimal output level, the profit-maximizing monopolist in Figure 12-6 has total costs equal to
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Figure 12-3 |
150. Using the graph in Figure 12-3, the profit-maximizing monopolist will charge a price
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Figure 12-7 |
151. The firm in Figure 12-7 is an unregulated monopolist; it will produce which of the following?
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152. A profit-maximizing monopolist sets
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Table 12-2
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153. In Table 12-2, MC of the last unit produced at the profit-maximizing output is
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154. In the long run, profit-maximizing monopolists facing a downward-sloping demand curve
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155. The differences between a competitive market and a monopoly include all of these except
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Figure 12-3 |
156. In Figure 12-3, one can tell from the graph that the monopolist will earn a positive profit only if
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157. In the long run under monopoly,
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158. A monopolist will operate where
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159. A monopolist that is making a profit is producing where which of the following occurs?
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160. A profit-maximizing monopolist
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161. A natural monopoly is defined as an industry in which one firm
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162. Compared to perfect competition, monopoly in the long run
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163. At his profit-maximizing level of output, a monopolist’s average total cost curve is tangent to his demand curve. The monopolist
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164. Being a monopolist in the market
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165. A 50 percent tax on the profits of a monopolist will
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166. If a firm was able to acquire control over access to bauxite, the ore used in aluminum manufacturing, it would gain monopoly control of the aluminum industry because that firm
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167. It is not true in the long run of monopolies that
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Figure 12-5 |
168. In Figure 12-5 are the cost and revenue curves of a monopolist in the theater market, Crown Theater, which is the only movie theater in the city. At its profit-maximizing quantity of tickets sold, movie goers will buy ____ tickets.
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169. A market structure in which only one firm has survived because of its economies of scale is called a
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170. The demand curve facing a monopolist is
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171. At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his or her marginal cost curve upward sloping, the monopolist
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Figure 12-8 |
172. Given the average cost curve shown in Figure 12-8 for dry cleaning, where Q1 is the quantity demanded in a small town, and Q2 for a larger town, you would expect dry cleaning to be a monopoly
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173. Wendy retails motor homes, which she buys for a sum that does not vary with the number she purchases from the manufacturer. She can sell 11 per week at $40,000. If she limits sales to 10, she can charge $41,000 each. She will sell 11 per week if the cost of each vehicle is no more than
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Figure 12-6 |
174. The profit-maximizing monopolist in Figure 12-6 will sell its output at
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175. Which of the following will occur if a natural monopoly is broken into two smaller firms?
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176. Providing medical services for smaller fees to the poor than to the rich is
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177. Compared to perfect competition, a monopoly in the long run
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178. The product supplied by a monopoly firm has
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179. Monopolists may in the long run
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Figure 12-7 |
180. The firm shown in Figure 12-7 is an unregulated monopolist; it totals equals _____ .
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181. Which of these would NOT be a factor that would permit the existence of monopoly power?
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182. The marginal revenue curve for a monopolist
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183. What is true in a market characterized by a natural monopoly?
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Table 12-1
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184. Table 12-1 shows demand and total cost schedules for the monopolist Monopoliteria. Monopoliteria’s profit-maximizing price per unit in dollars is
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Figure 12-1  |
185. The Red Cross is virtually the only operator of blood banks in the United States. In Figure 12-1 are the demand and supply curves facing the Red Cross blood bank. If it were to operate like a profit-maximizing business, how many units of blood would it sell?
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186. A monopolist’s cost curves will
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187. Is the monopolist supply decision more complicated than that of competitive supply?
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188. An example of “cream skimming” is when
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189. Unlike a perfectly competitive firm, a monopolist
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Figure 12-9 |
190. In Figure 12-9, how much more than the long-run competitive price will the profit-maximizing monopolist charge?
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Figure 12-2 |
191. In Figure 12-2, at what quantity would the monopolist maximize profit?
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192. Economists object to monopoly because
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193. A monopolist maximizes profits by producing where which of the following occurs?
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194. A profit maximizing monopolist always chooses to operate at the output level where
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Figure 12-9 |
195. In Figure 12-9, at the profit-maximizing monopolist output, this firm receives how much profit per unit?
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Figure 12-7 |
196. The firm in Figure 12-7 is an unregulated monopolist; it will earn long-run profits of how much?
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Figure 12-2 |
197. In Figure 12-2, at what price would the monopolist maximize profit?
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Figure 11-4 |
198. Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 12-4. Units of medical service (say, number of patients × number of visits) are measured on the horizontal axis. How many units of medical service will Dr. Casey deliver to Medicaid patients?
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Figure 12-1 |
199. The Red Cross is virtually the only operator of blood banks in the United States. In Figure 12-1 are the demand and cost curves facing the Red Cross blood bank. If the Red Cross were to set price and quantity at the level that it would obtain in the long run in a competitive industry, how much blood would it sell?
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200. Since a monopoly faces a downward-sloping demand curve,
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201. In the long run,
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202. A market is not a pure monopoly if firms
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Figure 12-5 |
203. In Figure 12-5, Crown Theater, a monopolist movie theater, will make a profit of ____ at its profit-maximizing price and quantity of theater tickets.
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204. A price-discriminating firm will always maximize profit by following the condition that
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205. Pure monopoly
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206. The average total cost curve of a natural monopoly is always
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Figure 12-6 |
207. The industry described in Figure 12-6
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208. In assessing the difference between monopoly performance and that of perfect competition, the best approach is to
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209. A monopolist’s demand curve implies that
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210. Bargain airline fares in which airlines charge varying rates to passengers for the same flight and service is an example of
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211. In the long run, profit-maximizing monopolists facing a downward-sloping demand curve
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212. Discrepancies in profitability tempt rivals to charge the more profitable consumers somewhat lower prices in order to lure them away from the firm that is “overcharging” them. This practice is referred to as
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Table 12-2
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213. In Table 12-2, marginal revenue at the profit-maximizing output is how much?
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214. Compared to a perfectly competitive firm, a monopolist
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215. Pure monopoly is defined as a
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216. Which of the following can be said about a monopoly?
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217. Assume that a firm has measured demand carefully and thinks that the following table accurately displays this. The total cost has been measured and can be given as TC = 20 + Q + Q2, where Q is the level of output. Complete the table and determine the profit-maximizing level of output.
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218. What are the reasons for preferring competition to monopoly? |
219. Provide two circumstances where monopoly may offer efficiency advantages over competition. |
220. Why does perfect competition shun advertising? Does advertising benefit a monopoly? |
221. Why is the demand curve for a monopolist downward sloping? How does this affect the monopolist’s behavior? |
222. Define the following terms and explain their importance to the study of economics. a. Pure monopoly b. Barriers to entry c. Patent d. Natural monopoly e. Sunk costs |
223. Why is the advent of monopoly likely to shift cost curves? |
224. Suppose a monopolist can charge different prices to different customers, such as doctors charging different prices depending on whether the patient is insured. How will profits and marginal revenue of such a price-discriminating monopolist compare to profits and MR of an ordinary monopolist who must charge all patients the same fee? |
225. Under what conditions might a monopoly be more efficient than a perfectly competitive firm? |
226. Graphically show why one electric company can operate more cheaply than two. |
227. What arguments have been advanced in defense of price discrimination? |
228. Draw the demand, marginal revenue, and marginal cost curve for a monopolist. Show the equilibrium price and quantity supplied and total profit. Show the equilibrium price and quantity supplied and total profit. |
229. Describe the types of entry barriers that can exist and their importance to the study of monopoly. |
230. Give a complete and concise definition of each of the following terms. a. Deliberately erected entry barriers b. Inefficiency of monopoly c. Price discrimination d. Profit-maximizing equilibrium for a monopolist |
231. In perfect competition, one result of the model was that there were no economic profits in the long run. In a monopoly, the firm typically earns a positive economic profit. Why is there this difference? |
232. Explain the source of monopoly power for DeBeers’ Diamond Mine in South Africa, Microsoft (owned by Bill Gates), the American Medical Association (which licenses doctors), Polaroid’s Instant Picture Cameras, USAir (which owns virtually all the gates at the airport in Charlotte, North Carolina), and electric utilities. |
233. “Intel Inside” accompanies virtually all IBM-compatible computers. Intel manufactures the i3, i5 and i7 chips that are a key component of personal computers. Does Intel have a monopoly? |
234. One of the conclusions of the model of monopoly is that the firm earns economic profits above the required opportunity cost of the factors of production. Are these profits lost to society? Do they take spending power from the economy, and act as a brake on economic growth? |
235. Economists object to monopolies on the grounds of efficiency. Why is this? Explain. |
236. A monopolist sets price at $10 and sells 100 units. The corresponding marginal revenue is $5 and marginal cost $3. What recommendation regarding price and quantity would you give this monopolist? Use a graph if you wish. |
237. If the government charged a tax on monopolists equal to, say, 75 percent of their economic profits, what would happen to the level of output the firm would produce? What about the price? Explain. |
238. Explain how each of the following industries practices price discrimination. a. Movie theaters b. Airlines c. Auto dealers d. U.S. Postal Service |
239. What is the equilibrium condition for price discriminating monopoly firm? Give some examples for price discrimination. |
240. In perfect competition P = MR, but in monopoly P > MR. Why? Substantiate this statement with an example. |
241. Explain why a monopolist does not have a supply curve. |
242. The marketing division of a firm has measured demand for its product and reports that it is 2Q = 24 − P, where Q is units and P is price per unit in dollars. The cost is given in the table below. Complete the table and determine the profit-maximizing level of output for this firm.
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243. Explain why marginal revenue is less than price for a monopolist. |
244. How does the monopolist calculate profit per unit and total profit? |
Document Information
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol
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