Test Bank Monopoly 279 Ch.11 - Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key by Edgar K. Browning, Mark A. Zupan. DOCX document preview.
Package: Test Bank
Title: Microeconomics: Theory and Application, 13e
Chapter Number: 11
Question Type: Multiple Choice
1. The monopolist's demand curve slopes downward because:
a. the good sold by a monopolist is easily substitutable.
b. the monopolist is a price maker in the market.
c. average revenue decreases with each unit sold.
d. the marginal product of labor is diminishing.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
2. Which of the following is true of the demand curve that a monopolist faces?
a. It is perfectly elastic at the equilibrium price level.
b. It is perfectly inelastic at the equilibrium output level.
c. It shows how much the monopolist can sell given the output of the other firms.
d. It is the same as the market demand curve.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
3. Which of the following is true of a monopolist?
a. A monopolist takes the price of the product as given and produces as much output as possible.
b. A monopolist can price the product at any price, regardless of demand.
c. A monopolist can choose to produce at any price along the market demand curve.
d. A monopolist prices products at the highest point on the demand curve.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
4. The shape of the monopolist’s demand curve indicates that:
a. profit per unit increases as more units are sold.
b. demand for the good produced by a monopoly firm is elastic.
c. the firm practices price discrimination.
d. price and output are inversely related for the firm.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
5. The following table shows the quantity demanded of a good at various prices for a monopoly firm.
Price | |
1 | $90 |
2 | $80 |
3 | $70 |
4 | $60 |
5 | $50 |
6 | $40 |
7 | $30 |
8 | $20 |
9 | $10 |
The firm earns the maximum total revenue when it produces _____ units.
a. 3
b. 4
c. 5
d. 6
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
6. The following table shows the quantity demanded of a good at various prices for a monopoly firm.
Quantity | Price |
1 | $90 |
2 | $80 |
3 | $70 |
4 | $60 |
5 | $50 |
6 | $40 |
7 | $30 |
8 | $20 |
9 | $10 |
What is the marginal revenue when 3 units are sold?
a. $20
b. $30
c. $50
d. $70
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
7. The marginal revenue curve of a monopolist:
a. is the same as the monopolist’s demand curve.
b. is downward-sloping.
c. is horizontal.
d. has a slope that is equal to half the slope of the demand curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
8. The marginal revenue curve of a monopolist lies below the demand curve because:
a. the demand curve is unit elastic.
b. the monopolist must lower price on all units sold in order to sell additional units.
c. the monopolist is a price taker.
d. the marginal revenue curve coincides with the average revenue curve.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
9. The demand curve for a firm operating in a monopoly market is the same as _____.
a. its average revenue curve
b. the industry supply curve
c. its marginal revenue curve
d. its marginal cost curve
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
10. The following table shows the total revenue and total cost for a monopolist at various levels of output.
Output | Total Revenue | Total Cost |
1 | 12 | 22 |
2 | 26 | 26 |
3 | 50 | 32 |
4 | 58 | 40 |
5 | 60 | 51 |
6 | 61 | 66 |
7 | 58 | 86 |
8 | 48 | 112 |
9 | 36 | 142 |
What is the marginal revenue associated with the sale of the fifth unit?
a. $2
b. -$2
c. $10
d. -$10
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
11. Which of the following is true for a monopoly firm?
a. The marginal revenue curve is the same as the average revenue curve.
b. The demand curve is a declining average revenue curve.
c. The demand curve, average revenue curve, and marginal revenue curve are the same.
d. The total revenue curve is the same as the demand curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
12. Which of the following is true for a monopoly firm?
a. The monopolist's demand curve is downward-sloping and the marginal revenue curve lies above the demand curve.
b. The monopolist's demand curve is upward-sloping and is the same as the marginal revenue curve.
c. The monopolist's demand curve is downward-sloping and the marginal revenue curve lies below the average revenue curve.
d. The monopolist's demand curve is upward-sloping and is the same as the total revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
13. The following table shows the quantity demanded of a good at various prices for a monopoly firm.
Quantity | Price |
1 | $90 |
2 | $80 |
3 | $70 |
4 | $60 |
5 | $50 |
6 | $40 |
7 | $30 |
8 | $20 |
9 | $10 |
If the marginal cost of producing each unit is $30, what is the firm’s profit-maximizing level of output?
a. 3
b. 4
c. 5
d. 7
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
14. The following table shows the total revenue and total cost for a monopolist at various levels of output.
Output | Total Revenue | Total Cost |
1 | 12 | 22 |
2 | 26 | 26 |
3 | 50 | 32 |
4 | 58 | 40 |
5 | 60 | 51 |
6 | 61 | 66 |
7 | 58 | 86 |
8 | 48 | 112 |
9 | 36 | 142 |
The economic profit earned by the firm by producing the profit-maximizing level of output is _____.
a. $13
b. $9
c. $18
d. $4
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
15. Assume that Bost Incorporated sells game cartridges that can be used in a popular home video system. The company currently sells 300 cartridges per week and earns $500 in profit. The production manager calculates that the marginal cost of producing the next unit is $5, while marginal revenue from one additional unit is $10. Based on this information we would conclude that:
a. Bost should reduce their output to 295 cartridges to increase profit.
b. Bost's profit would fall to $495 by increasing output by 1 unit.
c. Bost's profit would rise to $505 by increasing output by 1 unit.
d. Bost’s profit-maximizing output is 300 cartridges.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
16. A monopoly firm will maximize profits by producing the level of output where:
a. total cost is equal to total revenue.
b. total revenue is at its maximum.
c. the difference between marginal revenue and average revenue is maximized.
d. the difference between total cost and total revenue is maximized.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
17. The following figure shows the downward-sloping demand curve [D] and marginal revenue [MR] curve and the upward-sloping marginal cost [MC] curve for a monopolist.
An unregulated monopolist will sell _____ units of output at a price of_____ to maximize profit.
a. OJ and OW
b. OK and OC
c. OJ and OB
d. OL and OZ
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
18. The following figure shows the marginal cost [MC], average cost [AC], marginal revenue [MR], and demand curves for a profit-maximizing monopolist.
The quantity of output produced by the monopolist is _____.
a. OC
b. OE
c. OJ
d. OK
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
19. The following figure shows the marginal cost [MC], average cost [AC], marginal revenue [MR], and demand curves for a profit-maximizing monopolist.
The equilibrium price in the monopoly market is _____.
a. OA
b. OB
c. OI
d. OM
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
20. The following figure shows the marginal revenue [MR], demand, and average cost [AC] curves for a profit-maximizing monopolist in the long run.
A profit-maximizing monopoly firm will produce output equal to _____.
a. OC
b. OE
c. OJ
d. CJ
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
21. The following figure shows the marginal revenue [MR], demand, and average cost [AC] curves for a profit-maximizing monopolist in the long run.
The equilibrium price charged by a profit-maximizing monopoly firm is _____.
a. OA
b. OB
c. OI
d. OC
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
22. Which of the following conditions generally holds when a monopoly firm is producing its profit-maximizing level of output?
a. Marginal cost [MC] = marginal revenue [MR] = average cost [AC] = average revenue [AR]
b. MC = MR > AC
c. MC = MR = price
d. MC = MR < AR
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
23. Which of the following is not necessarily true at the profit-maximizing quantity for a monopolist?
a. The marginal revenue is equal to the marginal cost of production.
b. The slope of the marginal revenue curve equals the slope of the marginal cost curve.
c. The difference between total revenue and total cost is maximized.
d. The difference between price and average cost is maximized.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
24. The following figure shows the marginal cost [MC], average cost [AC], marginal revenue [MR], and demand curves for a profit-maximizing monopolist.
The profit earned by the monopolist is given by the area _____.
a. BHLM
b. IDN
c. AFLM
d. AFHB
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
25. The following figure shows the marginal cost [MC], average cost [AC], marginal revenue [MR], and demand curves for a profit-maximizing monopolist.
If the government wishes to regulate the monopoly firm by setting the price at OB in the market, the monopolist will:
a. produce the efficient quantity of output.
b. have to shut down to cut losses.
c. continue to earn economic profits.
d. earn a higher profit.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
26. The following figure shows the marginal revenue [MR], demand, and average cost [AC] curves for a profit-maximizing monopolist in the long run.
The profit of the monopolist is shown by the area _____.
a. AFCO
b. IHB
c. AFGB
d. AFHB
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
27. The following figure shows the marginal cost, average cost, marginal revenue, and the demand curve for a profit-maximizing monopolist.
What is the firm’s economic profit?
a. $360
b. $540
c. $630
d. $900
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
28. At an output of 1,000 units, a monopoly firm’s average revenue is $40, its marginal revenue is $30, its marginal cost is $30, its average variable cost is $35, and fixed costs are $5,000. Given this information, we can conclude that the monopolist:
a. is earning zero economic profit.
b. is earning an economic profit equal to $5,000.
c. is making an economic loss and should shut down.
d. should increase output to maximize profit.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
29. Acme Baseball Bats is a monopoly firm. If the marginal cost of producing a baseball bat is $30, and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4, at what price should Acme set its price if it wants to maximize profits?
a. $30
b. $40
c. $50
d. $60
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
30. If P = price and MC = marginal cost, the price markup of a monopolist is expressed as _____.
a. (P – Mc./MC
b. (P – Mc./P
c. (MC – P)/MC
d. (MC – P)/P
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
31. For a profit-maximizing monopoly firm, the relationship between price [P], marginal revenue [MR], and the absolute value of the price elasticity of demand [η] is given by:
a. P = MR(1 – 1/η)
b. P = MR(η – 1)
c. MR = P(η – 1)
d. MR = P[1 – (1/η)]
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
32. Assume that a monopoly firm's price is $4, marginal cost is $3 and the absolute value of price elasticity of demand is 4. Based on this information we can conclude that the firm:
a. is maximizing profit.
b. should increase output.
c. should reduce output.
d. should increase price but keep output constant.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
33. For a monopoly firm to maximize profits, its price markup should:
a. be at its maximum possible point.
b. equal the price elasticity of demand.
c. equal the inverse of demand elasticity.
d. equal marginal revenue.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
34. If the demand elasticity for the monopolist's product is equal to -2 and marginal revenue is 10, what is the profit-maximizing price?
a. $20
b. $10
c. $0.50
d. $5
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
35. The markup of price over marginal cost for a monopolist is _____.
a. independent of the price elasticity of demand
b. inversely related to the price elasticity of demand
c. the same as the price elasticity of demand
d. the same as the price elasticity of supply
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
36. Suppose your pharmaceutical company, which operates as a monopoly, has a patent on a drug with an estimated price elasticity of demand of 1.2. If the marginal cost of producing each pill is $3, at what price should you sell your drug if profit maximization is your objective?
a. $3
b. $9
c. $16
d. $18
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
37. Why do gas stations near airports have a higher price markup than gas stations at busy intersections in the city?
a. Gas stations at busy intersections have to contend with more competition than gas stations within the city.
b. Gas stations within the city are less convenient for consumers than gas stations at the airport.
c. Gas stations at airports face a smaller price elasticity of demand than gas stations in the city.
d. Gas stations at airports have higher fixed costs than gas stations in the city.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
38. In response to a rightward shift in the demand for a commodity, a monopoly firm that is producing at the profit-maximizing level of output will:
a. decrease price and output.
b. decrease output and increase price.
c. increase price but maintain the level of output.
d. increase output and price.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
39. A monopolist does not have a supply curve because:
a. price and quantity are determined by marginal cost and demand.
b. a monopoly firm’s marginal cost of production is constant.
c. supply is determined by average total cost and not price.
d. firms in monopoly markets are price takers.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
40. An important difference between a monopoly and a competitive industry is that:
a. a monopoly earns zero profits while competitive firms earn positive economic profits in the long run.
b. a profit-maximizing monopolist equates price and marginal cost while profit-maximizing firms in competitive industries equate marginal revenue and marginal cost.
c. a monopoly is a price maker while a competitive industry faces a horizontal demand curve.
d. a monopoly has a vertical supply curve while a competitive firm’s marginal cost curve is the supply curve.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
41. If the monopolist is operating in the elastic portion of its demand curve, then an increase in price will:
a. increase total revenue.
b. decrease total revenue.
c. increase marginal revenue.
d. leave total revenue unchanged.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
42. A profit-maximizing monopoly firm will earn excess profits if it is able to produce a level of output where:
a. average revenue is equal to marginal cost.
b. marginal revenue is greater than marginal cost.
c. price is equal to marginal cost.
d. average revenue is greater than average cost.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
43. Monopoly power does not guarantee positive profits because _____.
a. demand elasticity in monopoly markets is relatively low
b. monopoly firms are price takers
c. sales and profits of monopoly firms are restricted by the demand curve
d. the monopolist’s demand curve is the same as the marginal revenue curve
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
44. Which of the following statements is true regarding a monopolist?
a. A monopolist's short-run supply curve is upward-sloping.
b. A decrease in demand will always cause a monopolist to reduce output.
c. A monopoly firm that operates at a point above average total cost should shut down.
d. Marginal revenue is greater than marginal cost for a profit-maximizing monopolist.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
45. A monopoly firm will operate on the:
a. elastic portion of the demand curve where total revenue is maximum.
b. elastic portion of the demand curve where marginal revenue is positive.
c. inelastic portion of the demand curve where the profit earned per-unit is the highest.
d. the inelastic portion of the demand curve where marginal revenue is increasing.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
46. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
Between points E and A on the demand curve, the price elasticity of demand:
a. is equal to one.
b. exceeds one.
c. is equal to zero.
d. is less than one.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
47. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
Between points A and F on the demand curve, the price elasticity of demand:
a. is equal to one.
b. exceeds one.
c. is equal to zero.
d. is less than one.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
48. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
At quantity G, the price elasticity of demand:
a. is equal to one.
b. exceeds one.
c. is equal to zero.
d. is less than one.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
49. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
A fall in price will increase total revenue _____.
a. between the points C and F
b. between the points E and A
c. between the points A and F
d. at point G
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
50. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
A fall in price will keep total revenue unchanged _____.
a. between the points E and F
b. between the points E and A
c. between the points A and F
d. at point A
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
51. A monopolist will never operate on the lower half of the demand curve because for this range of output:
a. average revenue is negative.
b. marginal cost exceeds marginal revenue.
c. total revenue can be increased further.
d. marginal revenue is positive.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
52. Which of the following statements correctly identifies the relationship between marginal revenue and price elasticity of demand?
a. When price elasticity of demand is infinite, marginal revenue is greater than price.
b. When price elasticity of demand is equal to one, marginal revenue is zero.
c. When price elasticity of demand is more than one, marginal revenue is negative.
d. When price elasticity of demand is less than one, marginal revenue is positive.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
53. If total revenue falls by $5 when a monopolist sells an additional unit, you can conclude that the monopolist:
a. does not have pricing power.
b. is not maximizing profits.
c. is producing on the elastic portion of the demand curve.
d. faces a horizontal demand curve.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
54. If marginal costs are zero, a monopolist will maximize profit by producing at the point where:
a. average revenue is zero.
b. price is maximum.
c. total revenue is maximum.
d. marginal revenue is maximum.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
55. A profit-maximizing monopolist will maximize both total revenue and economic profit at the same price when _____, given that there are no fixed costs.
a. the marginal cost curve is upward-sloping
b. demand is perfectly inelastic
c. marginal cost is zero
d. marginal revenue is an increasing function of quantity produced
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
56. The following table shows the total revenue and total cost for a monopolist at various levels of output.
Output | Total Revenue | Total Cost |
1 | 12 | 22 |
2 | 26 | 26 |
3 | 50 | 32 |
4 | 58 | 40 |
5 | 60 | 51 |
6 | 61 | 66 |
7 | 58 | 86 |
8 | 48 | 112 |
9 | 36 | 142 |
At an output of 9 units, the price elasticity of demand _____.
a. is more than one.
b. is less than one.
c. is equal to one.
d. cannot be determined without more data.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
57. The following table shows the total revenue and total cost for a monopolist at various levels of output.
Output | Total Revenue | Total Cost |
1 | 12 | 22 |
2 | 26 | 26 |
3 | 50 | 32 |
4 | 58 | 40 |
5 | 60 | 51 |
6 | 61 | 66 |
7 | 58 | 86 |
8 | 48 | 112 |
9 | 36 | 142 |
At the profit-maximizing output, the price elasticity of demand _____.
a. is elastic
b. is inelastic
c. is unit elastic
d. cannot be determined without more information
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
58. If a monopolist's marginal cost is zero, in order to maximize profit the monopolist will:
a. set a price where demand is unit elastic.
b. produce where demand is elastic.
c. expand output to the limit of its physical capacity.
d. not impose an efficiency loss on the society, since P=MC.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
59. For a monopoly firm, marginal revenue is negative when:
a. the demand curve is upward-sloping.
b. demand is elastic.
c. demand is inelastic.
d. demand is unit elastic.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
60. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
Total revenue is highest at point _____ on the demand curve.
a. E
b. F
c. A
d. B
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
61. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
The absolute value of the slope of the marginal revenue curve equals:
a. twice the slope of the demand curve.
b. one.
c. half the slope of the demand curve.
d. zero.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
62. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
Total revenue is equal to zero at point(s) _____.
a. E and F
b. A
c. A and F
d. G
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
63. The following figure shows the demand curve and the marginal revenue curve of a monopolist. On the horizontal axis, OG = GF.
A fall in price will decrease total revenue _____.
a. between the points E and F
b. between the points E and A
c. between the points A and F
d. at point G
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
64. A profit-maximizing monopolist will produce at a point on the _____ portion of the demand curve where _____.
a. elastic; average revenue is negative
b. inelastic; marginal cost is falling
c. inelastic; total revenue is increasing
d. elastic; marginal revenue is positive
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
65. Which of the following statements about the long-run equilibrium of a monopoly firm is incorrect?
a. A monopoly firm has no supply curve.
b. A monopoly firm will never sell where the demand is elastic.
c. A monopoly firm will not always make economic profits.
d. A monopoly firm's demand curve coincides with its average revenue curve.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
66. The Lerner index shows monopoly power as the markup of _____, as a percentage of the product’s price.
a. price over average cost
b. price over marginal cost
c. profits over price
d. total revenue over price
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
67. Magic Card Company produces packs of cards at a marginal cost of $2 per deck. If they currently sell their product at $5 per deck, what is the value of the Lerner index of monopoly power?
a. 0.4
b. 0.6
c. 2.5
d. 5
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
68. When the value of the Lerner index is zero for a firm:
a. its demand curve is steeply sloped.
b. its demand curve is non-linear.
c. the demand for its product is unit elastic.
d. the demand for its product is perfectly elastic.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
69. The smaller the value of the Lerner index, _____.
a. the greater the firm’s monopoly power
b. the more price elastic the firm’s supply curve
c. the greater the difference between marginal cost and marginal revenue
d. the smaller the difference between marginal cost and price
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
70. The larger the value of the Lerner index for a firm, _____.
a. the greater the difference between marginal cost and marginal revenue
b. the smaller the difference between marginal cost and price
c. the more price elastic the firm’s demand curve
d. the greater the firm’s monopoly power
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
71. Which of the following would reduce the monopoly power of a single firm in a monopoly market?
a. The acquisition of a patent for its production process
b. An increase in the demand for the firm’s product
c. An increase in the price of the firm’s product
d. A reduction in the number of rival firms
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
72. Monopoly power possessed by any one firm is _____.
a. higher, the greater the number of firms
b. reduced, as the elasticity of supply by rival firms as a group decreases
c. reduced, as the elasticity of demand increases
d. higher, the higher the number of buyers
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
73. All of the following are sources of monopoly power, except _____.
a. patents
b. unique access to an essential input
c. economies of scale
d. homogeneity of products
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
74. A firm that has monopoly power _____.
a. can profitably set price above marginal cost
b. sells goods at higher prices due to economies of scale
c. faces a horizontal demand curve
d. produces easily substitutable goods
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
75. Which of the following correctly describes a natural monopoly?
a. A natural monopoly is an industry in which products are differentiated from one another.
b. A natural monopoly exists if one large firm’s long-run average cost curve is upward-sloping.
c. A natural monopoly is defined as a firm that operates in an industry that has significant regulatory barriers to entry.
d. A natural monopoly is an industry that exhibits economies of scale.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
76. Which of the following does not constitute a barrier to entry into a market?
a. Homogenous product
b. Economies of scale
c. Control of a natural resource
d. Natural monopoly
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
77. _____ would not be considered a barrier to entry in a market.
a. An absolute cost advantage
b. A copyright
c. A low Lerner index
d. A high level of product differentiation
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
78. When the marginal cost for a monopoly firm is constant, the average cost curve is _____.
a. U-shaped
b. horizontal
c. positively sloped
d. non-linear
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
79. When comparing a monopoly firm and a competitive firm in the long run, which of the following statements is not correct?
a. A monopoly firm does not need to produce output at the lowest possible cost but a competitive firm must.
b. A monopoly firm earns economic profit at its profit-maximizing level of output but a competitive firm does not.
c. A monopoly firm operates at the minimum point on its average cost curve but a competitive firm does not.
d. A monopoly firm will produce more than the efficient level of output but a competitive firm will always produce the efficient level of output.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
80. Which of the following statements about the effects of monopoly is incorrect?
a. A monopoly restricts output to maximize profits.
b. A monopoly raises price above the competitive level.
c. A monopoly causes input prices to rise.
d. A monopoly causes a redistribution of income.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
81. The following figure shows the downward-sloping demand curve [D] and marginal revenue [MR] curve and the upward-sloping marginal cost [MC] curve for a monopolist.
Competitive firms will receive producer surplus equal to area:
a. ACFH.
b. EIF.
c. AVF.
d. AWEH.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
82. The following figure shows the downward-sloping demand curve [D] and marginal revenue [MR] curve and the upward-sloping marginal cost [MC] curve for a monopolist.
The unregulated monopolist will receive producer surplus equal to area:
a. ACF.
b. BCFH.
c. AVFH.
d. AWEH.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
83. The following figure shows the downward-sloping demand curve [D] and marginal revenue [MR] curve and the upward-sloping marginal cost [MC] curve for a monopolist.
If the government wishes to regulate the monopoly firm by restricting the price at OC in the market, the demand curve will be equal to _____.
a. VD
b. CIJ
c. CFD
d. FD
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
84. Compared to a competitive industry, ceteris paribus, a monopoly:
a. sells a higher quantity and charges a higher price.
b. sells the same quantity but charges a higher price.
c. sells a smaller quantity but charges the same price.
d. sells a smaller quantity but charges a higher price.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
85. The following figure shows the marginal revenue [MR], demand, and average cost [AC] curves for a profit-maximizing monopolist.
The loss in welfare in the market due to the monopoly firm is _____.
a. IFA
b. FGH
c. AFGB
d. BGEO
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
86. The following figure shows the profit-maximizing output of a monopolist who faces constant average and marginal costs.
What is the deadweight loss as a result of the monopolist’s market power?
a. FGC
b. ABGF
c. PBAP’’
d. ABC
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
87. The following figure shows the profit-maximizing output of a monopolist who faces constant average and marginal costs.
If the firm were operating in a perfectly competitive market, the equilibrium quantity would be _____.
a. OH
b. OQ’’
c. OQ
d. OQ’
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
88. The following figure shows the profit-maximizing output of a monopolist who faces constant average and marginal costs.
When the firm operates as a profit-maximizing monopolist as compared to a perfectly competitive firm, consumer surplus changes by _____.
a. –ABC
b. AFBG
c. –P’’ACP
d. P’’ABP
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
89. The following figure shows the profit-maximizing output of a monopolist who faces constant average and marginal costs.
When the firm operates as a profit-maximizing monopolist as compared to a perfectly competitive firm, producer surplus changes by _____.
a. –ABC
b. P’’ABP
c. –AFBG
d. P’’ACP
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
90. The deadweight loss of a monopoly arises from:
a. the loss of consumer surplus being greater than the gain in producer surplus.
b. the transfer of producer surplus to consumers.
c. the loss in producer surplus being greater than the gain in consumer surplus.
d. the combined loss of consumer and producer surplus.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
91. Which of the following would take place if a competitive firm acquired monopoly power in the market through economies of scale and became a natural monopoly?
a. Producer surplus will increase and consumer surplus will fall
b. Consumer surplus will be transferred to producers resulting in a deadweight loss
c. Consumer surplus will fall but will not affect producer surplus
d. A deadweight loss will arise in the market equal to the fall in producer surplus
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
92. Why is a monopoly considered to be an inefficient market?
a. In a monopoly market, consumers gain surplus at the cost of the producer.
b. A monopoly firm produces at the level where price is equal to marginal cost.
c. A monopoly market is characterized by a deadweight loss.
d. A monopoly firm profitably increases prices irrespective of demand.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
93. Which of the following is true of a firm in a monopoly market?
a. The price charged by the monopolist is less than the marginal cost of production.
b. The equilibrium output in a monopoly market is smaller compared to a competitive market.
c. There is a deadweight loss in a monopoly market.
d. In a monopoly market long-run economic profits are zero.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
94. For the same demand and cost conditions, which of the following is true?
a. Consumer surplus and producer surplus are both lesser in a monopoly market compared to perfect competition.
b. Consumer surplus is lesser but producer surplus is greater in a monopoly market compared to perfect competition.
c. Consumer surplus is greater and producer surplus is lesser in a monopoly market compared to perfect competition.
d. Consumer surplus and producer surplus are both greater in perfect competition than in a monopoly.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
95. A deadweight loss arises in a monopoly market because _____ by the monopolist.
a. the marginal benefit [MB] is greater than marginal cost [MC], for the output that is not produced
b. the MB is greater than the MC, for the output that is produced
c. the MC is greater than MB, up to the profit-maximizing level of output produced
d. the MB is greater than MC, for output that is not produced
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
96. A dynamic analysis of a monopoly suggests that:
a. certain monopoly firms increase total surplus in the market.
b. monopoly power in markets should be restricted to induce innovation.
c. any form of monopoly is inefficient.
d. monopoly power should be restricted in order to ensure fair market prices.
Learning Objective: Provide an overview of public policy toward monopoly.
97. In the U.S., antitrust laws have been designed to _____.
a. increase producer surplus
b. reduce market capitalization of firms
c. restrict monopoly power
d. promote profitability of American firms
Learning Objective: Provide an overview of public policy toward monopoly.
98. The use of antitrust statutes by the United States Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice has declined over the years. Which of the following statements is the correct reason for this decrease in antitrust enforcement?
a. The increase in the number of firms over the years has reduced monopoly power in most markets.
b. The prosecution of monopoly firms leads to a decrease in total surplus.
c. The dynamic view of monopoly is increasingly being used in the policymaking arena.
d. With the spread of globalization, it is difficult to prosecute companies that operate from many different countries.
Learning Objective: Provide an overview of public policy toward monopoly.
99. Which of the following is most likely to result from the imposition of a price ceiling on the price charged by a monopolist?
a. The monopolist will increase output after the imposition of the price ceiling.
b. The monopolist will increase product quality in order to earn the same level of profit.
c. The monopolist’s profit will increase as a result of the price ceiling.
d. The monopolist’s demand curve will become horizontal for all levels of output.
Learning Objective: Provide an overview of public policy toward monopoly.
100. When the government regulates the price in a monopoly market by setting price at the level where demand equals marginal cost:
a. the monopolist reduces output resulting in a shortage in the market.
b. the monopolist’s marginal revenue curve becomes horizontal over all levels of output.
c. the monopolist’s profits are positive at the new price.
d. the monopolist produces output at the efficient level.
Learning Objective: Provide an overview of public policy toward monopoly.
101. A price ceiling imposed by the government in a monopoly market can:
a. lead to a decrease in output.
b. increase the deadweight loss from a monopoly.
c. raise prices and lower output.
d. lead to a decline in product quality.
Learning Objective: Provide an overview of public policy toward monopoly.
Question Type: True/False
102. For a monopoly firm the marginal revenue curve is the same as the average revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
103. For a monopoly firm the demand curve is a declining average revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
104. For a monopoly firm the demand curve, average revenue curve, and marginal revenue curve are the same.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
105. For a monopoly firm the total revenue curve is the same as the demand curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
106. For a monopoly firm, the monopolist's demand curve is downward-sloping and the marginal revenue curve lies above the demand curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
107. For a monopoly firm, the monopolist's demand curve is upward-sloping and is the same as the marginal revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
108. For a monopoly firm, the monopolist's demand curve is downward-sloping and the marginal revenue curve lies below the average revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
109. For a monopoly firm, the monopolist's demand curve is upward-sloping and is the same as the total revenue curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
110. A monopolist's short-run supply curve is upward-sloping.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
111. A decrease in demand will always cause a monopolist to reduce output.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
112. A monopoly firm that operates at a point above average total cost should shut down.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
113. Marginal revenue is greater than marginal cost for a profit-maximizing monopolist.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
114. When price elasticity of demand is infinite, marginal revenue is greater than price.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
115. When price elasticity of demand is equal to one, marginal revenue is zero.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
116. When price elasticity of demand is less than one, marginal revenue is positive.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
117. When price elasticity of demand is more than one, marginal revenue is negative.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
118. A monopoly firm has no supply curve.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
119. A monopoly firm will never sell where the demand is elastic.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
120. A monopoly firm will not always make economic profits.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
121. A monopoly firm's demand curve coincides with its average revenue curve.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
122. A natural monopoly is an industry in which products are differentiated from one another.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
123. A natural monopoly exists if one large firm’s long-run average cost curve is upward-sloping.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
124. A natural monopoly is defined as a firm that operates in an industry that has significant regulatory barriers to entry.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
125. A natural monopoly is an industry that exhibits economies of scale.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
126. A monopoly firm does not need to produce output at the lowest possible cost but a competitive firm must.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
127. A monopoly firm earns economic profit at its profit-maximizing level of output but a competitive firm does not.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
128. A monopoly firm operates at the minimum point on its average cost curve but a competitive firm does not.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
129. A monopoly firm will produce more than the efficient level of output but a competitive firm will always produce the efficient level of output.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
130. A monopoly restricts output to maximize profits.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
131. A monopoly raises price above the competitive level.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
132. A monopoly causes input prices to rise.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
133. A monopoly causes a redistribution of income.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
134. The price charged by the monopolist is less than the marginal cost of production.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
135. The equilibrium output in a monopoly market is smaller compared to a competitive market.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
136. There is a deadweight loss in a monopoly market.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
137. In a monopoly market long-run economic profits are zero.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
138. Consumer surplus and producer surplus are both lesser in a monopoly market compared to perfect competition.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
139. Consumer surplus is lesser but producer surplus is greater in a monopoly market compared to perfect competition.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
140. Consumer surplus is greater and producer surplus is lesser in a monopoly market compared to perfect competition.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
141. Consumer surplus and producer surplus are both greater in perfect competition than in a monopoly.
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
142. With a downward-sloping demand curve, marginal revenue is always less than price.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
143. Marginal revenue is always less than price when the demand curve slopes downward, except for the first unit sold.
Learning Objective: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like.
144. A monopoly faces a upward-sloping demand curve while a competitive firm faces a horizontal demand curve.
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
145. The larger the Lerner index value, the greater a firm’s monopoly power.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
146. Lerner index of monopoly power = (P − MC) / MR.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
147. The monopoly power possessed by any one firm is also more limited the greater the number of rival firms.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
148. For the same demand and cost conditions, price will be higher and output lower under monopoly than under competition.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
149. The Monopoly Elimination Act of 1914 explicitly outlaws specific business practices believed to be monopolistic, such as price discrimination.
Learning Objective: Provide an overview of public policy toward monopoly.
150. The Federal Trade Commission Act was also passed in 1914, creating a new federal agency charged with enforcing the antitrust laws.
Learning Objective: Provide an overview of public policy toward monopoly.
Question Type: Essay
151. A company is granted a patent on automobile technology which, when fitted in a car, will park the car into a parking spot automatically.
a) Assume that demand for this automatic parking technology is positive and show the equilibrium price and quantity in the market.
b) How will equilibrium price and quantity change when the patent expires in 17 years?
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
154. Answer the following:
a) Define the market for Coca-Cola, that is, what would you include in the market for Coca-Cola? Considering the market for Coca-Cola, how is the market power of Coca-Cola affected by what is included as a part of the market?
(b) Explain how cross-price elasticity of demand is relevant to a firm being investigated for antitrust violation. If you were the chief economist for this firm, would you want to show a high cross-price elasticity or a low cross price elasticity of demand between your product and a rival product? Why?
Learning Objective: Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist.
155. The U.S. Postal Service [USPS] has a legal monopoly over first-class mail in the U.S. However, it has been running losses over the recent years.
a) Is this fact consistent with the fact that USPS operates with significant monopoly power?
b) What are the factors that could possibly be leading to USPS’ losses?
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
156. Prove that the linear demand curve,
where 
and 
are positive constants, is unit elastic at its mid-point.
Learning Objective: Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments.
157. Explain why a profit-maximizing monopolist will always sell at a price where demand is elastic.
Learning Objective: Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers.
158. For the same demand and cost conditions, how do price and output of a monopoly compare to those for a competitive firm and why is the deadweight loss of a monopoly a loss of welfare?
Learning Objective: Explore the efficiency effects of monopoly from static and dynamic perspectives.
Document Information
Connected Book
Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key
By Edgar K. Browning, Mark A. Zupan
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