Parkin&Bade, Microeconomics, 2nd edition

Chapter 15: Monopoly

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) A major characteristic of monopoly is

A) multiple sellers of a product.

B) two sellers of a product.

C) a few sellers of differentiated products.

D) a few sellers of an identical product.

E) a single seller of a product.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

2) The good produced by a monopoly

A) has no close substitutes.

B) has perfect substitutes.

C) must be unable to be resold.

D) can be easily duplicated.

E) has no substitutes at all.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

3) Which of the following is a characteristic of monopoly?

A) The firm faces competition from many other firms.

B) There are barriers to enter the market.

C) The firm's demand is perfectly elastic.

D) The firm produces a product identical to that produced by its many competitors.

E) The firm produces a product that has many close substitutes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

4) A monopoly

A) is not protected by barriers to entry.

B) produces a good with no close substitutes.

C) faces a downward-sloping demand curve.

D) Both answers A and B are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

5) A monopoly

A) must determine the price it will charge.

B) cannot price discriminate because such a pricing strategy is illegal in Australia.

C) has no control over the price it can charge.

D) faces extensive competition from firms making close substitutes.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

6) Which of the following firms is most likely to be a monopoly?

A) A local book store

B) A local bank

C) A clothing store

D) A local restaurant

E) A local distributor of natural gas

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

7) Which of the following describes a barrier to entry?

A) Something that establishes a barrier to expanding output.

B) Firms are legally prohibited from exiting the market in order to enter another market.

C) A government regulation that bars a monopoly from earning an economic profit.

D) Firms already in the market incurring economic losses so that no new firm wants to enter the market.

E) Anything that protects a firm from the arrival of new competitors.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

8) A natural barrier to entry is defined as a barrier that arises because of

A) many firms producing the good and thereby allowing choice for all consumers.

B) technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.

C) one firm owning a key natural resource.

D) patents or licences that exclude others from producing a good or service.

E) anticompetitive practices by a firm that keep other firms from producing.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

9) A natural monopoly exists when

A) one firm can supply an entire market at a lower average total cost than can two or more firms.

B) a firm can engage in price discrimination.

C) a monopoly firm faces a horizontal demand curve.

D) diseconomies of scale exist in an industry.

E) the producers in an industry have formed a cartel.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

10) A natural monopoly is one that arises from

A) copyright law.

B) mergers.

C) economies of scale.

D) any government-imposed barrier to entry.

E) patent law.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

11) Which of the following would create a natural monopoly?

A) An exclusive right granted to supply a good or service.

B) A patent granted the producer of the good or service.

C) Technology enabling a single firm to produce at a lower average total cost than two or more firms.

D) The requirement to obtain a government licence before a firm can sell the good or service.

E) Ownership of all the available units of a necessary input.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

12) For a natural monopoly, economies of scale

A) are totally absent.

B) lead to a legal barrier to entry.

C) and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.

D) exist along the long-run average cost curve at least until it crosses the market demand curve.

E) as well as constant returns to scale and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

13) A natural monopoly's average cost curve

i. intersects the demand curve while the average cost curve slopes downward.

ii. reaches its minimum before it intersects the demand curve.

iii. intersects the demand curve below the intersection of the marginal cost curve and the demand curve.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

14) Which of the following is an example of a natural monopoly?

A) SA Water, the water company in South Australia.

B) David Jones, the large department store chain.

C) The Adelaide Crows, an AFL team.

D) Ford Motors, the large car-producing company.

E) Sony, the Japanese producer of the PlayStation III.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

15) Which of the following goods is the best example of a natural monopoly?

A) The distribution of electricity

B) Diamonds

C) First-class mail

D) Women's clothing

E) A patented good

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

16) Which of the following is a legal barrier to entry?

i. A public franchise

ii. A government licence

iii. A patent

A) iii only

B) i and ii

C) ii and iii

D) i, ii and iii

E) i and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

17) Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work?

A) A patent

B) A natural barrier

C) A public franchise

D) Copyright

E) A government licence

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head:15.1 Monopoly and How it Arises

18) Australia Post's monopoly on first-class mail service is the result of

A) a government licence.

B) a patent.

C) government ownership.

D) a natural monopoly.

E) an ownership barrier to entry.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

19) Patents

A) increase the incentive to innovate.

B) require that monopolies increase the amount they produce.

C) increase the incentive to capture economies of scale.

D) are granted only to competitive firms and not monopolies.

E) grant the holder a monopoly that lasts forever.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

20) Patents

A) remove legal barriers to entry.

B) are prohibited in Australia.

C) create economies of scale.

D) decrease the incentive to innovate.

E) are a legal barrier to entry.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

21) Which of the following is NOT correct about patents?

A) Patents stimulate innovation.

B) Patents are granted to the inventor of a product or service.

C) Patents encourage invention of new products.

D) A patent is a barrier to entry.

E) Patents enable a firm to become a permanent monopoly.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

22) In Norway, where the government runs liquor stores, the monopoly results from

A) control of an essential resource.

B) patents.

C) public fear.

D) economies of scale.

E) legal restrictions.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.1 Monopoly and How it Arises

23) If a monopoly wants to sell a larger quantity, it must

A) maintain the current price.

B) implement new technology.

C) increase the barrier to entry that protects it.

D) set a lower price.

E) set a higher price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

24) A petrol station on a remote stretch of the Stuart Highway in the Northern Territory has a monopoly over the retail petrol market for hundreds of kilometres. The station decides not to price discriminate. As a result, all consumers will pay

A) the lowest price possible.

B) multiple prices.

C) a price that depends on their willingness to pay.

D) the highest price each consumer is willing to pay.

E) a single price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

25) A price-discriminating monopoly is a monopoly that

A) has control over the resources used to produce the product.

B) illegally charges different customers different prices for the good it produces.

C) sells its output at a single price to all of its customers.

D) has a licence to sell the product.

E) sells different units of a good or service at different prices.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

26) Price discrimination is

A) always illegal in Australia.

B) defined as charging different prices for different units.

C) setting the price to minimise the quantity sold.

D) defined as charging the same price to all consumers.

E) Both answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

27) Price discrimination is prevented in situations where

A) firms have monopolies.

B) customers can resell the good.

C) customers have different willingness to pay for the good.

D) there are no close substitutes for the good or service.

E) there are legal barriers to entry.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

28) Which of the following is an example of price discrimination?

A) DHL charges more if a package is sent from Sydney to Hawaii and less if it is sent from Sydney to Melbourne.

B) Albert pays 25 per cent less on prescription drugs because he is a senior citizen.

C) Frank's Furniture shop charges no delivery fee for furniture delivered within the Adelaide metro area, but charges $40 delivery fee outside of the city.

D) Only answers A and B are correct.

E) Answers A, B and C are all correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

29) A monopoly market has

A) only two firms in it.

B) a single firm.

C) a few firms.

D) two dominating firms in the market.

E) some unspecified number of firms in it.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

30) A natural monopoly is one that arises from

A) a firm buying all of a natural resource.

B) economies of scale.

C) copyright law.

D) patent law.

E) ownership of a natural resource.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

31) Pizza producers charge one price for a single pizza and almost give away a second one. This is an example of

A) price discrimination.

B) monopoly.

C) behaviour that is not profit-maximising.

D) rent seeking.

E) a barrier to entry.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

32) A ________ can price discriminate if, in part, it ________.

A) monopoly; can prevent resale of its product

B) perfectly competitive firm; can sell goods at a lower price than a monopoly

C) perfectly competitive firm; changes from a price taker to a price maker

D) monopoly; is the only seller of a good or service

E) natural monopoly; is the only seller of a good or service

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

33) If a monopoly wants to sell a greater quantity of output, it must

A) raise its marginal cost.

B) raise its price.

C) lower its price.

D) tell consumers to buy more because it's a monopolist.

E) change its fixed costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

34) For a monopoly, marginal revenue is equal to

A) the price multiplied by the quantity sold.

B) the price of the product.

C) the amount people buy at a given price.

D) the change in total revenue brought about by a one-unit increase in quantity sold.

E) the amount people buy between two prices.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

35) Which of the following is ALWAYS true for a single-price monopolist?

A) P = MR

B) P = elasticity of demand

C) P < MR

D) P > MR

E) None of the above answers is correct because none of them is ALWAYS true.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

36) For a single-price monopolist, why is marginal revenue less than price?

A) Because the firm is a price taker.

B) Demand is inelastic when another unit is sold.

C) Demand is elastic when another unit is sold.

D) The question is false because marginal revenue is always equal to price.

E) To sell another unit, the price must be lowered.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

37) A single-price monopoly faces a linear demand curve. If the marginal revenue for the second unit is $20, then the marginal revenue for the

A) third unit is also $20.

B) first unit is less than $20.

C) third unit is less than $20.

D) third unit is more than $20.

E) more information is needed to determine if the marginal revenue for the third unit is more than, less than or equal to $20.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

38) A single-price monopoly can sell 10 units of its product at a price of $45 each, but to sell 11 units the monopoly must cut the price to $44. What is the marginal revenue of the extra unit sold?

A) $484

B) $44

C) $34

D) $450

E) -$1

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

39) The table above gives the demand for a monopolist's output. Between which two quantities is marginal revenue equal to 0?

A) 4 and 5

B) 1 and 2

C) 2 and 3

D) 3 and 4

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

40) The table above gives the demand for a monopolist's output. Between which two quantities is demand elastic?

A) 3 and 2

B) 4 and 3

C) 5 and 4

D) 6 and 5

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

41) The table above gives the demand for a monopolist's output. What is the total revenue when 3 units of output are produced?

A) $20

B) $18

C) $6

D) $21

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

42) The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 5 to 6 units?

A) -$2

B) $18

C) $4

D) $3

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

43) The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 2 to 3 units?

A) $7

B) $18

C) $4

D) $6

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

44) If Microsoft is a monopoly and currently charges prices where its demand is elastic, then Microsoft's marginal revenue is

A) undefined.

B) negative.

C) positive.

D) zero.

E) minimised.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

45) The relationship between marginal revenue and elasticity is

A) that total revenue equals zero at the quantity for which the demand is unit elastic.

B) whenever the elasticity is negative, marginal revenue is positive.

C) whenever the elasticity is positive, marginal revenue is positive.

D) when demand is elastic, marginal revenue is negative and when demand is inelastic, marginal revenue is positive.

E) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

46) If the Geelong Cats football team is currently charging a ticket price where its demand is inelastic, then the Cats' marginal revenue is

A) undefined.

B) maximised.

C) positive.

D) negative.

E) zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

47) Use the figure above to answer this question. Mary is the only veterinarian in a small town. To maximise her profit, Mary will choose to treat ________ animals per hour and charge ________ per customer in order to ________.

A) 6; $20; minimise cost in order to attract more customers

B) 4; $50; operate on the inelastic portion of her demand curve

C) 6; $20; maximise profit

D) 6; $30; minimise average total cost

E) 4; $50; maximise profit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

48) Use the figure above to answer this question. Mary is the only veterinarian in a small town and rents a space for her practice. If Mary's landlord decided to charge ________ per hour in rent, Mary would ________.

A) $20 more; still earn an economic profit because she is a monopolist

B) $30 more; operate on the inelastic portion of her demand curve

C) $30 more; earn $0 economic profit

D) $10 less; raise her prices and earn a higher profit

E) $20 more; earn $0 economic profit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

49) Suppose that, along a linear demand curve, the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units. Then the

A) marginal revenue is positive at 100 units.

B) marginal revenue is negative at 100 units.

C) total revenue is at its maximum when 100 units are produced.

D) Both answers A and B are correct.

E) Both answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

50) The above table gives the demand schedule for a monopoly. The demand is elastic at all prices between

A) $3 and $1.

B) $5 and $1.

C) $6 and $1.

D) $6 and $4.

E) $4 and $3.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

51) The above table gives the demand schedule for a monopoly. The demand is inelastic over the entire price range between

A) $4 and $3.

B) $3 and $1.

C) $6 and $1.

D) $5 and $1.

E) $6 and $4.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

52) To maximise its profit, a perfectly competitive firm produces so that ________ and a single-price monopoly produces so that ________.

A) MR > MC; MR = MC

B) MR = MC; MR > MC

C) P = ATC; P = ATC

D) MR > MC; MR > MC

E) MR = MC; MR = MC

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

53) In order to maximise its profit, a single-price monopoly produces the amount of output so that

A) P = ATC.

B) MR = MC.

C) P = MC.

D) P = MC - MR.

E) P = MR.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

54) Which of the following is NOT correct about a single-price monopoly?

A) Marginal revenue is negative when demand is inelastic.

B) To maximise its profit, the firm produces so that marginal revenue equals marginal cost.

C) Maximum profit is found where demand is the most inelastic.

D) Marginal revenue is positive when demand is elastic.

E) To sell more output, the firm must lower its price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

55) Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by

A) shutting down.

B) lowering its price and increasing its output.

C) lowering its price and decreasing its output.

D) not changing its price and increasing its output.

E) raising its price and decreasing its output.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

56) Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. What quantity will the Busy Bee produce to maximise its profit?

A) 30 hamburgers per hour

B) 0 hamburgers per hour

C) 50 hamburgers per hour

D) 10 hamburgers per hour

E) 20 hamburgers per hour

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

57) Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. What price will the Busy Bee charge to maximise its profit?

A) $5.00 for a hamburger

B) $1.00 for a hamburger

C) $2.00 for a hamburger

D) $3.00 for a hamburger

E) $4.00 for a hamburger

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

58) Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hay. The above figure represents the demand, marginal revenue and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per hour, then

A) profit will be maximised.

B) marginal revenue will be maximised.

C) marginal revenue will be negative.

D) marginal revenue will exceed marginal cost.

E) both the marginal revenue and the price will be negative.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

59) The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, the difference between marginal cost and price is

A) $0.

B) $20.

C) $60.

D) $40.

E) $30.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

60) The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, the price is ________ per pillow and the marginal cost is ________ per pillow.

A) $60; $60

B) $60; $40

C) $70; $60

D) $100; $40

E) $70; $40

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

61) The figure above shows the demand, marginal revenue and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximises his profit, his total economic profit is

A) $210,000.

B) $405.

C) $60.

D) $0.

E) unknown because more information is needed to determine Paul's profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

62) In the above figure, the profit-maximising output for this single-price monopoly is ________ units and the price is ________.

A) 500; $50

B) 300; $30

C) 200; $30

D) 300; $20

E) 200; $10

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

63) A single-price monopoly has marginal cost of $23 and marginal revenue of $28. Which of the following is definitely correct?

A) To increase profit, it should produce less.

B) It is maximising profit.

C) To increase profit, it should produce more.

D) It is making an economic profit.

E) It should shut down.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

64) A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of output where the price on the demand curve is $38. At this output, average total cost is $15. What is the total profit earned?

A) $225

B) $285

C) $570

D) $345

E) $19

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

65) If a single-price monopoly is making a large economic profit, what keeps other firms from competing away the profit?

A) The monopoly must be keeping the amount earned secret.

B) The existing firm's ATC must be too large to allow competitors to enter and earn an economic profit.

C) There are barriers to entry.

D) The market must be too small.

E) Nothing, other firms will enter and will compete away the profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

66) A monopolist can make an economic profit in the long run because of

A) the firm's price setting behaviour.

B) the fact that the firm produces where MR = MC.

C) the relatively inelastic demand for its product.

D) the relatively elastic demand for its product.

E) barriers to entry.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

67) For a single-price monopoly, price is

A) one half of marginal revenue.

B) greater than marginal revenue.

C) unrelated to marginal revenue.

D) equal to marginal revenue.

E) always less than average total cost when the firm maximises its profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

68) When demand is elastic, marginal revenue is

A) positive.

B) negative.

C) zero.

D) undefined.

E) increasing as output increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

69) Once a monopoly has determined how much it produces, it will charge a price that

A) is determined by its demand curve.

B) is equal to its average total cost.

C) is independent of the amount produced.

D) is determined by the intersection of the marginal cost and average total cost curves.

E) minimises marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.2 Single-Price Monopoly

70) Assume someone organises all farms in the nation into a single-price monopoly. What is the monopoly's marginal revenue curve?

A) It is a line that lies above the new monopoly's demand curve.

B) It is a vertical line at the monopoly's chosen output level.

C) It is a horizontal line at the competitive industry's price.

D) It is a line that lies below the new monopoly's demand curve.

E) It is identical to the demand curve for the monopolist's output.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

71) Assume someone organises all farms in the nation into a single-price monopoly. As a result, the amount of food produced

A) increases.

B) remains constant.

C) decreases.

D) might increase or decrease depending on whether the demand for food is elastic or inelastic.

E) might increase or decrease depending on whether the monopoly's marginal revenue curve lies below or above its demand curve.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

72) Assume someone organises all farms in the nation into a single-price monopoly. As a result, the price consumers pay for food

A) rises.

B) does not change, that is, it remains constant.

C) falls.

D) might rise or fall depending on whether the demand for food is elastic or inelastic.

E) might rise or fall depending on whether the monopoly's marginal revenue curve lies above or below its demand curve.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

73) When compared to a perfectly competitive market, a single-price monopoly with the same costs produces ________ output and charges ________ price.

A) a smaller; the same

B) the same; a higher

C) a larger; a lower

D) a smaller; a higher

E) a smaller; a lower

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

74) Assume someone organises all farms in the nation into a monopoly. Which of the following occurs?

i. Consumer surplus decreases.

ii. Economic profit increases.

iii. A deadweight loss is created.

A) i only

B) ii only

C) iii only

D) i and ii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

75) Which of the following statements is FALSE?

A) In the long run, a monopoly can earn a larger economic profit than can a perfectly competitive firm.

B) A perfectly competitive market produces more output and charges a lower price than a monopoly.

C) In a perfectly competitive market, the price is equal to the marginal cost, but in a market with a single-price monopoly, price exceeds marginal cost.

D) A perfectly competitive firm produces where MR = MC but a monopoly produces where MR > MC.

E) The consumer surplus is smaller for a market with a monopoly than for a perfectly competitive market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

76) Suppose the grocery store market in Brisbane is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the price of a kilogram of steak is ________ and when it is a monopoly, the price of a kilogram of steak is ________.

A) $4; $20

B) $4; $12

C) $4; $8

D) $8; $4

E) $8; $12

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

77) Suppose the grocery store market in Brisbane is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the quantity of steak is ________ kilograms, and when the market is a monopoly, the quantity of steak is ________ kilograms.

A) 3,000; 2,000

B) 5,000; 3,000

C) 4,000; 4,000

D) 4,000; less than 2,000 kilograms.

E) 2,000; 4,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

78) The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The amount of consumer surplus when the market has a monopoly producer is ________ and the amount of consumer surplus when the market is perfectly competitive is ________.

A) ace; abf

B) bcd; ace

C) abf; ace

D) ace; bcd

E) abf; bcd

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

79) The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The deadweight loss when the market has a monopoly producer is

A) bcd.

B) bcef.

C) acd.

D) ace.

E) abf.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

80) In the above figure, a perfectly competitive market will have a price of ________, and a single-price monopoly will have a price of ________.

A) P2 and quantity of Q1; P1 and quantity of Q1

B) P2 and quantity of Q2; P1 and quantity of Q1

C) P2 and quantity of Q2; P3 and quantity of Q1

D) P1 and quantity of Q1; P2 and quantity of Q2

E) P3 and quantity of Q3; P1 and quantity of Q1

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

81) In the above figure, for a single-price monopoly the consumer surplus is equal to the area

A) bed.

B) abP1.

C) acP2.

D) bce.

E) cQ20P2.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

82) In the above figure, for a single-price monopoly the deadweight loss is equal to the area

A) bce.

B) bed.

C) abP1.

D) P1beP3.

E) acP2.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

83) Monopolies are inefficient because, at the profit-maximising output level,

A) MB = MC.

B) MC = MR.

C) MB does not equal MC.

D) MC does not equal MR.

E) P = ATC.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

84) Compared to a similar perfectly competitive industry, a single-price monopoly

A) sets a lower price because there is less competition.

B) creates a deadweight loss and decreases consumer surplus.

C) produces more output.

D) creates a deadweight loss and decreases economic profit.

E) is more efficient because there is no wasteful competition.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

85) If a perfectly competitive industry becomes a monopoly and the costs do not change, which of the following allocation of costs and benefits applies?

A) The producer and society are harmed, but consumers benefit.

B) The producer is harmed, but consumers and society benefit.

C) The producer and society benefit, but consumers are harmed.

D) The producer, consumers and society all benefit.

E) The producer benefits, but consumers and society are harmed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

86) Rent seeking is the act of obtaining special treatment from ________ to create ________.

A) a monopoly; consumer surplus

B) the government; economic profit

C) the government; consumer surplus

D) competitive producers; a monopoly

E) consumers; a monopoly

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

87) Rent seeking is defined as

A) the act of obtaining special treatment from the government to create an economic profit.

B) selling a greater quantity than is profitable.

C) charging higher prices for an apartment.

D) charging a price below marginal cost.

E) charging different prices for different units of the good or service.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

88) Competition among rent seekers results in

A) firms earning normal profits.

B) higher rents.

C) firms setting lower prices.

D) all competing firms earning an economic profit.

E) lower costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

89) Comparing single-price monopoly to perfect competition, monopoly

A) has no consumer surplus.

B) increases the amount of consumer surplus.

C) decreases the amount of consumer surplus.

D) decreases the amount of economic profit.

E) has the same amount of consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

90) Monopolies ________ fair and ________ efficient.

A) are never; are always

B) might be; are always

C) are always; are not

D) are always; are always

E) might be; might be

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.3 Monopoly and the Competition Compared

91) To be able to price discriminate, a firm must

A) be able to identify and separate different types of buyers.

B) lower prices for all customers.

C) raise prices for all customers.

D) sell a product that can be resold.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

92) A price-discriminating monopoly charges

A) different prices to buyers for different products.

B) the same price to every buyer for the same product.

C) a different price to different buyers, because the costs are different.

D) each customer a price that equals the marginal cost of serving that customer.

E) a different price to different types of buyers for the same product, even though there are no differences in costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

93) Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then

A) consumer surplus decreases.

B) Arnie's revenues decrease.

C) Arnie's will see all of his tickets at a single price.

D) Arnie's sells fewer tickets.

E) Arnie's profit decreases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

94) One way a monopoly can convert additional consumer surplus into economic profit is to

A) become more competitive.

B) produce where price equals average total cost.

C) raise prices.

D) lower prices.

E) price discriminate.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

95) A price-discriminating monopoly

A) sells a larger quantity than it would if it were a single-price monopoly.

B) is illegal.

C) cannot control the price of its product.

D) makes a smaller economic profit than it would if it were a single-price monopoly.

E) cannot offer discounts.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

96) The key idea behind price discrimination is to convert consumer surplus into

A) deadweight loss.

B) a barrier to entry.

C) economic profit.

D) total cost.

E) monopoly power.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

97) Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then

A) Arnie's profit increases.

B) Arnie's revenues decrease.

C) consumer surplus increases.

D) Arnie's sells fewer tickets.

E) Arnie can no longer set a price that depends upon the buyer's willingness to pay.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

97) Which of the following is true regarding price discrimination?

i. It converts consumer surplus to economic profit.

ii. A price discriminator must be a monopoly.

iii. To be able to price discriminate, the firm must be able to identify different types of buyers.

A) ii and iii

B) i and iii

C) i and ii

D) i, ii and iii

E) ii only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

98) A 'buy one, get one for half price' promotion is an example of

A) marketing by a perfectly competitive firm designed to increase the firm's sales.

B) price discriminating among units of a good.

C) a natural monopoly.

D) price discriminating among groups of buyers.

E) a legal monopoly.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

99) Which of the following statements about price discrimination is false?

A) All forms of price discrimination are illegal.

B) Charging less for a second pizza that is identical to the first is an example of price discrimination.

C) Price discrimination is a method for a seller to capture some consumer surplus.

D) Compared to a single-price monopoly, the number of units sold increases when a monopoly price discriminates.

E) Price discrimination increases a monopoly's profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

100) When a firm is able to engage in perfect price discrimination, its marginal revenue curve

A) lies below its demand curve.

B) is the same as its supply curve.

C) is the same as its demand curve.

D) lies above its demand curve.

E) is undefined because it does not exist.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

101) If a monopoly can perfectly price discriminate, then its marginal revenue curve will be

A) the same as its marginal cost curve.

B) the same as its demand curve.

C) a vertical line at the profit-maximising quantity of output.

D) the same as its supply curve.

E) undefined because it does not exist.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

112) Under which of the following does a monopoly's demand curve become its marginal revenue curve?

A) Only price discrimination on the basis of the number of units purchased

B) Any monopoly that price discriminates

C) All types of monopoly

D) Only single-price monopoly

E) Only perfect price discrimination

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

113) Compared to a single-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss

A) decreases.

B) remains the same.

C) increases.

D) becomes infinite.

E) probably changes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

114) Under which of the following is consumer surplus zero?

A) Only perfectly price-discriminating monopoly

B) Only price discrimination on the basis of the number of units purchased

C) All types of monopoly

D) Perfect competition

E) Only single-price monopoly

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

115) Which of the following industries is most likely closest to achieving perfect price discrimination?

A) The toilet paper industry

B) The airline industry

C) The textbook industry

D) The soft drink industry

E) The wheat industry

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

116) Which of the following is (are) price discrimination?

i. Charging different prices based on differences in production costs.

ii. Charging business flyers a higher airfare than tourists.

iii. Charging more for the first pizza than the second.

A) i only

B) ii and iii

C) i and iii

D) ii only

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

117) With perfect price discrimination, the quantity of output produced by a monopoly is ________ the quantity produced by a perfectly competitive industry.

A) not comparable to

B) greater than but not equal to

C) less than

D) either greater than or equal to

E) equal to but not greater than

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

118) The social interest theory of regulation is defined as the

A) use of regulations to maximise firms' profits.

B) implementation and removal of regulations on cable TV.

C) removal of regulations on business activities.

D) use of regulations to assure an efficient use of resources.

E) use of rate of return regulation.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.4 Price Discrimination

119) The social interest theory of regulation assumes that

A) regulation is against the public interest.

B) regulation seeks an efficient use of resources.

C) the public cares deeply about regulation.

D) the public is indifferent to regulation.

E) regulators are captured by the firms being regulated.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

120) Who receives benefits if regulation works according to social interest theory?

A) The regulators

B) Everyone not in the cohesive interest group

C) Cohesive interest groups

D) The entire economy

E) It is impossible to determine who benefits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

121) Capture theory is

A) a model about perfect competition.

B) a theory that explains the behaviour of competitive firms.

C) the same as public interest theory.

D) the theory that regulators capture firms' attention by dictating a very low price.

E) an economic theory of regulation.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

122) The capture theory of regulation is that regulations

A) mean producers suffer losses.

B) result in diseconomies of scale.

C) benefit society, not producers.

D) benefit the regulators, not the producers or the consumers.

E) help producers to maximise economic profits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

123) The capture theory of regulation predicts that

A) regulators capture the firm's economic profit and transfer it to consumers as consumer surplus.

B) regulators capture the firm's economic profit and transfer it to themselves.

C) regulation helps producers to maximise profits.

D) resources are used efficiently.

E) regulators eliminate the deadweight loss a monopoly can create.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

124) Suppose that a regulatory agency helps producers maximise economic profit. This type of regulation coincides with

A) a marginal cost pricing rule.

B) the social interest theory of regulation.

C) a natural monopoly.

D) an average cost pricing rule.

E) the capture theory of regulation.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

125) When economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms,

A) a natural monopoly develops.

B) economic profit is reduced to zero.

C) there is always the opportunity to price discriminate.

D) the monopoly encounters competition.

E) the monopoly converts all of the consumer surplus into economic profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

126) A natural monopoly

A) is a firm than can supply the market at lower average total cost than two or more firms.

B) sells to a single buyer.

C) faces a horizontal demand curve.

D) produces a natural resource.

E) sets price equal to marginal revenue.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

127) Today, you might be buying from a regulated natural monopoly when you purchase

A) food in a supermarket or in a restaurant.

B) a car, a truck or a bicycle.

C) natural gas or electricity.

D) a house, an apartment or a plot of land.

E) a computer, a phone or a camera.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

128) A marginal cost pricing rule sets marginal cost equal to

A) average cost.

B) the smaller of price or marginal revenue.

C) marginal revenue.

D) price.

E) minimum average variable cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

129) How should a natural monopoly be regulated under the social interest theory of regulation?

A) By setting price equal to the average cost of production.

B) By allowing a price that maximises the profit of the natural monopoly.

C) By using a marginal cost pricing rule.

D) By using rate of return regulation.

E) By subsidising other producers to compete with the monopoly.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

130) For a natural monopoly, the efficient quantity is produced when the firm is regulated so that

A) P < MC.

B) P = ATC.

C) P > MC.

D) P > ATC.

E) P = MC.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

131) Under a marginal cost pricing rule, a natural monopoly

A) incurs an economic loss.

B) makes a reasonable profit.

C) earns accounting profits, but breaks even in economic terms.

D) makes an economic profit.

E) makes a normal profit, but it cannot be determined whether or not it makes an accounting profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

132) Which of the following explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?

A) The demand curve is downward sloping, therefore price falls as quantity increases.

B) The MC is constant and equal to price.

C) The ATC curve is downward sloping throughout the relevant range, therefore the MC is lower than the ATC.

D) The firm's MR is always less than its price.

E) Because output is determined by setting MC equal to the price, consumer surplus is maximised.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

133) Which of the following is an example of a two-part tariff?

A) Higher sales tax on specific products.

B) Price discrimination based on the buyers' willingness to pay.

C) A regulated firm uses marginal cost pricing for some customers and average cost pricing for other customers.

D) Charging a connection fee plus a monthly charge equal to marginal cost.

E) Different prices based on the cost of production and quantity bought.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

134) If a regulatory agency sets the price equal to marginal cost for a natural monopoly, the

A) government might have to provide a subsidy to the firm to keep it in business.

B) firm makes zero economic profit.

C) firm makes an economic profit, though not the maximum economic profit.

D) firm makes the maximum economic profit.

E) price is the same as the unregulated monopoly price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

135) With a natural monopoly,

A) regulation can take the form of average cost pricing to allow coverage of costs.

B) regulation takes the form of breaking the company into several competing firms.

C) regulation takes the form of forcing the company out of business.

D) regulation takes the form of forcing competition from new firms.

E) no regulation is necessary because it is a natural monopoly.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

136) For a natural monopoly to cover its total cost, its price must equal its

A) average total cost.

B) marginal revenue.

C) marginal cost.

D) demand.

E) total fixed cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

137) If we compare regulating a natural monopoly using a marginal cost pricing rule to using an average cost pricing rule, we see that output is

A) greater with marginal cost pricing, but average cost pricing allows for costs to be covered.

B) the same under both cases, but the profit is greater with average cost pricing.

C) the same but profits are greater with marginal cost pricing.

D) greater with marginal cost pricing, and the firm's profit is larger with marginal cost pricing.

E) greater under average cost pricing, but profits are greater with marginal cost pricing.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

138) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, how many households in Oakland are served?

A) 10,000

B) 30,000

C) 20,000

D) 50,000

E) 40,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

139) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, what is the price of cable television in Oakland?

A) $10

B) $50

C) $30

D) $20

E) $40

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

140) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under a marginal cost pricing rule, how many households in Oakland are served?

A) 40,000

B) 50,000

C) 10,000

D) 20,000

E) 30,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

141) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under a marginal cost pricing rule, what is the price of cable television in Oakland?

A) $0

B) $40

C) $20

D) $30

E) $10

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

142) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under an average cost pricing rule, how many households in Oakland are served?

A) 50,000

B) 20,000

C) 40,000

D) 30,000

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

143) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under an average cost pricing rule, what is the price of cable television in Oakland?

A) $30

B) $10

C) $40

D) $50

E) $20

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

144) Rate of return regulation is designed to allow a natural monopoly to

A) make zero economic profit.

B) underestimate its average cost.

C) make zero normal profit.

D) make an economic profit.

E) compete with any firm entering the market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

145) Managers of a natural monopoly regulated using rate of return regulation have an incentive to

A) exaggerate the firm's costs.

B) underestimate the firm's costs.

C) minimise the monopoly's deadweight loss.

D) exaggerate the firm's profit.

E) make zero economic profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

146) One of the tendencies that is common among firms regulated using rate of return regulation is to

A) inflate the costs of production.

B) increase production to an inefficient level.

C) understate the costs of production.

D) overstate their total revenue.

E) incur an economic loss.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

147) Price cap regulation is defined as regulation that

A) imposes a price ceiling on the regulated firm.

B) encourages firms to exaggerate costs to increase profits.

C) is essentially the same as rate of return regulation.

D) uses marginal cost pricing to ensure efficient output.

E) uses average cost pricing to ensure costs are covered.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

148) Price cap regulation

A) sets the maximum price these firms can charge.

B) gives firms the incentive to exaggerate their costs.

C) does not provide incentives to firms to minimise their costs because firms cannot change prices.

D) Both answers A and C are correct.

E) Both answers A and B are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

149) The process of price cap regulation includes which of the following?

i. A price ceiling

ii. Marginal cost pricing

iii. Average cost pricing

A) i and iii

B) ii only

C) ii and iii

D) i only

E) i and ii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

150) Earnings sharing regulation involves

A) setting the monopoly's price equal to its marginal cost.

B) assuming a natural monopoly will not charge a higher than the profit-maximising price.

C) requiring that the monopoly share its profits with its customers if the profits rise above a certain level.

D) setting a maximum price the monopoly may charge and maintaining it for many years.

E) setting the monopoly's price equal to its average total cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

151) Which of the following best describes the capture theory of regulation?

i. Regulation seeks an efficient use of resources.

ii. Regulation is aimed at keeping prices as low as possible.

iii. Regulation helps firms maximise economic profit.

A) i only

B) ii only

C) iii only

D) i and ii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation

152) If a natural monopoly is told to set price equal to average cost, then the firm

A) sets a price that is lower than its marginal cost.

B) is not able to set marginal revenue equal to marginal cost.

C) will incur an economic loss.

D) automatically also sets price equal to marginal cost.

E) will make a substantial economic profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 15.5 Monopoly Regulation