Preview Extract
CHAPTER 10—MONOPOLY
MULTIPLE CHOICE
1) Although there are barriers to entry in a monopolized industry, there are usually many
close substitutes for the monopolist's product.
a. True
b. False
Answer: B
2) A market that involves only one seller of a good or service is known as
a. a monopoly
b. perfect competition
c. monopolistic competition
d. an oligopoly
e. perfect monopolistic competition
Answer: A
3) A monopoly is a
a. large number of producers each with a small share of the total market output
b. single seller of a product that typically has no close substitutes
c. small group of producers with similar products
d. single buyer of an input into production
e. group of firms with incentives to cooperate
Answer: B
4) A monopoly is a
a. price taker
b. single buyer of an input into production
c. firm facing a perfectly elastic demand curve
d. group of firms controlling the price and output for an industry
e. price setter
Answer: E
5) A pure monopoly
a. is the only firm that produces all of the products its competitors produce
b. is the single seller of a unique product
c. is bigger than all its competitors combined
d. has only one customer
e. is always profitable in the short run
Answer: B
6) Copyrights and patents are examples of barriers to entry.
a. True
b. False
Answer: A
7) A monopoly exists because of
a. barriers to entry
b. the large number of buyers and sellers
c. the absence of barriers to entry
d. collusion among the dominant firms
e. the absence of exclusive government franchises
Answer: A
8) Which of the following could be a barrier to entry?
a. diseconomies of scale
b. a large number of buyers and sellers
c. a standardized product
d. economies of scale
e. diseconomies of scope
Answer: D
9) Which of the following is a potential barrier to entry?
a. a low market price
b. a high market price
c. a standardized product
d. economies of scale
e. diminishing marginal productivity
Answer: D
10) A natural monopoly exists when
a. economies of scale are negligible
b. there are a few dominant firms that corner the market
c. one firm can produce the market output at lower average cost than two or more firms can
d. barriers to entry are low
e. only a few firms can minimize cost and maximize profit
Answer: C
11) A natural monopoly is based on
a. diseconomies of scale
b. diseconomies of scope
c. external diseconomies
d. economic freedom
e. economies of scale
Answer: E
12) A natural monopoly is producing an output level of 1,000 units per day. If the monopoly
is broken up into 5 firms, then average total cost for each of the 5 firms
a. will exceed the monopolist's average total cost
b. will equal the monopolist's average total cost
c. will fall below the monopolist's average total cost
d. may equal or fall below the monopolist's average total cost
e. may equal or exceed the monopolist's average total cost
Answer: A
13) Economies of scale act as a barrier to entry because
a. one large firm can supply the market at a higher average cost than many small firms could
b. firms are not allowed by law to sell output below average cost
c. large firms can hire inputs at a higher price than smaller firms could
d. firms will not compete with a larger firm when there are differences in marginal cost
e. one large firm can produce the market output at a lower average cost than many small
firms
Answer: E
14) A natural monopoly is created by
a. a patent
b. nature
c. substantial economies of scale
d. government regulation
e. control of scarce inputs
Answer: C
15) If average total cost per unit is minimized when a single producer supplies the entire
market, this indicates
a. the presence of limit pricing
b. that the single producer is a perfect monopoly
c. the presence of substantial economies of scale
d. that the market has been narrowly defined
e. the existence of a single-price monopoly
Answer: C
16) Which of the following goods would be most likely to be produced by a monopoly?
a. Lotso-Sugar brand cereal
b. Pepsi
c. margarine
d. electricity
e. Ford automobiles
Answer: D
17) Monopolies are characterized by all of the following, except one. Which is the exception?
a. a downward-sloping demand curve
b. potential for long-run profits
c. a perfectly elastic demand curve
d. barriers to entry
e. no close substitutes for the good produced
Answer: C
18) Suppose that a monopoly is earning economic profits in the short run. As a result,
a. no new firms will enter the industry because of barriers to entry
b. the monopolist will increase its price and lower its output
c. the market supply curve will shift to the right
d. profits will fall as new firms enter the market
e. the market demand curve will shift to the left
Answer: A
19) The extent to which a firm is viewed by consumers as being a monopoly depends
primarily on
a. how the government defines a monopoly
b. whether they believe there are close substitutes for the good it produces
c. the level of profits earned by the firm
d. the difference between price and marginal cost of the good it produces
e. the size of the firm
Answer: B
20) Most firms are not monopolies in the real world because
a. firms usually face downward-sloping demand curves
b. supply curves slope upward
c. price is usually set equal to marginal cost by firms
d. monopolies are not efficient
e. there are substitutes for most goods
Answer: E
21) An example of a barrier to entry is
a. patent law
b. government regulations
c. cost of advertising
d. economies of scale
e. all of the above
Answer: E
22) Patents allow manufacturers to block the entry of new firms into an industry through
a. infringement suits
b. economies of scale
c. limit pricing
d. price discrimination
e. a government franchise
Answer: A
23) Which of the following is not considered a barrier to entry?
a. large economies of scale
b. control of inputs used in production
c. a homogeneous product
d. patents
e. copyrights
Answer: C
24) Patents and copyrights
a. are illegal in the United States
b. reduce barriers to entry in markets
c. protect small firms from large firms
d. lead to increased output and decreased prices
e. provide incentives for firms to engage in research and development
Answer: E
25) Patents and copyrights are designed to
a. eliminate above-normal profit in the short run
b. move monopoly prices closer to prices that would occur under perfect competition
c. prevent the capitalization of monopoly profit
d. allow a period of above-normal profit to encourage innovation
e. limit a monopoly's rent-seeking activities
Answer: D
26) Patents grant
a. permanent monopoly status to creators of scientific inventions
b. permanent monopoly status to creators of any intellectual property
c. temporary monopoly status to creators of scientific inventions
d. temporary monopoly status to creators of any intellectual property
e. permanent monopoly status to natural monopolies
Answer: C
27) When a monopoly is created through government franchise,
a. the firm is assured of above-normal profit
b. it is subject to government price regulation
c. the firm will discontinue any rent-seeking activity
d. price discrimination is forbidden
e. the government prevents both entry and exit in the long run
Answer: B
28) Intellectual property includes
a. all of the following
b. literary, artistic and musical works, and scientific inventions
c. computers, calculators, and word processors
d. desks, bookshelves, and notebooks
e. office space, computers, and telephones
Answer: B
29) A patent
a. tends to discourage further innovation, since there are no other competitors to "push" the
patentee
b. prevents anyone else from buying the same discovery or product for twenty years
c. grants exclusive rights over the protected firm for at least fifty years
d. is an infringement against an exclusive business right
e. prevents anyone else from selling the same discovery or product for twenty years
Answer: E
30) A copyright
a. is required to sell printed material
b. grants exclusive rights over the protected material for at least seventy years
c. is granted only to best original works of art, literature, and music
d. grants the right to copy certain material such as printed material
e. grants communal rights over the protected material for at least seventy years
Answer: B
31) Patent laws establish property rights for new goods
a. for 10 years
b. for 20 years
c. for 5 years
d. until a better product comes along
e. until the firm goes out of business
Answer: B
32) Patents stimulate innovation by
a. providing incentives to incur research and development costs
b. guaranteed profits for those who innovate
c. prosecuting anyone who purchases the good protected by the patent
d. providing tax breaks to investors
e. increasing the interest rate on borrowed funds
Answer: A
33) A natural monopoly occurs when
a. patents protect a firm from competition
b. copyrights protect a firm from competition
c. advertising costs exceed fixed costs
d. marginal cost exceeds marginal revenue
e. average costs decrease over the whole range of market output
Answer: E
34) The U.S. Postal Service
a. has its monopoly status guaranteed by government franchise
b. enforces copyrights and patents in the United States.
c. owes its monopoly status to network externalities
d. is a monopoly because it controls a scarce resource
e. has a horizontal average total cost curve
Answer: A
35) A network externality exists
a. in the television industry
b. outside the television industry
c. whenever an increase in the size of a network increases its value to current and potential
members
d. whenever an increase in the size of a network increases its average total cost of production
e. whenever an increase in the size of a network increases its total cost of production
Answer: C
36) Network externalities
a. explain why switching costs fall as the size of a network increases
b. are the service-industry equivalent of natural monopolies in goods-producing industries
c. are more important in the short run than in the long run
d. help explain why monopolies often do not last for very long
e. can explain the dominance of existing firms in some industries
Answer: E
37) For a monopolist, there is no difference between the market demand curve and the
demand curve the monopolist uses when making output decisions.
a. True
b. False
Answer: A
38) A profit-maximizing, single-price monopoly must lower its price in order to sell more
output.
a. True
b. False
Answer: A
39) Marginal revenue, average revenue, and price are all equal for a monopolist.
a. True
b. False
Answer: B
40) The fact that a single-price monopolist must lower its price to sell more output explains
why price exceeds marginal revenue.
a. True
b. False
Answer: A
41) The demand curve faced by a monopolist is
a. perfectly elastic
b. perfectly inelastic
c. undefined
d. the market demand curve
e. the sum of the demand curves for perfectly competitive firms in a similar industry
Answer: D
42) Absent an ability to price discriminate, if a monopoly wants to sell more output, it must
a. raise its price
b. lower its price
c. increase barriers to entry
d. obtain government permission
e. negate its patent protection
Answer: B
43) Which of the following limits the price a monopolist charges?
a. patents
b. copyrights
c. competition from other firms
d. market demand
e. market supply
Answer: D
44) A monopoly
a. can ignore the law of demand
b. faces a demand curve for its output that is nowhere price inelastic
c. establishes the market price when it decides how much to charge
d. can sell additional units of output without lowering its price
e. is also a perfect price discriminator
Answer: C
45) The demand curve that a monopolist faces
a. is steeper than the market demand curve
b. is the same as its marginal revenue curve
c. is controlled by the government
d. does not exist
e. is the same as the market demand curve
Answer: E
46) If a non-discriminating monopolist decides to lower its price to sell one more unit of its
product, then
a. total revenue rises by an amount equal to the price
b. some revenue is lost to the extent that units previously sold at a higher price now sell for a
lower price; however, the additional unit sold brings in new revenue
c. marginal revenue increases when total revenue increases
d. the net effect on total revenue is typically zero since the price must fall
e. the net effect on total revenue is typically negative since the price must fall
Answer: B
47) A monopolist that does not price discriminate will set the output level where
a. P = MC
b. P = MR
c. TR = TC
d. MR = MC
e. P = ATC
Answer: D
48) The monopoly that does not practice price discrimination
a. is a firm with a marginal revenue curve with a slope of zero
b. is a price taker
c. charges the same price for every unit of output it sells
d. operates in a market where all firms charge the same price
e. is always profitable in the short run
Answer: C
49) Marginal revenue is
a. the change in total revenue obtained by selling an additional unit of output
b. average revenue per unit of output
c. the change in total revenue per unit of cost
d. total revenue divided by average revenue
e. average revenue divided by marginal cost
Answer: A
50) The change in total revenue obtained by selling an additional unit of output is
a. average revenue
b. business revenue
c. marginal revenue
d. overhead revenue
e. profit margin
Answer: C
51) For the single-price monopoly, marginal revenue is
a. more important than marginal cost
b. always more than marginal cost
c. always less than average cost
d. always less than the price of output
e. more significant than total revenue
Answer: D
52) A non-discriminating monopolist's marginal revenue curve lies below its demand curve
because
a. economists put it there by convention
b. in order to earn more profit, the monopolist must charge higher prices
c. a monopolist gouges its customers
d. in order to increase their profits, monopolists must produce in the inelastic range of the
demand curve
e. in order to increase the number of units sold, the firm must lower the price on all units sold
Answer: E
53) The monopoly's marginal revenue curve
a. is equivalent to its demand curve
b. lies below its demand curve
c. is perfectly elastic
d. is perfectly inelastic
e. has a positive slope
Answer: B
54) Figure 10-1 shows the demand schedule facing the only gas station in a small Midwestern
town. The station does not price discriminate. Which of the following statements is correct?
a. The demand curve facing Friendly Stop has a constant price elasticity.
b. If the station increases sales from 100 to 110 gallons, marginal revenue will equal $1.40.
c. If the station increases sales from 100 to 110 gallons, marginal revenue will equal $14.00.
d. Demand is price elastic throughout the demand schedule.
e. The owner of the station would be unwilling to charge either $1.00 or $0.90 per gallon.
Answer: E
55) When a non-discriminating monopolist is maximizing profit, its marginal revenue
a. must be positive
b. must be negative
c. must equal zero
d. may be either positive or negative
e. must be upward sloping
Answer: A
56) Suppose that a non-discriminating monopolist lowers its price from $75 to $70 in order to
sell more output. Marginal revenue will
a. equal $75
b. equal $70
c. be between $75 and $70
d. be less than $70
e. be greater than $75
Answer: D
57) When a non-discriminating monopolist is maximizing profit, then
a. its price equals its marginal cost
b. its price equals its marginal revenue
c. it is producing all units for which marginal revenue exceeds marginal cost
d. its supply curve intersects the market demand curve
e. its marginal cost curve intersects the market demand curve
Answer: C
58) To maximize profit, a monopolist should produce the level of output at which
a. price equals marginal cost
b. price equals marginal revenue and marginal cost
c. price equals marginal revenue
d. marginal revenue equals marginal cost
e. price equals average total cost
Answer: D
59) For a monopoly,
a. price and output are closely-linked choices
b. marginal revenue always exceeds marginal cost
c. price always exceeds average total cost in the short run
d. price is set independently from the output decision
e. price is always the highest that the market will bear
Answer: A
60) The supply curve of a single-price monopolist
a. coincides with its marginal cost curve above its average total cost curve
b. coincides with its marginal cost curve above its average variable cost curve
c. is established by the government
d. slopes downward due to substantial economies of scale
e. does not exist
Answer: E
61) Where is the monopoly supply curve located?
a. above the marginal revenue curve
b. below the marginal revenue curve
c. to the right of the marginal cost curve
d. coincident with the marginal cost curve
e. there is no monopoly supply curve
Answer: E
62) A monopolist's supply curve
a. is the upward-sloping portion of its marginal cost curve
b. is the portion of its marginal cost curve above AVC
c. is parallel to its long run ATC curve
d. does not exist because quantity supplied depends on the market demand curve
e. is derived from the average variable cost curve
Answer: D
63) Which of the following statements about a non-discriminating monopoly firm is correct?
a. It charges a price greater than its marginal cost.
b. Its high prices generate inflation.
c. It charges a price that maximizes its total revenues.
d. As a price setter, it can ignore market demand.
e. It has no incentive to produce each output level at the lowest possible cost.
Answer: A
64) As a price setter, a monopoly
a. can establish any price it wants for each output level
b. can sell any output level it wants for each price
c. is constrained by the market demand curve
d. can use its pricing policy to shift the market demand curve
e. faces an upward-sloping demand curve for its output
Answer: C
65) For the monopolist in Figure 10-2, which point corresponds to the profit-maximizing
level of output?
a. A
b. B
c. C
d. D
e. E
Answer: C
66) For the monopolist in Figure 10-2 producing at point D, which of the following
statements is true?
a. profit will be greater than producing at point C
b. profit will be the same as producing at point C
c. profit will be less than producing at C
d. profit will be maximized
e. cannot compare profit level at C and D
Answer: C
67) A monopolist will
a. never produce at an output level where marginal cost is positive
b. always produce at an output level where marginal revenue is positive
c. seek network externalities whenever switching costs are high
d. always produce where marginal revenue exceeds price
e. never produce where marginal revenue exceeds marginal cost
Answer: B
68) A monopolist will
a. never produce at an output level where marginal revenue is positive
b. never produce at an output level where marginal revenue is constant
c. never produce at an output level where marginal revenue is negative
d. never produce at an output level where marginal cost is positive
e. ignore marginal revenue as long as average revenue is positive
Answer: C
69) Unlike perfectly competitive firms, monopolists can control
a. how much of the good to produce
b. what inputs to use in production
c. its plant size
d. the price charged per unit of output
e. the quality of inputs used in production
Answer: D
70) What is the profit-maximizing level of output for the non-discriminating monopolist in
Figure 10-3?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
e. 5 units
Answer: C
71) How much profit will the profit-maximizing level of output for the non-discriminating
monopolist in Figure 10-3 yield?
a. $10
b. $20
c. $30
d. $40
e. $50
Answer: B
72) Figure 10-4 depicts a monopoly that does not price discriminate. What are the
equilibrium price and output?
a. there is no equilibrium under monopoly
b. P' and Q'
c. P and Q
d. P' and Q
e. P and Q'
Answer: B
73) Monopolies charge
a. the highest possible price
b. a price determined by cost
c. the price consistent with the output level where total revenue equals total cost
d. the price associated with the quantity at which marginal revenue equals marginal cost
e. the price at which total revenue equals average total cost
Answer: D
74) Figure 10-5 shows the cost and demand curves facing a monopolist whose marginal cost
is constant. The firm has no fixed costs. If it does not discriminate, it will produce
a. Q** units and charge price P'
b. Q* units and charge price P
c. between Q* and Q** units while charging a price between P and P'
d. between 0 and Q* units while charging price P
e. Q* units and charge price P'
Answer: B
75) Figure 10-5 shows the cost and demand curves facing a monopolist whose marginal cost
is constant. The firm has no fixed costs. If it does not discriminate what will it’s profit be?
a. area PP’BA
b. area OPAQ*
c. area PP’CA
d. area APC
e. area OP”BQ*
Answer: A
76) The profit-maximizing monopoly in Figure 10-6 does not price discriminate. It will
produce
a. 0 units
b. 225 units
c. 350 units
d. 500 units
e. none of these
Answer: C
77) The profit-maximizing monopoly in Figure 10-6 will charge a single price of
a. $2.50
b. $3.50
c. $5.00
d. $5.75
e. $3.00
Answer: C
78) The firm in Figure 10-7 does not practice price discrimination. Its price and output will
be
a. $300 and 175
b. $50 and 125
c. $250 and 125
d. $180 and 160
e. none of these since the firm should immediately shut down in the short run
Answer: C
79) The non-price-discriminating firm depicted in Figure 10-8 will produce
a. approximately 100 units of output
b. approximately 150 units of output
c. approximately 175 units of output
d. more than 200 units of output
e. nothing since it should close
Answer: B
80) The firm illustrated in Figure 10-8 will charge a single price of
a. approximately $125
b. approximately $250
c. approximately $275
d. approximately $300
e. more than $325
Answer: D
81) Which of the following is true for a monopolist that does not price discriminate?
a. P > MR because some revenue is lost from having to lower the price on all units sold
b. P $15
c. is making $5 profit on each unit sold
d. will shut down if ATC > $15
e. is losing $5 per unit produced
Answer: B
106) For the monopolist in Figure 10-19, total revenue from selling 4 units of output would
be
a. $20
b. $300
c. $80
d. $70
e. $280
Answer: E
107) For the monopolist in Figure 10-19, marginal revenue from selling 4 units of output
would be
a. $20
b. $40
c. $80
d. $70
e. 100
Answer: B
108) Consider the monopolist in Figure 10-20. With which of the three AVC curves would
the monopolist choose to shut down in the short run?
a. AVC(2) only
b. AVC(1) and AVC(2)
c. AVC(2) and AVC(3)
d. AVC(1) only
e. AVC(3) only
Answer: D
109) A monopolist is earning an economic profit. At the present output level, MR = $35 and
MC = $30. Which of the following should the firm do to increase profit?
a. raise output and lower price
b. do not change price or output
c. raise price and raise output
d. raise price and lower output
e. lower price and lower output
Answer: A
110) If the firm in Figure 10-21 were to shut down in the short run, it would have
a. an economic loss of zero, instead of economic losses of $25,000 by producing
b. an economic loss of $18,750, instead of economic losses equal to $12,500 by producing
c. an economic loss of zero, instead of economic profits of $6,250
d. the same economic loss it would have if it continued to produce
e. an economic loss of $43,750, instead of economic losses equal to $37,500
Answer: B
111) The firm depicted in Figure 10-21 will have
a. an economic loss
b. all of the following
c. total variable cost of $25,000
d. total cost of $43,750
e. total fixed cost of $18,750
Answer: B
112) Assuming no price discrimination, the firm depicted in Figure 10-22 will have total
revenue equal to
a. $18,750
b. $25,000
c. $48,125
d. $36,000
e. $45,000
Answer: E
113) Assuming no price discrimination, the firm illustrated in Figure 10-22 will have total
costs approximately equal to
a. $2,500
b. $34,000
c. $37,500
d. $43,750
e. $8,750
Answer: C
114) If a permanent drop in demand causes a monopolist to earn below-normal profits in the
long run, this monopolist
a. will always exit the market in the long run
b. will be forced by the government to continue operating in the long run
c. may continue operating in order to avoid alienating its customers
d. will exit the market in the long run only if it cannot cover its fixed costs
e. will use limit pricing to reduce the size of its loss
Answer: A
115) If a monopoly firm is continually earning above-normal profits, then
a. the entry of new firms will reduce profits to normal in the long run
b. the profits may remain above-normal in the long run despite the entry of new firms
c. market forces other than the entry of new firms will reduce profits to normal in the long
run
d. falling market demand due to the firm's high prices will reduce profits to normal in the
long run
e. barriers to entry may enable the profits to remain above-normal in the long run
Answer: E
116) Monopolies differ from perfectly competitive firms in the long run because
a. perfectly competitive firms can earn economic profit
b. monopolies can earn economic profit
c. monopolies produce a smaller share of the industry output
d. patents and copyright laws protect monopolists for as long as they desire
e. monopolists have long-run average cost curves
Answer: B
117) In the long run,
a. monopolies will not incur economic losses
b. the demand curve facing the firm is horizontal under monopoly
c. economic profit and loss determines entry and exit into monopoly markets
d. competition always destroys monopoly
e. government always regulates monopoly
Answer: A
118) In the long run,
a. monopolies never earn economic profit
b. economic profits and losses determine entry and exit into monopoly markets
c. monopolies may earn economic profit
d. competition always destroys monopoly
e. government always regulates monopoly
Answer: C
119) If a perfectly competitive industry were taken over by a monopoly, the monopoly would
usually produce more output and charge a higher price.
a. True
b. False
Answer: B
120) A single-price monopoly with the same market demand and cost structure as a perfectly
competitive market will produce
a. the same output level at the same price as the perfectly competitive market
b. less because the monopolist will not produce all units for which marginal revenue exceeds
its marginal cost
c. less since the monopolist's marginal revenue curve lies below its demand curve
d. more because the monopolist will be more efficient
e. more because the monopolist's marginal cost curve slopes upward
Answer: C
121) Figure 10-23 illustrates the market supply and market demand for an industry that is
constituted initially of many identical and perfectly competitive firms. If all the firms merge
to form a single-price monopoly, then market output will
a. drop from 750 to 500 units, and the price will rise from L to K
b. drop from 750 to 500 units, and the price will fall from K to L
c. rise from 500 to 750 units, and the price will rise from L to K
d. rise from 500 to 750 units, and the price will fall from K to L
e. remain unchanged while the price rises from L to K
Answer: A
122) If technology is fixed, monopolization of a competitive industry will lead to
a. lower prices and higher output
b. higher prices and the same level of output
c. lower output and the same level of price
d. higher prices and lower output
e. higher output and higher prices
Answer: D
123) If a perfectly competitive industry is taken over by a monopolist, the market price will
rise
a. due to improvements in technology
b. assuming that technology is unchanged
c. and output will rise
d. unless barriers to entry are imposed
e. until they equal marginal revenue
Answer: B
124) If a perfectly competitive industry is taken over by a monopolist,
a. output will always rise
b. output will always fall
c. market price will probably not change
d. marginal cost will approach average variable cost in the long run
e. market price could fall if there are large gains from technological changes under monopoly
Answer: E
125) Figure 10-24 depicts a single-price monopoly. How much less output will it produce
compared to a perfectly competitive industry facing the same cost conditions?
a. Q'
b. Q
c. Q - Q'
d. the output would be the same
e. Q' + Q
Answer: C
126) When electric utility companies lobby state legislatures for continued protection from
competition, this is an example of rent-seeking behavior.
a. True
b. False
Answer: A
127) Economic rent is
a. the same thing as economic profit
b. the difference between accounting profit and economic profit
c. the amount a firm pays to lease its factory or machinery
d. any earnings in excess of the minimum needed for a good or service to be produced
e. any earnings in excess of the maximum necessary for a good or service to be produced
Answer: D
128) The economic profits of many monopoly firms are reduced as a result of
a. rent-seeking activity
b. government regulation
c. demand inducement
d. rent-seeking activity and price floors
e. both
a. and b.
Answer: E
129) The time and money spent by a monopoly firm on lobbying for favorable government
policies is called
a. the capitalized value of the firm
b. limit pricing
c. rent-seeking activity
d. administered pricing
e. implicit cost
Answer: C
130) Government regulation of monopolies is designed to
a. prevent price discrimination
b. eliminate rent-seeking activities
c. reduce barriers to entry into monopolized markets
d. keep prices and profits lower than they would otherwise be
e. ensure that monopolies are minimizing costs
Answer: D
131) Monopolies may earn zero economic profit because of
a. zero marginal cost
b. barriers to entry
c. patents and copyright laws
d. economies of scale
e. government price regulation
Answer: E
132) Rent-seeking activity
a. is any revenue associated with long-term leases
b. is any costly action a firm undertakes to acquire or maintain monopoly power
c. is an attempt to inflate costs and reduce tax liabilities
d. occurs when a monopoly leases out some of its assets
e. is any rational action a consumer undertakes in seeking the lowest rent
Answer: B
133) One reason that monopolies often earn zero economic profits is that
a. many monopolies are regulated by the government
b. competitors cut prices
c. barriers to entry are low
d. collusion prevents profits
e. costly concessions to labor suppliers reduce economic profit
Answer: A
134) Any costly activity firms undertake to protect their monopoly status is referred to as
a. market power
b. price-setting behavior
c. rent seeking
d. economies of scale
e. legal intervention
Answer: C
135) All of the following might be considered rent-seeking behavior by firms, except one.
Which is the exception?
a. bribes to government officials
b. money spent on lobbying government officials
c. advertisements describing the firm's position on an issue under legislative review
d. money spent on advertising for new products
e. time spent testifying before state and federal committees
Answer: D
136) Money that cigarette manufacturers spend on lobbying efforts in Washington, D.C., is
an example of
a. economies of scale
b. rent seeking
c. advertising
d. government regulations
e. public relations
Answer: B
137) Rent seeking lowers profits by
a. shifting the market demand curve to the right
b. shifting the market supply curve to the left
c. shifting the ATC curve upward
d. shifting the ATC curve downward
e. flattening the marginal revenue curve
Answer: C
138) Consider a single-price monopolist that is in equilibrium at output level Q* and price
P*. If the government imposes a new tax on the firm of $25 per unit of output, then
a. output and price will remain at Q* and P*
b. output will fall and price will rise by $25
c. output will fall and price will fall by less than $25
d. output will rise and price will fall by $25
e. output will fall and the price will rise by less than $25
Answer: E
139) If a monopolist incurs a large fixed cost that shifts its average total cost curve upward,
the effect on price and output will be
a. price and output will both rise
b. price will rise and output will fall
c. the firm will lower its price so that elastic demand will raise revenues to cover the
additional cost
d. the firm will pass the higher cost on to customers without changing the amount consumers
will buy
e. there will be no effect on price or output
Answer: E
140) Charging different customers different prices is always illegal in the United States.
a. True
b. False
Answer: B
141) A firm that engages in perfect price discrimination produces more output to maximize
its profits than it would if it charged only one price.
a. True
b. False
Answer: A
142) The marginal revenue curve coincides with the demand curve of a firm that engages in
perfect price discrimination.
a. True
b. False
Answer: A
143) A single-price monopolist is
a. able to use price discrimination to increase profits
b. protected from competition by patents and copyright laws
c. one that charges the same price for all units of output
d. illegal in the United States
e. less efficient than a multi-price monopoly
Answer: C
144) The firm depicted in Figure 10-25 is a perfect price discriminator. What is its
equilibrium price and output?
a. P' and Q'
b. P and Q
c. P' and Q
d. each consumer is charged the maximum price he or she is willing to pay, and the
equilibrium output is Q'
e. each consumer is charged the maximum price he or she is willing to pay, and the
equilibrium output is Q
Answer: E
145) A monopoly will produce the same quantity of output as an otherwise similar perfectly
competitive market if
a. it is a perfect price discriminator
b. it corners the market
c. barriers to entry are high enough
d. resource suppliers have market power too
e. price is greater than average total cost
Answer: A
146) Charging different prices to different customers for the same good or service is known
as
a. monopoly
b. price setting
c. competition
d. price discrimination
e. rent seeking
Answer: D
147) Price discrimination refers to
a. the actions of a single-price monopolist to determine the best price for its output
b. selling the same product to different customers at different prices as a result of different
production costs
c. government regulation of public utility prices
d. selling the same product to different customers at different prices for reasons unrelated to
production costs
e. charging a price just above average total cost in order to drive competing firms from the
market
Answer: D
148) All of the following conditions, except one, must exist in order for a firm to successfully
practice price discrimination. Which is the exception?
a. The firm must be a price taker.
b. The firm must be able to identify which customers are willing to pay more.
c. The firm must be able to prevent the resale of its output by low-price customers to highprice customers.
d. The firm must be able to charge higher prices to some customers without losing their
business.
e. The firm must be a price setter.
Answer: A
149) A firm's ability to successfully practice price discrimination is greater
a. the more difficult it is to identify a customer's willingness to pay
b. the more standardized the product offered by the firm
c. the more difficult it is to transfer its product from person to person
d. the more active the resale market is for their product
e. in goods-producing markets than in service-producing markets
Answer: C
150) All of the following are forms of price discrimination, except one. Which is the
exception?
a. cents-off coupons for use at the grocery store
b. different prices for movie tickets for children and adults
c. making airline reservations 30 days in advance and receiving a lower rate
d. different prices for prescription drugs for senior citizens and others
e. different prices for "2nd day delivery" and "next day air delivery"
Answer: E
151) Which of the following conditions does not need to be satisfied in order to practice price
discrimination?
a. a perfectly elastic demand curve
b. a negatively-sloped demand curve for the firm's output
c. the ability to identify customers who are willing to pay more for the good
d. the ability to identify customers who are not willing to pay more
e. the ability to prevent resale of the good
Answer: A
152) If a firm wishes to engage in price discrimination, which of the following conditions
must be met?
a. The demand curve must be horizontal.
b. It must be possible to prevent resale of the good from low-paying to high-paying
customers.
c. The supply curve must be horizontal.
d. Many identical firms in the market must each have a small share of total industry output.
e. Price must be less than marginal cost.
Answer: B
153) Which of the following would be the most difficult consumer characteristic for firms to
use in price discrimination?
a. gender
b. age
c. height
d. educational attainment
e. weight
Answer: D
154) Which of the following products would be most difficult to resell?
a. Girl Scout cookies
b. suitcases
c. automobiles
d. pencils
e. medical exams
Answer: E
155) When price discrimination raises the price paid by some consumers without lowering
the price paid by other consumers,
a. profit will fall
b. total revenue is constant, but profit will rise
c. total revenue will increase
d. marginal cost will increase
e. the firm is engaged in rent-seeking behavior
Answer: C
156) If a firm is able to charge each customer the maximum amount that he or she is willing
to pay for its good,
a. the firm is engaging in rent-seeking behavior
b. profits for the firm will be lower than for a single-price monopolist
c. the firm will be violating federal law
d. this is perfect price discrimination
e. barriers to entry into the market will fall
Answer: D
157) When car dealerships post high prices for their cars and then negotiate deals based on
their estimate of how much each person will pay,
a. the dealership will lose revenue
b. marginal revenue and marginal cost are being used to set prices and output
c. few dealerships will be able to survive
d. rent-seeking behavior will lead new dealerships to enter the market
e. this is a form of price discrimination
Answer: E
158) When a firm engages in perfect price discrimination,
a. marginal revenue is equal to price
b. marginal revenue is below price
c. marginal revenue is below marginal cost
d. profits are reduced relative to a single-price monopolist
e. rent-seeking behavior must occur
Answer: A
159) The output level for a perfect price discriminator is found where
a. MR = ATC
b. MC = P
c. MR = P
d. TR = TC
e. AR = ATC
Answer: B
160) Price discrimination occurs when
a. price exceeds marginal cost
b. a firm charges different customers different prices, and the differences are not explained by
cost factors
c. price exceeds average cost
d. a firm charges different customers different prices, where these differences are based on
cost differences
e. price equals average variable cost
Answer: B
161) Which of the following conditions would prevent price discrimination?
a. the ability to identify customers who are willing to pay more
b. the ability to prevent low-price customers from reselling to high-price customers
c. perfect competition
d. a monopoly market structure
e. profit maximization
Answer: C
162) Which of the following conditions would prevent price discrimination?
a. an economic profit
b. a monopoly market structure
c. profit maximization
d. the inability to identify those customers willing to pay more
e. the ability to prevent low-price customers from reselling to high-price customers
Answer: D
163) Price discrimination always benefits
a. the owners of the price-discriminating firm
b. the government
c. society as a whole
d. consumers
e. competitors
Answer: A
164) Price discrimination can benefit some consumers when
a. the additional profit realized by the monopolist equals the cost incurred
b. the government comes in to regulate the market
c. competitors are also able to price discriminate
d. those consumers pay a price lower than the price they would have to pay a single-price
monopolist
e. those consumers pay a price higher than the price they would have to pay a single-price
monopolist
Answer: D
165) A firm charges each customer the highest price that customer will pay for the marginal
unit under
a. perfect competition
b. oligopoly
c. monopolistic competition
d. single-price monopoly
e. perfect price discrimination
Answer: E
166) Marginal revenue equals the price of the last unit sold for the
a. perfect price discriminator
b. firm in monopolistic competition
c. oligopolistic price leader
d. foreign-owned domestic producer
e. export producer
Answer: A
167) The marginal revenue curve is the same as the demand curve for the
a. monopolistic competitor
b. perfect price discriminator
c. oligopolistic price leader
d. single price monopoly
e. export producer
Answer: B
168) Brittany provides manicures at the only salon in town. Her marginal cost is constant at
$5 per client, her fixed cost is $25 per day, and she is able to do 8 manicures per day. On a
given day, half of her clients are willing to pay $15 for a manicure; half are willing to pay
only $10. If she charges $15 for those willing to pay a higher price and $10 to her other
clients, then her maximum daily profit equals
a. $55
b. $100
c. $60
d. $35
e. $75
Answer: D
169) The monopoly represented in Figure 10-26 has constant marginal cost and no fixed
costs. If the firm is a perfect price discriminator, it will produce
a. Q** units
b. Q* units
c. between 0 and Q* units
d. between Q* and Q** units
e. more than Q** units
Answer: A
170) The monopoly represented in Figure 10-26 has constant marginal cost and no fixed
costs. If the firm is a perfect price discriminator, economic profit will equal
a. the area PABP'
b. the area PACP'
c. the area TCQ**0
d. the area TCP'
e. zero
Answer: D
171) The marginal revenue curve of a perfectly price-discriminating monopolist
a. coincides with the marginal cost curve
b. lies below the market demand curve
c. coincides with the market demand curve
d. is a horizontal line through the midpoint of the market demand curve
e. does not exist
Answer: C
172) All of the following statements, except one, are correct in short-run equilibrium for both
a single-price monopolist and a monopolist that practices perfect price discrimination.
Assume that both firms are able to earn at least a normal profit. Which statement is the
exception?
a. Both face downward-sloping demand curves for their output.
b. Both produce all output units for which marginal revenue exceeds marginal cost.
c. Both produce in the range where marginal revenue is positive.
d. Both are price setters.
e. Both produce an output level for which price exceeds marginal cost.
Answer: E
173) If the firm in Figure 10-27 is a perfect price-discriminating monopoly, it will produce an
output level of
a. zero units
b. 225 units
c. 350 units
d. 500 units
e. greater than 500 units
Answer: E
174) The total cost of production for the perfect price discriminator in Figure 10-27 is
a. $1,500.00
b. $1,137.50
c. $787.50
d. $875.00
e. more than $1,500.00
Answer: E
175) In which of the following markets are we most likely to find a monopoly?
a. Automobile production.
b. Air travel.
c. First-class mail delivery.
d. Clothing production.
Answer: C
176) A firm selling a good which lacks any good substitutes is called a(n)
a. pure monopoly.
b. price discriminator.
c. exclusive monopoly.
d. natural monopoly.
Answer: A
177) A market which only allows only one firm to operate at lowest average cost is called
a(n)
a. natural monopoly.
b. scale industry.
c. increasing returns industry.
d. large scale industry.
Answer: A
178) Each of the following is a source of monopoly except:
a. Patents.
b. Large economies of scale.
c. Small fixed costs.
d. Government franchise.
Answer: C
179) Which of the following is an example of a natural monopoly?
a. A local electricity supplier.
b. A dry cleaner in New York City.
c. An aircraft manufacturer.
d. A pharmaceutical company that holds a patent on a new drug.
Answer: A
180) A market that will naturally end up with just one seller is a(n)
a. evolutionary monopoly.
b. natural monopoly.
c. competitive monopoly.
d. entry barrier monopoly.
Answer: B
181) Which of the following is a legal entry barrier established by government?
a. Patents.
b. Copyrights.
c. Government franchises.
d. All of the above.
Answer: D
182) Most government franchises are granted to natural monopolies.
a. True
b. False
Answer: A
183) The United States Postal Service is an example of a monopoly created by
a. government franchise.
b. copyright.
c. control of scarce inputs.
d. rent-seeking behavior.
Answer: A
184) Which of the following are government franchises?
a. Regional phone companies.
b. The United States Postal Service.
c. Electric utilities.
d. All of the above.
Answer: D
185) A monopolist can choose a price & quantity combination that is above the demand
schedule.
a. True
b. False
Answer: B
186) The concept of network externalities is most relevant to purchasers of
a. computer software.
b. automobiles.
c. television sets.
d. radios.
Answer: A
187) Even if better programs become available, Microsoft's Windows software may retain
market dominance because of
a. network externalities.
b. its user-friendliness.
c. switching costs.
d. both a & c.
Answer: D
188) Which of the following statements is true of a monopolist?
a. It can raise price without losing sales, since there are no competitors.
b. At a given price, it can sell all of the output that it can produce.
c. It is able to choose a price & output combination to the right of its demand schedule.
d. At a given price it can sell only one particular output level.
Answer: D
189) When an increase in a network's membership increases the product's value to users,
there are
a. network externalities.
b. economies of scale.
c. natural monopolies.
d. diminishing costs.
Answer: A
190) The demand curve for a monopolist's output is
a. horizontal.
b. shallower than the market demand curve.
c. steeper than the market demand curve.
d. identical to the market demand curve.
Answer: D
191) For a monopolist, marginal revenue is lower than price.
a. True
b. False
Answer: A
192) A monopolist will always enlarge its revenues by selling more output.
a. True
b. False
Answer: B
193) As long as P>AVC, a monopolist maximizes profit by producing the quantity at which
a. MC=P.
b. MC=MR.
c. MR=P.
d. MR=ATC.
Answer: B
194) In Figure 10-28, the monopolist’s profit-maximizing output level is
a. 50.
b. 55.
c. 60.
d. 65.
Answer: A
195) In Figure 10-29, the monopolist will sell its output at a price of
a. $10.
b. $15.
c. $20.
d. $25.
Answer: D
196) In Figure 10-30, at its profit-maximizing output level the monopolist earns economic
profit of
a. $10.
b. $500.
c. $750.
d. $1250.
Answer: B
197) In Figure 10-31, if this monopolist increases its output from 100 to 150, its marginal
revenue will be
a. $30.
b. $45.
c. $0.
d. $15.
Answer: C
198) Unlike firms operating in more competitive markets, monopolies never shut down in the
short run.
a. True
b. False
Answer: B
199) Monopolies may earn positive economic profits in
a. only the short run.
b. the short run or the long run.
c. only the long run.
d. never.
Answer: B
200) A monopolist that is earning economic losses will, in the long run,
a. exit the industry.
b. shift it's demand curve rightward.
c. stay in the industry, since eventually the price will have to rise.
d. encourage competitors to enter the industry in order to enliven it.
Answer: A
201) In the short run, a monopoly may
a. only earn positive economic profits.
b. only earn zero economic profit,
c. earn positive economic profits or economic losses.
d. only earn economic losses.
Answer: C
202) Compared to perfectly competitive markets, monopoly produces
a. higher output and lower price.
b. lower output and higher price.
c. lower output and lower price.
d. higher output and higher price.
Answer: B
203)
The graph above shows a monopoly market. If all of the assumptions of perfect competition
held and this market were organized as perfectly competitive, the equilibrium quantity would
be
a. 100.
b. 110.
c. 150.
d. over 150.
Answer: C
204)
The graph above shows a monopoly market. If all of the assumptions of perfect competition
held and if this market were perfectly competitive, the equilibrium price would be
a. $10.
b. $30.
c. $45.
d. over $45.
Answer: B
205) Monopolies are sometimes more technologically efficient than perfectly competitive
markets.
a. True
b. False
Answer: A
206) Costly actions that a firm undertakes to gain monopoly status are called
a. monopolization.
b. rent-seeking activity.
c. monopoly-profit seeking.
d. collusion.
Answer: B
207) Which of the following would be considered rent-seeking activity?
a. A software firm using lawsuits to drive competitors out of business.
b. A technology firm investing in extremely expensive capital equipment.
c. A large firm trying to charge lower prices than its competitors.
d. An auto manufacturer using features and styling to differentiate its models from its
competitors'.
Answer: A
208) When the demand for a monopolist's output falls, the monopolist will
a. not change the price, since it has no competition.
b. raise the price in order to compensate for the lower demand.
c. charge a lower price.
d. cut its costs in order to maintain its profit margin.
Answer: C
209) An increase in a monopoly's fixed costs would cause its output to
a. rise.
b. fall.
c. stay the same.
d. impossible to predict.
Answer: C
210) Which of the following is an example of price discrimination?
a. A Burger King in New York City charging more for a hamburger than a Burger King in
Manhattan, Kansas.
b. A clothing store offering shirts at ten dollars each or two for fifteen dollars.
c. A movie theater charging lower ticket prices to children and senior citizens.
d. A car dealer charging higher prices for cars with air conditioning.
Answer: C
211) Which of the following is not a requirement for price discrimination?
a. The firm must be able to identify consumers who are willing to pay more for the product.
b. The firm must be able to prevent resale of the product.
c. There must be a downward-sloping demand curve for the product.
d. The firm must face different costs for the goods sold to different consumers.
Answer: D
212) Price discrimination always harms consumers.
a. True
b. False
Answer: B
213) Movie theaters charge lower prices to children and senior citizens because
a. they feel sorry for them.
b. they go to more movies, so they get price breaks.
c. their elasticity of demand for movie tickets is higher.
d. they have more time to attend movies.
Answer: C
214) If a firm charges each consumer the absolute maximum price that he or she is willing to
pay, the firm is practicing
a. perfect price discrimination.
b. marginal revenue pricing.
c. price discrimination.
d. monopoly pricing.
Answer: A
215) Which of the following would prevent a pharmaceutical manufacturer from successfully
using price discrimination?
a. It's customers all have the same elasticity of demand for its drugs.
b. The demand schedule for pharmaceuticals is horizontal.
c. Low-price customers could resell the drugs to high-priced customers.
d. All of the above.
Answer: C
216) The monopolist in Figure 10-32 is currently operating in
a. the short run.
b. the long run.
c. the short run or the long run.
d. the very long run.
Answer: C
Test Bank for Microeconomics: Principles and Applications
Robert E. Hall, Marc Lieberman
9781111822569, 9781478405238, 9781478498056
