02h. product market monopoly - .net framework

VE 02h. Product Market: Monopoly Varsity Economics – Product Market: Monopoly

1 One feature of pure monopoly is that the firm is A a producer of products with close substitutes. B one of several producers of a product. C a price taker. D a price maker.

2 One defining characteristic of pure monopoly is that the A monopolist is a price taker. B monopolist uses advertising. C monopolist produces a product with no close substitutes. D entry into the industry is relatively easy, but exit is difficult.

3 Which phrase would be most characteristic of pure monopoly? A close substitutes B efficient advertiser C price taker D sole seller

4 One major barrier to entry under pure monopoly arises from A the availability of close substitutes for a product. B ownership of essential resources. C the price taking ability of the firm. D diseconomies of scale.

5 Barriers to entry A usually result in pure competition. B can result from government regulation. C exist in economic theory but not in the real world. D are typically the result of wrongdoing on the part of a firm.

6 Which of the following is a barrier to entry? A patents and licenses B buyers’ incomes C close substitutes D diminishing marginal returns

VE 02h. Product Market: Monopoly 7 Which of the following is not a barrier to entry in an industry?

A economies of scale B profit maximization C strategic pricing D government licensing

8 In many large U.S. cities, taxicab companies operate as near monopolies because of A patents. B licenses. C economies of scale. D strategic pricing.

9 An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a A copyright. B franchise. C patent. D license.

10 Pure monopoly refers to A any market in which the demand curve to the firm is downsloping. B a standardized product being produced by many firms. C a single firm producing a product for which there are no close substitutes. D a large number of firms producing a differentiated product.

11 Which of the following is correct? A Both purely competitive and monopolistic firms are "price takers." B Both purely competitive and monopolistic firms are "price makers." C A purely competitive firm is a "price taker," while a monopolist is a "price

maker." D A purely competitive firm is a "price maker," while a monopolist is a "price

taker." 12 Pure monopolists may obtain economic profits in the long run because

A of advertising. B marginal revenue is constant as sales increase. C of barriers to entry. D of rising average fixed costs.

VE 02h. Product Market: Monopoly 13 Which of the following best approximates a pure monopoly?

A the foreign exchange market B the Kansas City wheat market C the only bank in a small town D the soft drink market

14 Barriers to entering an industry A encourage allocative efficiency. B encourage productive efficiency. C are the basis for monopoly. D apply only to purely monopolistic industries.

15 One feature of pure monopoly is that the demand curve A is vertical. B is horizontal. C slopes upward. D slopes downward.

16 The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why A there are barriers to entry in pure monopoly. B a monopoly has a perfectly elastic demand curve. C marginal revenue is less than average revenue. D total revenues are greater than total costs at the profit maximizing level of

output. 17 The demand curve confronting a nondiscriminating pure monopolist is

A horizontal. B the same as the industry's demand curve. C more elastic than the demand curve confronting a competitive firm. D derived by vertically summing the individual demand curves for the buyers.

18 Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be A positive and demand is elastic. B negative and demand is elastic. C positive and demand is inelastic. D negative and demand is inelastic.

VE 02h. Product Market: Monopoly 19 A nondiscriminating monopolist will find that marginal revenue

A exceeds average revenue or price. B is identical to price. C is sometimes greater and sometimes less than price. D is less than average revenue or price.

20 Use the following graph showing the revenue curves for a monopolist to answer the next question.

What price should be charged in order to maximize total revenue? A P1 B P2 C P3 D P4

21 Use the following graph showing the revenue curves for a monopolist to answer the next question.

If it wants to sell quantity Q 1 , it must charge a price: A P1. B P2. C 0. D not labeled on the graph.

VE 02h. Product Market: Monopoly 22 To answer the next question, use the following table, which shows the demand

schedule facing Nina, a monopolist selling baskets.

What is the change in total revenue if she lowers the price from $20 to $18? A $10 B $20 C $30 D $40

VE 02h. Product Market: Monopoly 23 Use the following table, which shows the demand schedule facing Nina, a

monopolist selling baskets, to answer the next question.

What is the change in total revenue if she raises the price from $10 to $12? A -$300 B +$300 C +$120 D -$120

VE 02h. Product Market: Monopoly 24 Use the following graph to answer the next question.

The marginal revenue obtained from selling the third unit of output is A $6. B $1. C $2. D $5.

VE 02h. Product Market: Monopoly 25 Answer the next question on the basis of the following demand and cost data for a

pure monopolist.

The profit-maximizing price for the monopolist will be A $2.50. B $2.25. C $2.00. D $1.75.

VE 02h. Product Market: Monopoly 26 Answer the next question on the basis of the following demand and cost data for a

pure monopolist.

At equilibrium, the monopolist will realize a A profit of $10. B profit of $6.50. C profit of $4.50. D loss of $7.25.

27 At the profit-maximizing level of output for a monopolist A price is greater than marginal cost. B price is greater than average revenue. C average total cost equals marginal cost. D total revenue is greater than total cost.

28 Suppose that a monopolist calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. He or she could maximize profits or minimize losses by A decreasing price and increasing output. B increasing price and decreasing output. C decreasing price and leaving output unchanged. D decreasing output and leaving price unchanged.

VE 02h. Product Market: Monopoly 29 Many people believe that monopolies charge any price they want to without

affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by A marginal cost = average revenue. B marginal revenue = average cost. C average total cost = average revenue. D marginal cost = marginal revenue.

30 The data below relate to a pure monopolist and the product it produces. What is the profit-maximizing output and price for this monopolist?

A P = $12; Q = 5 B. B P = $14; Q = 4 C P = $15; Q = 3 D P = $18; Q = 2 35.

VE 02h. Product Market: Monopoly 31 Use the following graph for a profit-maximizing monopolist to answer the next

question.

The firm will set its price at A 0J. B 0G. C 0K. D 0H.

32 Use the following graph for a profit-maximizing monopolist to answer the next question.

The firm will produce the quantity A 0V. B 0Y. C 0T. D 0X.

VE 02h. Product Market: Monopoly 33 Use the following graph for a profit-maximizing monopolist to answer the next

question.

At equilibrium, the firm will be earning A positive profits. B negative profits. C zero profits. D profits that cannot be determined from the given graph.

34 A firm will earn economic profits whenever A marginal revenue exceeds marginal costs. B marginal revenue exceeds variable costs. C average revenue exceeds average total costs. D average revenue exceeds average variable costs.

35 Use the following graph for a monopolist in short-run equilibrium to answer the next question.

This monopolist will charge a price A 0A. B 0B. C 0C. D not labeled on the graph.

VE 02h. Product Market: Monopoly 36 Use the following graph for a monopolist in short-run equilibrium to answer the

next question.

This monopolist A has a loss per unit equal to DE. B has total fixed costs equal to area BEFC. C earns positive economic profit equal to the area of ABED. D will cease production since its economic profits are negative.

37 Use the following graph to answer the next question.

What is the profit-maximizing level of output for this pure monopolist? A A B B C C D D


At its equilibrium level of output, this monopolist earns A positive economic profits. B negative economic profits. C zero economic profits. D zero revenues.

39 Monopolists are said to be allocatively inefficient because A they produce where MR > MC. B at the profit-maximizing output price is greater than AVC. C they produce only the type of product they desire and do not consider the

consumer. D at the profit-maximizing output the marginal benefit of the product to society

exceeds its marginal cost. 40 Allocative inefficiency happens in a monopoly because at the profit-maximizing

output level A P > ATC. B P > MR. C P > MC. D P > AVC.

41 A monopoly most likely results in productive inefficiency because at the profit-maximizing output level A MR is not zero. B ATC is not at its minimum level. C MC is not at its minimum level. D P > AVC.

VE 02h. Product Market: Monopoly 42 When compared with the purely competitive industry with identical costs of

production, a monopolist will produce A more output and charge the same price. B more output and charge a higher price. C less output and charge a higher price. D less output and charge the same price.

43 Which is a major criticism of a monopoly as a source of allocative inefficiency? A A monopolist fails to expand output to the level where the consumers'

valuation of an additional unit is just equal to its opportunity cost. B A monopolist has no incentive to produce efficiently, because even the

inefficient monopolist can be assured of economic profits. C A monopolist will always earns profits and that means that prices are too high. D A monopolist has an unfair advantage because it can purchase labor at a lower

price than competitive firms can. 44 A non discriminating pure monopolist is generally viewed as

A productively efficient, but allocatively inefficient. B productively inefficient, but allocatively efficient. C both productively and allocatively inefficient. D both productively and allocatively efficient.


If the industry were purely competitive, then the market price would be A $25, which is higher than what the price would have been if the industry were a

monopoly. B $25, which is lower than what the price would have been if the industry were a

monopoly. C $20, which is higher than what the price would have been if the industry were a

monopoly. D $20, which is lower than what the price would have been if the industry were a

monopoly. 46 Use the following graph to answer the next question.

What is the difference between the purely competitive equilibrium level of output and the pure monopoly equilibrium level of output? A 20 B 70 C 90 D 110

VE 02h. Product Market: Monopoly 47 Use the following graph for an industry to answer the next question.

If the industry were purely competitive, the output quantity would be A 90. B 160. C 195. D a level that is not labeled in the graph.

48 Use the following graph for an industry to answer the next question.

If the industry operates as a pure monopoly, the output quantity would be A 90. B 160. C 195. D a level that is not labeled in the graph.


If the industry were purely competitive, the market price would be A lower than $8. B $8. C $14. D $16.


If the industry were a pure monopoly, the product price would be A lower than $8. B $8. C $14. D $16.


If the industry were served by a pure monopoly, the price and output quantity would be A P3 , Q1. B P1 , Q3. C P2 , Q2. D P1 , Q1.


If the industry were served by a pure monopoly, the deadweight loss would be A P3 P2 CE. B P3 P1 AE. C ACE. D P3 P1 AC.

VE 02h. Product Market: Monopoly 53 The economic incentive for price discrimination is based upon

A prejudices of business managers. B differences among sellers' costs. C a desire to evade antitrust legislation. D differences among buyers' elasticities of demand.

54 To practice long-run price discrimination, a monopolist must A be a natural monopoly. B charge one price to all buyers. C permit the resale of the product by the original buyers. D be able to separate buyers into different markets with different price elasticities.

55 Which of the following statements is true of price discrimination? A Successful price discrimination will provide the firm with lower total profits than

if it did not discriminate. B Successful price discrimination will provide the firm with more profit than if it

did not discriminate. C Successful price discrimination will generally result in a lower level of output

than would be the case under a single-price monopoly. D Successful price discrimination occurs when there are differences in the costs of

producing for different groups of buyers. 56 Which is not true of price discrimination?

A Successful price discrimination requires that different segments of the market have different demand elasticities

B Successful price discrimination will provide the firm with more profit than if it does not discriminate

C Successful price discrimination implies that the producer can separate customers into easily identifiable groups

D Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly

VE 02h. Product Market: Monopoly 57 Which case below best represents a case of price discrimination?

A An insurance company offers discounts to safe drivers. B A major airline sells tickets to senior citizens at lower prices than to other

passengers. C A professional baseball team pays two players with identical batting averages

different salaries. D A utility company charges less for electricity used during "off-peak" hours,

when it does not have to operate its less-efficient generating plants. 58 Price discrimination is more common in service industries because

A low price buyers will find it virtually impossible to resell the products of such industries to high price buyers.

B the costs of providing such industries' products to different groups of buyers vary dramatically.

C the price elasticity of demand is the same for all groups of buyers in these industries.

D all firms in these industries have significant monopoly power over price. 59 A price-discriminating monopolist will follow a system where

A buyers with inelastic demand are charged higher prices than buyers with elastic demand.

B buyers with inelastic demand are charged lower prices than buyers with elastic demand.

C all buyers are charged the same price regardless of their elasticity of demand. D the price of the product is held the same even if the demand changes.

60 If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is A more elastic in market X than market Y. B less elastic in market X than market Y. C less elastic in market Y than market X. D the same in both market X and Y.

VE 02h. Product Market: Monopoly 61 Price discrimination for concessions at ball parks is not applied to adults and

children because A children's demand for food is elastic and adults' demand for food is inelastic. B adults' demand for food is elastic and children's demand for food is inelastic. C there can be exchange of the product from children, who buy it at a lower

price, to adults D there can be exchange of the product from adults, who buy it at a lower price,

to children. 62 Consumers who clip and redeem discount coupons

A exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

B exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

C exhibit a lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

D cause total revenue to decrease for firms that issue coupons for their products. 63 One argument for having the government regulate natural monopolies is that

without regulation A these monopolies usually produce things that are potentially harmful to our

health. B these monopolies produce at a level where marginal benefit is greater than

marginal cost. C these monopolies produce at a level where marginal benefit is less than

marginal cost. D the industry would become competitive and there would be too many firms in

the market to achieve efficiency.


A firm that has the long-run cost curves shown in the graph above would not be able to do which one of the following? A exploit economies of scale B have an entry barrier protecting it from new entrants into the market C serve an increasing share of the market at lower and lower unit costs D attain lower unit costs by reducing its output level

65 Natural monopolies result from A patents and copyrights. B pricing strategies. C extensive economies of scale in production. D control over an essential natural resource.

66 Use the following graph for a pure monopoly to answer the next question.

Suppose that this monopoly is subjected to a regulatory commission. If the commission seeks to achieve the most efficient allocation of resources for this industry, it should set the socially optimal price at A P1. B P2. C P3. D 0.

VE 02h. Product Market: Monopoly 67 The next question is based on the demand and cost data for a pure monopolist

given in the table below.

If the monopolist were forced to produce the socially optimal output through the imposition of a ceiling price, the ceiling price would have to be set at A $100. B $150. C $200. D $250.

VE 02h. Product Market: Monopoly 68 Use the following graph for a pure monopoly to answer the next question.

If the government regulated the monopoly and made the firm set a fair-return price, what price and quantity levels would we observe in the short run? A P1 and Q1 B P2 and Q3 C P3 and Q2 D P4 and Q1

69 Use the following graph for a pure monopoly to answer the next question.

If the government regulated the monopoly and made it produce the level of output that would achieve allocative efficiency, what price and quantity levels would we observe in the short run? A P1 and Q1 B P2 and Q3 C P3 and Q2 D P4 and Q1

VE 02h. Product Market: Monopoly 70 The problem with socially optimal pricing regulation of a natural monopoly is that

A P < MC. B P < AVC. C P < ATC. D P < MR.

71 The problem with adopting a fair-return pricing policy for a natural monopoly is that A economic profits will be positive. B economic profits will be negative. C it is not productively efficient. D it is not allocatively efficient.

72 With a natural monopoly, the fair return price A is allocatively efficient; the socially optimal price is allocatively inefficient. B is allocatively inefficient; the socially optimal price is allocatively efficient. C and the socially optimal price are both allocatively inefficient. D and the socially optimal price are both allocatively efficient.

73 What is the meaning of the phrase "dilemma of regulation"? A Natural monopolies achieve economies of scale but charge high prices when

there is no government regulation; government regulation reduces prices but results in diseconomies of scale.

B Natural monopolies are profitable but only if the government permits price discrimination; government regulation to restrict price discrimination reduces monopoly prices, but the regulation also reduces monopoly output.

C The fair return price achieves allocative efficiency but may produce economic losses; the socially optimal price yields a normal profit but may not be allocatively efficient.

D The socially optimal price achieves allocative efficiency but may produce economic losses; the fair return price yields a normal profit but may not be allocatively efficient.

74 An argument for making regulated monopolies adopt marginal cost pricing is that this would A increase productive efficiency by making price equal average cost. B benefit higher income groups by making monopoly products more affordable. C increase managerial incentives to reduce employment and production. D make the marginal cost equal to society's valuation of the marginal benefit.

02h. product market monopoly - .net framework

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