Monopoly

MULTIPLE CHOICE

1. Which of the following is an assumption of the theory of monopoly?a. There are extremely high barriers to entry.b. There are many sellers.c. The product has a number of close substitutes.d. The product is of extremely high quality.

2. The theory of monopoly assumes that the monopoly firma. faces a downward-sloping supply curve that is the same as its marginal revenue curve.b. faces a downward-sloping demand curve.c. produces more than the perfectly competitive firm under identical demand and cost

conditions.d. produces a product for which there are many close substitutes.e. none of the above

3. Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this,a. Firm X cannot be a monopolist because the theory of monopoly assumes there are no

close substitutes for the good the single seller sells.b. Firm X can be a monopolist because we do not know if the two substitutes are close

substitutes; additionally, it may be that Firm X acts as if the assumption of no close substitutes holds.

c. Firm X cannot be a monopolist because if substitutes exist for the good it produces, its demand curve is horizontal and monopolists face downward-sloping demand curves.

d. none of the above

4. Which of the following is an example of a legal barrier to entry?a. a public franchiseb. a patentc. exclusive ownership of a scarce resourced. a and be. a, b, and c

5. .A natural monopoly exists whena. a monopolist produces a product, the main component of which is a natural resource.b. economies of scale are so large that only one firm can survive and achieve low unit costs.c. a firm is the exclusive owner of a key resource necessary to produce the firm’s product.d. there are no close substitutes for a firm's product.

6. Which of the following is the best example of a monopoly?a. a local power utilityb. a fast-food restaurantc. a department stored. a wheat farmer

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7. A seller that has the ability to control to some degree the price of the product it sells is called a pricea. taker.b. searcher.c. breaker.d. twister.

8. Which of the following statements is false?a. A price searcher must lower price to sell an additional unit of its product.b. For a price searcher, price equals marginal revenue for all units except the first.c. For a price searcher, price is greater than marginal revenue for all units except the first.d. A price searcher, like a price taker, produces that quantity of output for which marginal

revenue equals marginal cost.

9. A price searcher isa. a person who actively seeks out the best price for a product that he or she wishes to buy.b. a firm that seeks out buyers who are willing to pay the price that the seller is asking for the

product.c. a firm that has the ability to control to some degree the price of the product it sells.d. actually any firm or consumer, because each market "player" searches for the best price at

which it can sell or buy.

10. Which of the following statements is true?a. A monopolist can charge whatever price it wants and sell the same amount by virtue of its

monopoly position.b. A monopolist can always increase its profits by increasing its price.c. A monopolist minimizes its losses in the short run if it shuts down when price is less than

average fixed cost.d. A monopolist is assured of positive economic profits.e. none of the above

11. Which of the following statements is false?a. The monopolist faces a horizontal demand curve.b. For the single-price monopolist, marginal revenue is less than price.c. For the monopolist, the price that maximizes revenue is usually not the price that

maximizes profits.d. The monopolist is a price searcher.

12. Which of the following statements is true?a. The monopolist can sell all it can produce at the market price.b. The marginal revenue curve of the single-price monopolist lies above its demand curve.c. The marginal revenue curve of the single-price monopolist is the same as its demand

curve.d. The marginal revenue curve of the single-price monopolist lies below its demand curve.

13. In maximizing profits, a single-price monopolist will charge a price that isa. less than marginal cost.b. equal to marginal cost.c. greater than marginal cost.d. There is not enough information to answer the question.

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14. A monopolist can sell 10,000 units at a price of $5 per unit. Lowering price by $1 raises the quantity demanded by 2,000 units. What is the change in total revenue resulting from this price change?a. $2,000b. $5,000c. -$2,000d. -$18,000

15. A monopolist can sell 15,000 units at a price of $100 per unit. Lowering price by $1 raises the quantity demanded by 500 units. What is the change in total revenue resulting from this price change?a. $34,500b. $12,500c. $65,500d. -$35,500

16. A monopolist maximizes profits at the output at whicha. total revenue is at its greatest, assuming that the firm has both fixed and variable costs.b. price equals marginal cost.c. price exceeds marginal cost by the greatest amount.d. none of the above

17. Which of the following is characteristic of the monopoly firm?a. It produces the quantity of output at which marginal revenue equals marginal cost, MR =

MC.b. It charges a price per unit for its product that is equal to marginal cost.c. It always earns a profit, because it is a single seller of a product.d. a and be. a and c

Exhibit 9-1

18. Refer to Exhibit 9-1. If the product is produced under perfect competition, what quantity will be produced and what price will be charged?a. Q1 units at P1

b. Q2 units at P1

c. Q1 units at P2

d. Q2 units at P2

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19. Refer to Exhibit 9-1. If the product is produced under single-price monopoly, what quantity will be produced and what price will be charged?a. Q2 units at P1

b. Q1 units at P1

c. Q1 units at P2

d. Q2 units at P2

20. Refer to Exhibit 9-1. If the product is produced under single-price monopoly, what do profits equal?a. area 0P1BQ1

b. area BCAc. area P1P2CBd. area P2CAP1

e. none of the above

21. Refer to Exhibit 9-1 The deadweight loss of monopoly is identified by what area?a. area Q1BAQ2

b. area BCAc. area P1P2CBd. area 0P1BQ1

e. none of the above

22. Refer to Exhibit 9-1. According to economist Gordon Tullock, what area is subject to rent-seeking activity?a. area Q1BAQ2

b. area BCAc. area P1P2CBd. area 0P1BQ1

e. none of the above

23. "X-inefficiency" refers toa. the fact that a monopolist wastes resources searching for the price at which it will sell its

product.b. the fact that monopolists don't have to produce at the lowest possible costs in order to

survive.c. the fact that perfectly competitive firms do not earn a profit in the long run and are not a

good investment.d. the difference between what consumers would be willing to pay for additional output from

a monopolist and the additional cost of providing that output.

24. Individuals who spend resources to influence public policy in a way that will redistribute income to themselves area. stabilizing the economy.b. rent seeking.c. engaging in collusion.d. minimizing explicit costs.

25. "Rent seeking" is socially wasteful becausea. resources devoted to transferring rents are not used to produce goods.b. wage income is converted into profit income.c. it results in higher prices than would exist without monopoly.d. it discourages innovation and risk taking.

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.Exhibit 9-2

26. Refer to Exhibit 9-2. The monopolist is maximizing profits ata. Q0 units and charging a price of P0.

b. Q0 units and charging a price of P1.

c. Q0 units and charging a price of P3.d. Q0 units and charging a price of P2.e. none of the above

27. Refer to Exhibit 9-2. Total revenue at the profit-maximizing quantity of output is thea. area 0Q0AP0.b. area 0Q0FP3.c. distance from Q0 to A.d. distance from Q0 to D.e. none of the above

28. Refer to Exhibit 9-2. The monopolist is operating ata. a zero economic profit.b. a positive economic profit.c. an economic loss.d. a normal profit.

29. Refer to Exhibit 9-2. This monopolist is earninga. an economic loss of area P2CFP3.b. an economic loss of area P0ACP2.c. an economic profit of area P2CFP3.d. an economic profit of area P0ACP2.

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.Exhibit 9-3

Price QuantityDemanded

Fixed Cost

Variable Cost

Total Revenue

Total Cost

Marginal Revenue

Marginal Cost

$100 0 $50 $0 (A) (H) 90 1 50 25 (B) (I) (O) (U) 80 2 50 40 (C) (J) (P) (V) 70 3 50 50 (D) (K) (Q) (W) 60 4 50 80 (E) (L) (R) (X) 50 5 50 130 (F) (M) (S) (Y) 40 6 50 190 (G) (N) (T) (Z)

30 Refer to Exhibit 9-3. The profit-maximizing single-price monopolist will producea. 3 units.b. 4 units.c. 5 units.d. 6 units.

31.Refer to Exhibit 9-3. The profit-maximizing single-price monopolist's maximum profit isa. $70.b. $80.c. $110.d. $130.e. $140.

32. Refer to Exhibit 9-3. The profit-maximizing perfectly price-discriminating monopolist will producea. 3 units.b. 4 units.c. 5 units.d. 6 units.

33 . Refer to Exhibit 9-3. The profit-maximizing perfectly price-discriminating monopolist's maximum profit isa. $50.b. $100.c. $110.d. $120.e. $170.

34. Refer to Exhibit 9-4. The single-price monopolist charges __________ price and produces __________ output as compared to the perfectly price-discriminating monopolist.a. a higher, a smallerb. a lower, a largerc. the same, the samed. the same, a largere. a lower, the same

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35. Refer to Exhibit 9-4. What dollar amounts go in blanks (A), (B), (C), (D), and (E), respectively?a. $50, $75, $90, $100, and $130b. $90, $70, $50, $30, and $10c. $25, $15, $10, $30, and $50d. $0, $90, $160, $210, and $240

36. Refer to Exhibit 9-4. What dollar amounts go in blanks (H), (I), (J), (K), and (L), respectively?a. $50, $75, $90, $100, and $130b. $90, $70, $50, $30, and $10c. $25, $15, $10, $30, and $50d. $0, $90, $160, $210, and $240

37 . Refer to Exhibit 9-4. What dollar amounts go in blanks (O), (P), (Q), and (R), respectively?a. $90, $80, $53.33, and $60b. $90, $70, $50, and $30c. $25, $15, $10, and $30d. $0, $90, $160, and $210

38. .Refer to Exhibit 9-4. What dollar amounts go in blanks (U), (V), (W), and (X), respectively?a. $90, $80, $53.33, and $60b. $90, $70, $50, and $30c. $25, $15, $10, and $30d. $75, $45, $33.33, and $32.50

39. Refer to Exhibit 9-4. What dollar amounts go in blanks (F) and (G), respectively?a. $250 and $240b. $180 and $240c. $300 and $290d. $230 and $280

40. Refer to Exhibit 9-4. What dollar amounts go in blanks (M) and (N), respectively?a. $250 and $240b. $180 and $240c. $300 and $290d. $230 and $280

41.Refer to Exhibit 9-4. What dollar amounts go in blanks (S) and (T), respectively?a. $50 and $40b. $10 and $20c. $50 and $60d. $10 and -$10

41. .Refer to Exhibit 9-4. What dollar amounts go in blanks (Y) and (Z), respectively?a. $50 and $10b. $36 and $40c. $50 and $60d. $10 and -$10

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