Question 1

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

Accepted Answer

a single firm producing a product for which there are no close substitutes.

Question 2

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

Accepted Answer

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

Question 3

A purely monopolistic firm:<has no entry barriers.<faces a downsloping demand curve.<produces a product or service for which there are many close substitutes.<earns only a normal in the long run.

Accepted Answer

faces a downsloping demand curve.

Question 4

Which of the following best approximates a pure monopoly?<The foreign exchange market.<The Kansas City wheat market.<The only bank in a small town.<The soft drink market.

Accepted Answer

The only bank in a small town.

Question 5

Large minimum efficient scale of plant combined with limited market demand may lead to:<natural monopoly.<patent monopoly.<government franchise monopoly.<shared monopoly.

Accepted Answer

natural monopoly.

Question 6

For an imperfectly competitive firm:<total revenue is a straight, upsloping line because a firm's sales are independent of product price.<the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold.<the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.<the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

Accepted Answer

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

Question 7

Refer to the data. The marginal revenue obtained from selling the third unit of output is:<$6.<$1.<$3.<$5.

Accepted Answer

$5

Question 8

Refer to the data. At the point where 3 units are being sold, the coefficient of price elasticity of demand:<cannot be estimated.<suggests that the market is purely competitive.<is less than unity (one).<is greater than unity (one).

Accepted Answer

is greater than unity (one).

Question 9

A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:<-$1,000.<$9,000.<$10,000.<$1,000.

Accepted Answer

$1,000.

Question 10

The demand curve faced by a pure monopolist:<may be either more or less elastic than that faced by a single purely competitive firm.<is less elastic than that faced by a single purely competitive firm.<has the same elasticity as that faced by a single purely competitive firm.<is more elastic than that faced by a single purely competitive firm.

Accepted Answer

is less elastic than that faced by a single purely competitive firm.

Question 11

The marginal revenue curve for a monopolist:<is a straight, upsloping curve.<rises at first, reaches a maximum, and then declines.<becomes negative when output increases beyond some particular level.<is a straight line, parallel to the horizontal axis.

Accepted Answer

becomes negative when output increases beyond some particular level.

Question 12

Which of the following is characteristic of a pure monopolist's demand curve?<Average revenue is less than price.<Its elasticity coefficient is 1 at all levels of output.<Price and marginal revenue are equal at all levels of output.<It is the same as the market demand curve.

Accepted Answer

It is the same as the market demand curve.

Question 13

For a pure monopolist the relationship between total revenue and marginal revenue is such that:<marginal revenue is positive when total revenue is at a maximum.<total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing.<marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.<marginal revenue is positive so long as total revenue is positive.

Accepted Answer

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

Question 14

For a pure monopolist, marginal revenue is less than price because:<the monopolist's demand curve is perfectly elastic.<the monopolist's demand curve is perfectly inelastic.<when a monopolist lowers price to sell more output, the lower price applies to all units sold.<the monopolist's total revenue curve is linear and slopes upward to the right.

Accepted Answer

when a monopolist lowers price to sell more output, the lower price applies to all units sold.

Question 15

Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should:<retain its current price-quantity combination.<increase both price and quantity sold.<charge a lower price.<charge a higher price.

Accepted Answer

charge a higher price.

Question 16

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that:<demand is inelastic at this price.<the firm is maximizing profits.<total revenue is increasing.<total revenue is at a maximum.

Accepted Answer

total revenue is increasing.

Question 17

Which of the following is incorrect? Imperfectly competitive producers:<face downsloping demand curves.<do not compete with one another.<can alter their output by changing price.<find that, when they reduce price, their total revenue increases by less than the new price.

Accepted Answer

do not compete with one another.

Question 18

Refer to the table. The monopolist will select its profit-maximizing level of output somewhere within the:<3-5 unit range of output.<1-3 unit range of output.<1-4 unit range of output.<2-4 unit range of output.

Accepted Answer

1-3 unit range of output.

Question 19

Refer to the table. The profit-maximizing monopolist will sell at a price:<of $10.<of $7.<of $5.<that cannot be determined with the information provided.

Accepted Answer

that cannot be determined with the information provided.

Question 20

Refer to the table. Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of:<$10.<$7.<$5.<$3.

Accepted Answer

$5.

Question 21

Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is:$9.75.$204.75.$4.75.$.25.

Accepted Answer

$4.75.

Question 22

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:<average total cost.<marginal revenue.<average variable cost.<average cost.

Accepted Answer

marginal revenue.

Question 23

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing:<a loss that could be reduced by producing more output.<a loss that could be reduced by producing less output.<an economic profit that could be increased by producing more output.<an economic profit that could be increased by producing less output.

Accepted Answer

an economic profit that could be increased by producing more output.

Question 24

A pure monopolist:<will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.<will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.<will realize an economic loss if MC intersects the downsloping portion of MR.<always realizes an economic profit.

Accepted Answer

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

Question 25

In the short run, a monopolist's economic profits:<are always positive because the monopolist is a price-maker.<are usually negative because of government price regulation.<are always zero because consumers prefer to buy from competitive sellers.<may be positive or negative depending on market demand and cost conditions.

Accepted Answer

may be positive or negative depending on market demand and cost conditions.

Question 26

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output):<if it discovered that it was producing where MC = MR.<if it discovered that it was producing where its MC curve intersects its demand curve.<if it discovered that it was producing where MC < MR.<under none of these circumstances because a monopolist would never lower price.

Accepted Answer

if it discovered that it was producing where MC < MR.

Question 27

Refer to the diagram. If this industry is purely monopolistic, the profit-maximizing price and quantity will be:<P3 and Q3.<P1 and Q1.<P2 and Q2.<indeterminate on the basis of the information given.

Accepted Answer

P3 and Q3.

Question 28

Refer to the diagram. If this industry is comprised of only one seller, the profit-maximizing price and quantity will be:<P3 and Q3.<P1 and Q3.<P2 and Q2.<indeterminate on the basis of the information given.

Accepted Answer

P3 and Q3.

Question 29

The supply curve for a monopolist is:<perfectly elastic.<upsloping.<that portion of the marginal cost curve lying above minimum average variable cost.<nonexistent.

Accepted Answer

nonexistent.

Question 30

To maximize profit, a pure monopolist must:<maximize its total revenue.<maximize the difference between marginal revenue and marginal cost.<maximize the difference between total revenue and total cost.<produce where average total cost is at a minimum.

Accepted Answer

maximize the difference between total revenue and total cost.

Question 31

Economic profit in the long run is:<possible for both a pure monopoly and a pure competitor.<possible for a pure monopoly but not for a pure competitor.<impossible for both a pure monopolist and a pure competitor.<only possible when barriers to entry are nonexistent.

Accepted Answer

possible for a pure monopoly but not for a pure competitor.

Question 32

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are:<overallocated because price exceeds marginal cost.<overallocated because marginal cost exceeds price.<underallocated because price exceeds marginal cost.<underallocated because marginal cost exceeds price.

Accepted Answer

underallocated because price exceeds marginal cost.

Question 33

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's:<price, output, and average total cost would all be higher.<price and average total cost would be higher, but output would be lower.<price, output, and average total cost would all be lower.<price and output would be lower, but average total cost would be higher.

Accepted Answer

price and average total cost would be higher, but output would be lower.

Question 34

The higher prices charged by monopolists:<are like a private tax that redistributes income from consumers to monopoly sellers.<are socially optimal because they better reflect how much society values the good relative to the resources used to produce it.<return to consumers through the public goods provided by monopolies.<have no effect on the distribution of income.

Accepted Answer

are like a private tax that redistributes income from consumers to monopoly sellers.

Question 35

Price discrimination refers to:<selling a given product for different prices at two different points in time.<any price above that which is equal to a minimum average total cost.<the selling of a given product at different prices to different customers that do not reflect cost differences.<the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

Accepted Answer

the selling of a given product at different prices to different customers that do not reflect cost differences.

Question 36

Which of the following conditions is not required for price discrimination?<Buyers with different elasticities must be physically separate from each other.<The good or service cannot be profitably resold by original buyers.<The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand.<The seller must possess some degree of monopoly power.

Accepted Answer

Buyers with different elasticities must be physically separate from each other.

Question 37

A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers):<different prices to compensate for differences in the characteristics of the product.<the same price if per unit cost is constant for each unit of the product.<that price that equals the buyer's marginal cost.<the maximum price each would be willing to pay.

Accepted Answer

the maximum price each would be willing to pay.

Question 38

Refer to the figure. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly); P denotes the price of a round of golf; Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should:<charge $9 for each round, regardless of the day of the week.<charge $7 for each round, regardless of the day of the week.<charge $7 for each round on weekdays and $10 during the weekend.<charge $9 for each round on weekdays and $10 during the weekend.

Accepted Answer

charge $7 for each round on weekdays and $10 during the weekend.

Question 39

Refer to the figure. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly); P denotes the price of a round of golf; Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, then over the course of a full seven-day week this price-discriminating, profit-maximizing golf course should sell a total of:<300 rounds.<740 rounds.<900 rounds.<1,200 rounds.

Accepted Answer

1,200 rounds.

Question 40

Refer to the figure. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly); P denotes the price of a round of golf; Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week?<$4,200.<$3,700.<$3,400.<$2,700.

Accepted Answer

$4,200.

Question 41

Other things equal, a price discriminating monopolist will:<realize a smaller economic profit than a nondiscriminating monopolist.<produce a larger output than a nondiscriminating monopolist.<produce the same output as a nondiscriminating monopolist.<produce a smaller output than a nondiscriminating monopolist.

Accepted Answer

produce a larger output than a nondiscriminating monopolist.

Question 42

A dilemma of regulation is that:<the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits.<the regulated price that results in a fair return restricts output by more than would unregulated monopoly.<regulated pricing always conflicts with the due process provision of the Constitution.<the regulated price that achieves allocative efficiency is also likely to result in losses.

Accepted Answer

the regulated price that achieves allocative efficiency is also likely to result in losses.

Question 43

If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price:<at which the marginal cost curve intersects the demand curve.<at which marginal revenue is zero.<at which the average total cost curve intersects the demand curve.<that corresponds with the equality of marginal cost and marginal revenue.

Accepted Answer

at which the marginal cost curve intersects the demand curve.

Question 44

If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then:<the firm will realize an economic profit.<the firm will earn only a normal profit.<allocative efficiency will be worsened.<the firm must be subsidized or it will go bankrupt.

Accepted Answer

the firm must be subsidized or it will go bankrupt.

Chapter 12 – Pure Monopoly example #30222

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