Question 1

An argument for making regulated monopolies adopt marginal-cost pricing is that this would

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 2

Many people believe that monopolies charge any price they want to without affecting sales.In fact, the output and sales level for a profit- maximizing monopoly is codetermined with price where

Accepted Answer

A)  marginal cost = average revenue.
B)  marginal revenue = average cost.
C)  average total cost = average revenue.
D)  marginal cost = marginal revenue.E) B) and C)
F) B) and D)

Question 3

Monopolists are said to be allocatively inefficient because

Accepted Answer

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.E) B) and D)
F) B) and C)

Question 4

In order to maximize profits, the monopolist will produce the output level where MR = MC and charge a price equal to MR and MC.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct?

Accepted Answer

A)  In the short run, the pure monopolist will maximize total profits by producing at that level of output where the difference between price and average total cost is greatest.
B)  In the short run, the pure monopolist will charge the highest price it can get for its product.
C)  Because of its ability to set its own price, the pure monopolist can increase price and increase its volume of sales simultaneously.
D)  Pure monopolists do not always realize positive profits, sometimes they suffer losses.E) A) and C)
F) A) and B)

Question 6

If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably

Accepted Answer

A)  raise price and reduce output.
B)  reduce price and raise output.
C)  start operating at the inelastic portion of its demand curve.
D)  increase production so that MR > MC.E) B) and C)
F) None of the above

Question 7

In a natural monopoly case, the socially optimal pricing policy rule will often yield a higher price than the fair-return pricing rule.

Accepted Answer

A) True 
 B)False

Question 8

Price discrimination refers to

Accepted Answer

A)  selling a given product for different prices at two different points in time.
B)  any price above that which is equal to a minimum average total cost.
C)  the selling of a given product to different customers at different prices that do not reflect cost differences.
D)  the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.E) A) and C)
F) A) and B)

Question 9

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

Accepted Answer

A)  P > ATC.
B)  P > MR.
C)  P > MC.
D)  P > AVC.E) B) and D)
F) None of the above

Question 10

For a pure nondiscriminating monopolist, marginal revenue is less than price because

Accepted Answer

A)  the monopolist's demand curve is perfectly elastic.
B)  the monopolist's demand curve is perfectly inelastic.
C)  when a monopolist lowers price to sell more output, the lower price applies to all units sold.
D)  the monopolist's total revenue curve is linear and slopes upward to the right.E) B) and C)
F) All of the above

Question 11

A natural monopoly occurs when

Accepted Answer

A)  long-run average costs decline continuously through the range of demand.
B)  a firm owns or controls some resource essential to production.
C)  long-run average costs rise continuously as output is increased.
D)  economies of scale are obtained at relatively low levels of output.E) B) and C)
F) A) and B) A

Question 12

Other things equal, in which of the following cases would economic profit be the greatest?

Accepted Answer

A)  an unregulated monopolist that is able to engage in price discrimination
B)  an unregulated, nondiscriminating monopolist
C)  a regulated monopolist charging a price equal to average total cost
D)  a regulated monopolist charging a price equal to marginal costE) None of the above
F) B) and D)

Question 13

When compared with the purely competitive industry with identical costs of production, a monopolist will produce

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 14

A firm will earn economic profits whenever

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 15

Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly.Economists refer to these expenditures as

Accepted Answer

A)  rent-seeking.
B)  price discrimination.
C)  X-efficiency.
D)  network effects.E) A) and D)
F) B) and C) A

Question 16

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

Accepted Answer

A)  the quantity demanded.
B)  product price and marginal revenue.
C)  total revenue.
D)  product price and average revenue.E) A) and B)
F) A) and C)

Question 17

Which of the following is not a barrier to entry?

Accepted Answer

A)  patents
B)  X-inefficiency
C)  economies of scale
D)  ownership of essential resourcesE) C) and D)
F) A) and C)

Question 18

The government may create barriers to entry that serve to foster monopoly power of firms.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a characteristic of pure monopoly?

Accepted Answer

A)  close substitute products
B)  barriers to entry
C)  the absence of market power
D)  "price taking"E) B) and C)
F) C) and D) B

Question 20

Which of the following statements is correct?

Accepted Answer

A)  Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization.
B)  Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency.
C)  Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products.
D)  Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits.E) A) and D)
F) A) and C)

Exam 12: Pure Monopoly

An argument for making regulated monopolies adopt marginal-cost pricing is that this would

Correct AnswerverifiedShow Answer

Many people believe that monopolies charge any price they want to without affecting sales.In fact, the output and sales level for a profit- maximizing monopoly is codetermined with price where

Correct AnswerverifiedShow Answer

Monopolists are said to be allocatively inefficient because

Correct AnswerverifiedShow Answer

In order to maximize profits, the monopolist will produce the output level where MR = MC and charge a price equal to MR and MC.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably

Correct AnswerverifiedShow Answer

In a natural monopoly case, the socially optimal pricing policy rule will often yield a higher price than the fair-return pricing rule.

Correct AnswerverifiedShow Answer

Price discrimination refers to

Correct AnswerverifiedShow Answer

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

Correct AnswerverifiedShow Answer

For a pure nondiscriminating monopolist, marginal revenue is less than price because

Correct AnswerverifiedShow Answer

A natural monopoly occurs when

Correct AnswerverifiedA

Other things equal, in which of the following cases would economic profit be the greatest?

Correct AnswerverifiedShow Answer

When compared with the purely competitive industry with identical costs of production, a monopolist will produce

Correct AnswerverifiedShow Answer

A firm will earn economic profits whenever

Correct AnswerverifiedShow Answer

Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly.Economists refer to these expenditures as

Correct AnswerverifiedA

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

Correct AnswerverifiedShow Answer

Which of the following is not a barrier to entry?

Correct AnswerverifiedShow Answer

The government may create barriers to entry that serve to foster monopoly power of firms.

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of pure monopoly?

Correct AnswerverifiedB

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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A

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