Question 1

Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat.These lower prices for electric heating result primarily from

Accepted Answer

A)  the existence of good heating substitutes.
B)  economies of scale in electric heat generation.
C)  prices for electric heat being set at the socially optimal level.
D)  strict government regulation of the price charged for electric heat.

Question 2

Which of the following does not necessarily apply to a pure monopoly?

Accepted Answer

A)  The product the firm produces must have no close substitutes.
B)  The firm must be the sole producer of a product.
C)  The firm will charge the highest price possible.
D)  Entry must be blocked.

Question 3

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

Accepted Answer

A)  more elastic in market X than in market Y.
B)  less elastic in market X than in market Y.
C)  less elastic in market Y than in market X.
D)  the same in both markets X and Y.

Question 4

Which is the best example of price discrimination?

Accepted Answer

A)  an airline company charging lower fares per pound for air freight than for passengers
B)  a telephone company charging lower rates to weekend users than weekday users
C)  a supermarket charging lower prices in its city stores than its out-of-the-way rural store
D)  a private doctor charging higher fees to patients receiving special services than patients receiving regular services

Question 5

X-inefficiency refers to a situation in which a firm

Accepted Answer

A)  is not as technologically progressive as it might be.
B)  encounters diseconomies of scale.
C)  fails to realize all existing economies of scale.
D)  fails to achieve the minimum average total costs attainable at each level of output.

Question 6

Which of the following statements is correct?

Accepted Answer

A)  The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero.
B)  In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.
C)  The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest.
D)  Purely monopolistic sellers earn only normal profits in the long run.

Question 7

Which of the following is a barrier to entry?

Accepted Answer

A)  patents and licenses
B)  buyers' incomes
C)  close substitutes
D)  diminishing marginal returns

Question 8

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

Accepted Answer

A)  average total cost.
B)  marginal revenue.
C)  average variable cost.
D)  average cost.

Question 9

Marginal costs of a producer may be very small due to its product's ability to satisfy a large number of consumers at the same time.This characteristic of a product is called

Accepted Answer

A)  economies of scale.
B)  rent-seeking.
C)  simultaneous consumption.
D)  consumer sovereignty.

Question 10

In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following best approximates a pure monopoly?

Accepted Answer

A)  the foreign exchange market
B)  the Kansas City wheat market
C)  the only grocery store in a small isolated town
D)  the soft drink market

Question 12

A monopolist can use its pricing strategy as a barrier to entry by other firms.

Accepted Answer

A) True 
 B)False

Question 13

The pure monopolist's demand curve is relatively elastic

Accepted Answer

A)  in the price range where total revenue is declining.
B)  at all points where the demand curve lies above the horizontal axis.
C)  in the price range where marginal revenue is negative.
D)  in the price range where marginal revenue is positive.

Question 14

An unregulated pure monopolist will maximize profits by producing that output at which

Accepted Answer

A)  P = MC.
B)  P = ATC.
C)  MR = MC.
D)  MC = AC.

Question 15

Even though many ballparks practice price discrimination between adults and children in selling tickets, such discrimination is not applied at the concession stands because

Accepted Answer

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, whoâ€™d buy it at a lower price, to adults.
D)  there can be exchange of the product from adults, whoâ€™d buy it at a higher price, to children.

Question 16

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit.The monopolist will produce and sell the fifth unit if its marginal cost is

Accepted Answer

A)  $1 or less.
B)  $.75 or less.
C)  $1.75 or less.
D)  $2 or less.

Question 17

What is the meaning of the phrase "dilemma of regulation"?

Accepted Answer

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.

Question 18

With nonrivalrous consumption, such as in the case of online music and movies, as more consumers buy the product,

Accepted Answer

A)  the average cost of the output declines because the marginal cost is very small.
B)  marginal cost is low, but the average cost of the output will be rising.
C)  the average cost of the output will be rising because marginal cost is quite high.
D)  marginal cost is quite high, but the average cost of the output will be declining.

Question 19

Assuming no change in product demand, a pure monopolist

Accepted Answer

A)  can increase price and increase sales simultaneously because it dominates the market.
B)  adds an amount to total revenue that is equal to the price of incremental sales.
C)  should produce in the range where marginal revenue is negative.
D)  must lower price to increase sales.

Question 20

A pure monopolist should never produce in the

Accepted Answer

A)  elastic segment of its demand curve, because it can increase total revenue and reduce total cost by lowering price.
B)  inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price.
C)  inelastic segment of its demand curve, because it can always increase total revenue by more than it increases total cost by reducing price.
D)  segment of its demand curve, where the price elasticity coefficient is greater than one.

Exam 12: Pure Monopoly

A monopolist can use its pricing strategy as a barrier to entry by other firms.

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The pure monopolist's demand curve is relatively elastic

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Which is the best example of price discrimination?

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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

Correct AnswerverifiedShow Answer

A pure monopolist should never produce in the

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Which of the following is a barrier to entry?

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Even though many ballparks practice price discrimination between adults and children in selling tickets, such discrimination is not applied at the concession stands because

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X-inefficiency refers to a situation in which a firm

Correct AnswerverifiedShow Answer

In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum.

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Which of the following statements is correct?

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What is the meaning of the phrase "dilemma of regulation"?

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Which of the following best approximates a pure monopoly?

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Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit.The monopolist will produce and sell the fifth unit if its marginal cost is

Correct AnswerverifiedShow Answer

With nonrivalrous consumption, such as in the case of online music and movies, as more consumers buy the product,

Correct AnswerverifiedShow Answer

An unregulated pure monopolist will maximize profits by producing that output at which

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Assuming no change in product demand, a pure monopolist

Correct AnswerverifiedShow Answer

Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat.These lower prices for electric heating result primarily from

Correct AnswerverifiedShow Answer

Marginal costs of a producer may be very small due to its product's ability to satisfy a large number of consumers at the same time.This characteristic of a product is called

Correct AnswerverifiedShow Answer

Which of the following does not necessarily apply to a pure monopoly?

Correct AnswerverifiedShow Answer

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

Correct AnswerverifiedShow Answer

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