Question 1

In the short run, a monopolist's economic profits

Accepted Answer

A)  are always positive because the monopolist is a price-maker.
B)  are usually negative because of government price regulation.
C)  are always zero because consumers prefer to buy from competitive sellers.
D)  may be positive or negative depending on market demand and cost conditions.

Question 2

Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be

Accepted Answer

A)  positive and demand is elastic.
B)  negative and demand is elastic.
C)  positive and demand is inelastic.
D)  negative and demand is inelastic.

Question 3

Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.

Accepted Answer

A) True 
 B)False

Question 4

Based on the accompanying table, how many units would the given profit-maximizing non discriminating pure monopolist produce?

Accepted Answer

A)  1
B)  2
C)  3
D)  4

Question 5

Barriers to entering an industry

Accepted Answer

A)  encourage allocative efficiency.
B)  encourage productive efficiency.
C)  are the basis for monopoly.
D)  apply only to purely monopolistic industries.

Question 6

One major barrier to entry under pure monopoly arises from

Accepted Answer

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.

Question 7

X-inefficiency is said to occur when a monopolist's

Accepted Answer

A)  average cost is greater than the minimum possible average cost.
B)  marginal costs are greater than the minimum possible average cost.
C)  output level is higher than is socially optimal.
D)  price is higher than its average cost.

Question 8

Pure monopolists

Accepted Answer

A)  maximize MR.
B)  are price takers.
C)  operate where P > MC.
D)  face demand curves that are perfectly inelastic.

Question 9

An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

Accepted Answer

A)  copyright.
B)  franchise.
C)  patent.
D)  license.

Question 10

If a monopolist finds itself operating in the inelastic portion of its demand curve, then it should never lower its price because doing so would reduce its profits.

Accepted Answer

A) True 
 B)False

Question 11

Consumers who clip and redeem discount coupons

Accepted Answer

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.

Question 12

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized.At that output, the price elasticity of demand for the product is

Accepted Answer

A)  greater or equal to one.
B)  less than one.
C)  equal to one.
D)  impossible to determine.

Question 13

Pure monopoly refers to

Accepted Answer

A)  any market in which the demand curve for 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.

Question 14

In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally

Accepted Answer

A)  increase price and decrease production.
B)  not change its level of output or price.
C)  decrease the price it charges for its product.
D)  increase its output and practice price discrimination.

Question 15

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

Accepted Answer

A)  overallocated because price exceeds marginal cost.
B)  overallocated because marginal cost exceeds price.
C)  underallocated because price exceeds marginal cost.
D)  underallocated because marginal cost exceeds price.

Question 16

Which of the following is not a barrier to entry in an industry?

Accepted Answer

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

Question 17

Pure monopolists always earn economic profits.

Accepted Answer

A) True 
 B)False

Question 18

Under pure monopoly, a profit-maximizing firm will produce

Accepted Answer

A)  in the inelastic range of its demand curve.
B)  in the elastic range of its demand curve.
C)  only where marginal costs are decreasing.
D)  only where marginal revenue is increasing.

Question 19

At its profit-maximizing output, a pure nondiscriminating monopolist achieves

Accepted Answer

A)  neither productive efficiency nor allocative efficiency.
B)  both productive efficiency and allocative efficiency.
C)  productive efficiency but not allocative efficiency.
D)  allocative efficiency but not productive efficiency.

Question 20

To practice long-run price discrimination, a monopolist must

Accepted Answer

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.

Exam 12: Pure Monopoly

Consumers who clip and redeem discount coupons

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Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be

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If a monopolist finds itself operating in the inelastic portion of its demand curve, then it should never lower its price because doing so would reduce its profits.

Correct AnswerverifiedShow Answer

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized.At that output, the price elasticity of demand for the product is

Correct AnswerverifiedShow Answer

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

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Under pure monopoly, a profit-maximizing firm will produce

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Pure monopolists

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In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally

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Pure monopoly refers to

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At its profit-maximizing output, a pure nondiscriminating monopolist achieves

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One major barrier to entry under pure monopoly arises from

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X-inefficiency is said to occur when a monopolist's

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In the short run, a monopolist's economic profits

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Which of the following is not a barrier to entry in an industry?

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An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

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Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.

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Barriers to entering an industry

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To practice long-run price discrimination, a monopolist must

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Pure monopolists always earn economic profits.

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Based on the accompanying table, how many units would the given profit-maximizing non discriminating pure monopolist produce?

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