Question 1

Which of the following goods is the best example of a natural monopoly?

Accepted Answer

A)  distribution of electricity
B)  diamonds
C)  first-class mail
D)  a patented good
E)  blouses

Question 2

The process of price cap regulation includes which of the following?
I∙a price ceiling.
Ii∙marginal cost pricing.
Iii∙average cost pricing

Accepted Answer

A)  i only
B)  ii only
C)  i and ii
D)  ii and iii
E)  i and iii

Question 3

When a regulatory agency uses rate of return regulation, the

Accepted Answer

A)  agency is able to eliminate the deadweight loss.
B)  firm's managers have an incentive to inflate the firm's costs.
C)  regulated firm's profit must be maximized for the market to be efficient.
D)  regulated firm must receive a government subsidy.
E)  the agency is using a form of marginal cost pricing.

Question 4

What is a marginal cost pricing rule and an average cost pricing rule? What are the disadvantages and advantages of each?

Accepted Answer

Natural monopolies can be regulated usin...

Question 5

Compare and contrast the effect of perfect competition to the effect of perfect price discrimination on:
a∙ efficiency.
b∙consumer surplus.
c∙economic profit in the long run.

Accepted Answer

a∙Both perfect competition and perfect p...

Question 6

-Suppose the grocery store market in Kansas City is perfectly competitive.Then one store buys all the others and becomes a single-price monopoly.The figure above shows the relevant demand and cost curves.When the market is perfectly competitive, the price of a pound of steak is

Accepted Answer

A)  $4.
B)  $8.
C)  $12.
D)  $20.
E)  $2.

Question 7

Under a marginal cost pricing rule, a natural monopoly

Accepted Answer

A)  makes a reasonable profit.
B)  makes an economic profit.
C)  earns accounting profits, but breaks even in economic terms.
D)  incurs an economic loss.
E)  makes a normal profit but it cannot be determined whether or not it makes an accounting profit.

Question 8

If a natural monopoly is told to set price equal to average cost, then the firm

Accepted Answer

A)  is not able to set marginal revenue equal to marginal cost.
B)  automatically also sets price equal to marginal cost.
C)  will make a substantial economic profit.
D)  will incur an economic loss.
E)  sets a price that is lower than its marginal cost.

Question 9

Suppose that along a linear demand curve, the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units.Then the

Accepted Answer

A)  total revenue is at its maximum when 100 units are produced.
B)  marginal revenue is positive at 100 units.
C)  marginal revenue is negative at 100 units.
D)  Both answers A and B are correct.
E)  Both answers A and C are correct.

Question 10

Who receives benefits if regulation works according to social interest theory?

Accepted Answer

A)  the entire economy
B)  cohesive interest groups
C)  everyone not in the cohesive interest group
D)  the regulators
E)  It is impossible to determine who benefits.

Question 11

-The table above gives the demand for a monopolist's output.What is the marginal revenue when output is increased from 5 to 6 units?

Accepted Answer

A)  $18
B)  $4
C)  $3
D)  -$2

Question 12

Compared to a single-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss

Accepted Answer

A)  increases.
B)  decreases.
C)  remains the same.
D)  becomes infinite.
E)  probably changes, but more information is needed to determine if it increases, decreases, or remains constant.

Question 13

Firms that can effectively price discriminate

Accepted Answer

A)  can be either perfectly competitive firms or monopolies.
B)  can prevent the resale of their products.
C)  have only one class of buyers, buyers willing to pay a high price.
D)  Both answers A and B are correct.
E)  Both answers A and C are correct.

Question 14

If we compare a perfectly competitive market to a single-price monopoly with the same costs, the monopoly sells

Accepted Answer

A)  the same quantity at a higher price.
B)  a smaller quantity at a higher price.
C)  a larger quantity at a lower price.
D)  a larger quantity at a higher price.
E)  a smaller quantity at the same price.

Question 15

Electric utilities are often considered natural monopolies and are regulated.When would the price be highest: when the utility is not regulated, when it is regulated using an average cost pricing rule, or when it is regulated using a marginal cost pricing rule? When would its price be lowest?

Accepted Answer

The price would be highest if ...

Question 16

When a firm is able to engage in perfect price discrimination, its marginal revenue curve

Accepted Answer

A)  lies below its demand curve.
B)  is the same as its demand curve.
C)  lies above its demand curve.
D)  is the same as its supply curve.
E)  is undefined because it does not exist.

Question 17

The figure above shows a natural monopoly.
-In the figure above, if the firm is regulated using a marginal cost pricing rule, the deadweight loss created is equal to the area of

Accepted Answer

A)  ABG.
B)  BEFG.
C)  BCFG.
D)  BCE.
E)  None of the above because there is no deadweight loss created.

Question 18

The capture theory of regulation assumes that regulation benefits

Accepted Answer

A)  producers.
B)  consumers.
C)  government.
D)  the general public.
E)  the regulators.

Question 19

A monopoly produces a product ________ and there ________ barriers to entry into the market.

Accepted Answer

A)  identical to its many competitors; are
B)  with no close substitutes; are
C)  identical to its many competitors; are no
D)  with no close substitutes; are no
E)  slightly different from those of its many competitors; are

Question 20

Compared to the situation in which it sets a single price, a monopoly that price discriminates ________ its economic profit and ________ its output.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  decreases; increases
D)  decreases; decreases
E)  increases; does not change

Exam 16: Monopoly

What is a marginal cost pricing rule and an average cost pricing rule? What are the disadvantages and advantages of each?

Correct AnswerverifiedNatural monopolies can be regulated usin...View AnswerShow Answer

The figure above shows a natural monopoly. -In the figure above, if the firm is regulated using a marginal cost pricing rule, the deadweight loss created is equal to the area of

Correct AnswerverifiedShow Answer

When a regulatory agency uses rate of return regulation, the

Correct AnswerverifiedShow Answer

Under a marginal cost pricing rule, a natural monopoly

Correct AnswerverifiedShow Answer

Compare and contrast the effect of perfect competition to the effect of perfect price discrimination on: a∙ efficiency. b∙consumer surplus. c∙economic profit in the long run.

Correct Answerverifieda∙Both perfect competition and perfect p...View AnswerShow Answer

When a firm is able to engage in perfect price discrimination, its marginal revenue curve

Correct AnswerverifiedShow Answer

Suppose that along a linear demand curve, the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units.Then the

Correct AnswerverifiedShow Answer

The process of price cap regulation includes which of the following? I∙a price ceiling. Ii∙marginal cost pricing. Iii∙average cost pricing

Correct AnswerverifiedShow Answer

The capture theory of regulation assumes that regulation benefits

Correct AnswerverifiedShow Answer

Compared to a single-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss

Correct AnswerverifiedShow Answer

-Suppose the grocery store market in Kansas City is perfectly competitive.Then one store buys all the others and becomes a single-price monopoly.The figure above shows the relevant demand and cost curves.When the market is perfectly competitive, the price of a pound of steak is

Correct AnswerverifiedShow Answer

If a natural monopoly is told to set price equal to average cost, then the firm

Correct AnswerverifiedShow Answer

If we compare a perfectly competitive market to a single-price monopoly with the same costs, the monopoly sells

Correct AnswerverifiedShow Answer

Which of the following goods is the best example of a natural monopoly?

Correct AnswerverifiedShow Answer

Firms that can effectively price discriminate

Correct AnswerverifiedShow Answer

Compared to the situation in which it sets a single price, a monopoly that price discriminates ________ its economic profit and ________ its output.

Correct AnswerverifiedShow Answer

Who receives benefits if regulation works according to social interest theory?

Correct AnswerverifiedShow Answer

Electric utilities are often considered natural monopolies and are regulated.When would the price be highest: when the utility is not regulated, when it is regulated using an average cost pricing rule, or when it is regulated using a marginal cost pricing rule? When would its price be lowest?

Correct AnswerverifiedThe price would be highest if ...View AnswerShow Answer

-The table above gives the demand for a monopolist's output.What is the marginal revenue when output is increased from 5 to 6 units?

Correct AnswerverifiedShow Answer

A monopoly produces a product ________ and there ________ barriers to entry into the market.

Correct AnswerverifiedShow Answer

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Natural monopolies can be regulated usin...
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a∙Both perfect competition and perfect p...
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Compared to the situation in which it sets a single price, a monopoly that price discriminates its economic profit and its output.

Correct Answer
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The price would be highest if ...
View Answer

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A monopoly produces a product and there barriers to entry into the market.

Correct Answer
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