Question 1

In the inelastic portion of a monopolist's demand curve, an increase in price will

Accepted Answer

A)   reduce output quantity, increase total revenue, and increase total cost.
B)   reduce output quantity, increase total revenue, and decrease total cost.
C)   raise output quantity, decrease total revenue, and increase total cost.
D)   reduce output quantity, decrease total revenue, and decrease total cost.

Question 2

Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy option?

Accepted Answer

A)   If the monopoly is attained and maintained through anticompetitive behavior, the government can file a suit based on antitrust laws.
B)   If the firm is a natural monopoly, the government may decide to regulate its prices and operations.
C)   If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry.
D)   If the monopoly is subject, and vulnerable, to potential competition, the government can decide to leave it alone.

Question 3

One argument for having the government regulate natural monopolies is that without regulation,

Accepted Answer

A)   these monopolies usually produce things that are potentially harmful to our health.
B)   these monopolies produce at a level where marginal benefit is greater than marginal cost.
C)   these monopolies produce at a level where marginal benefit is less than marginal cost.
D)   the industry would become competitive and there would be too many firms in the market to achieve efficiency.

Question 4

The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 5

The MR = MC rule

Accepted Answer

A)   applies only to pure competition.
B)   applies only to pure monopoly.
C)   does not apply to pure monopoly, because price exceeds marginal revenue.
D)   applies both to pure monopoly and pure competition.

Question 6

Barriers to entry

Accepted Answer

A)   usually result in pure competition.
B)   can result from government regulation.
C)   exist in economic theory but not in the real world.
D)   are typically the result of wrongdoing on the part of a firm.

Question 7

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

Accepted Answer

A)   equals marginal revenue.
B)   will vertically intersect demand where MR = MC.
C)   will always equal ATC.
D)   always exceeds ATC.

Question 8

The nondiscriminating monopolist's demand curve

Accepted Answer

A)   is less elastic than a purely competitive firm's demand curve.
B)   is perfectly elastic.
C)   coincides with its marginal revenue curve.
D)   is perfectly inelastic.

Question 9

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.

Question 10

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 11

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

Accepted Answer

A)   may be either greater or less than $35.
B)   will also be $35.
C)   will be less than $35.
D)   will be greater than $35.

Question 12

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 13

If profits are maximized (or losses minimized) , which of the following conditions is common to both unregulated monopoly and pure competition?

Accepted Answer

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

Question 14

When a firm is on the inelastic segment of its demand curve, it can

Accepted Answer

A)   increase total revenue by reducing price.
B)   decrease total costs by decreasing price.
C)   increase profits by increasing price.
D)   increase total revenue by more than the increase in total cost by increasing price.

Question 15

For an imperfectly competitive firm,

Accepted Answer

A)   total revenue is a straight, upsloping line because a firm's sales are independent of product price.
B)   the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold.
C)   the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
D)   the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

Question 16

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

Accepted Answer

A) True 
 B)False

Question 17

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

Accepted Answer

A) True 
 B)False

Question 18

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output) ?

Accepted Answer

A)   if it discovered that it was producing where MC = MR
B)   if it discovered that it was producing where its MC curve intersects its demand curve
C)   if it discovered that it was producing where MC 
D)   under none of these circumstances because a monopolist would never lower price

Question 19

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.

Question 20

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.

Exam 12: Pure Monopoly

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

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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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For an imperfectly competitive firm,

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A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

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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

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Pure monopoly refers to

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The nondiscriminating monopolist's demand curve

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If profits are maximized (or losses minimized) , which of the following conditions is common to both unregulated monopoly and pure competition?

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A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

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Barriers to entry

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When a firm is on the inelastic segment of its demand curve, it can

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If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

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Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy option?

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Under which of the following situations would a monopolist increase profits by lowering price (and increasing output) ?

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Price discrimination refers to

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The MR = MC rule

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In the inelastic portion of a monopolist's demand curve, an increase in price will

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The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.

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A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

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One argument for having the government regulate natural monopolies is that without regulation,

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