ECON 3910 Intermediate Micro -Monopoly Quiz

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Chapter Fourteen

 

Practice Problems

 

1) A monopoly is

 

a) a firm that is the only seller of a good or service that does not have a close substitute.

 

b) a firm that is the only buyer of a factor of production.

 

c) a firm in a market with a small number of independent firms that compete.

 

d) a firm in a competitive market with many other sellers.

 

 

 

 

 

2) A natural monopoly

 

a) is the only firm legally allowed to produce a product due to a government patent.

 

b) develops automatically due to economies of scale.

 

c) produces a product whose usefulness increases with the number of consumers who use it.

 

d) is a public franchise.

 

e) develops automatically due to diseconomies of scale.

 

 

 

 

 

3) What is the relationship between a monopolist's demand curve and the market demand curve?

 

a) The market demand curve is the sum of the demand curves for all firms in the market

 

b) A monopolist's demand curve is upward sloping and the market demand curve is downward sloping.

 

c) A monopolist's demand curve is less than the market demand curve.

 

d) A monopolist's demand curve is the same as the market demand curve.

 

 

 

 

 

4) What is the relationship between a monopolist's demand curve and its marginal revenue curve?

 

a) A monopolist's marginal revenue curve lies below its demand curve, because to sell more output, a monopoly must lower price.

 

b) A monopolist's marginal revenue curve has twice the slope of it demand curve due to constant returns to scale.

 

c) A monopolist's demand curve is downward sloping and its marginal revenue curve is upward sloping.

 

d) A monopolist's demand curve is the same as its marginal revenue curve.

 

 

 

 

 

5) In today's U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time?

 

a) Pharmaceuticals

 

b) fast food restaurants

 

c) accounting services

 

d) hair salons

 

 

 

 

 

6) The monopolist's marginal revenue curve is downward-sloping because:

 

a) the monopolist must lower his price in order to sell more.

 

b) it operates in the range where ATC is downward-sloping.

 

c) it operates in the range where MC is downward-sloping.

 

d) total revenue declines as it sells more.

 

 

 

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7) Suppose an industry initially had been perfectly competitive and then became a monopoly. Which of the following would occur?

 

a) consumer surplus would decrease

 

b) consumer surplus would increase.

 

c) producer surplus would decrease

 

d) the deadweight loss eliminated

 

 

 

 

 

8) Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given respectively by the equations P = 40-2Q and MR = 40-4Q. For this firm, the profit-maximizing price and output levels are:

 

a) P = $12; Q = 12

 

b) P = $20; Q = 20

 

c) P = $24; Q = 16

 

d) P = $24; Q = 8

 

 

 

9) Which of the following statements about monopoly is NOT correct?

 

a) In order for a monopoly to persist, there must be barriers to the entry of other firms.

 

b) When a monopolist increases production, the quantity effect will tend to increase total revenue and the price effect will tend to decrease total revenue.

 

c) A monopolist can sell as much as it wants at whatever price it chooses.

 

d) Because a monopoly has market power, it will charge a price higher than what would prevail under conditions of perfect competition.

 

 

 

 

 

10) Suppose a monopoly firm has a constant marginal cost equal to $10. Its demand and marginal revenue curves are given respectively by the equations P = 86-2Q and MR = 86-4Q. For this firm, the profit-maximizing price and output levels are:

 

a) P = $48; Q = 19

 

b) P = $43; Q = 17

 

c) P = $43; Q = 10

 

d) P = $21.50; Q = 5

 

 

 

 

 

11) Monopoly arises when:

 

a) there is a firm desiring to compete in many markets.

 

b) there is a firm wanting to maximize profits.

 

c) there are barriers to the entry of other firms.

 

d) there is government intervention to establish and enforce a price ceiling.

 

 

 

 

 

12) Price discrimination is:

 

a) charging different prices to different customers based on different costs of serving them.

 

b) charging different prices to different customers based on their willingness to pay.

 

c) an illegal practice.

 

d) a practice that leads to the same outcome as would public ownership of a monopoly.

 

 

 

 

 

13) If a monopolist engages in price discrimination, it is with the goal of:

 

a) improving goodwill with the public.

 

b) increasing profit.

 

c) lowering cost.

 

d) making the demand for its good less elastic.

 

 

 

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14) A monopolist

 

a) has a supply curve equal to its marginal revenue curve.

 

b) does not have a supply curve because it does not maximize profits.

 

c) does not have a supply curve because it is a price maker with one profit-maximizing price-quantity combination.

 

d) does not have a supply curve because it does not have a demand curve.

 

 

 

 

 

15) One difference between monopoly and perfect competition is that:

 

a) A monopolist seeks to maximize profit; a perfect competitor does not.

 

b) A perfect competitor seeks to maximize profit; a monopolist does not.

 

c) The marginal revenue curve for a perfect competitor is downward-sloping, and for a monopolist it is horizontal.

 

d) The marginal revenue curve for a monopolist is downward-sloping, and for a perfect competitor it is horizontal.

 

 

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