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Objective QA - Monopoly

The document discusses key concepts about monopoly, including: 1) A monopoly is the sole seller of a product without close substitutes and faces the market demand curve. 2) For a monopolist, marginal revenue is always less than price and the profit-maximizing quantity is where marginal revenue equals marginal cost. 3) The inefficiency of monopoly is that it produces less output than would be efficient and charges a price above marginal cost.

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Rajwinder Singh Bansal
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126 views

Objective QA - Monopoly

The document discusses key concepts about monopoly, including: 1) A monopoly is the sole seller of a product without close substitutes and faces the market demand curve. 2) For a monopolist, marginal revenue is always less than price and the profit-maximizing quantity is where marginal revenue equals marginal cost. 3) The inefficiency of monopoly is that it produces less output than would be efficient and charges a price above marginal cost.

Uploaded by

Rajwinder Singh Bansal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Microeconomics - Monopoly

True/False
Indicate whether the sentence or statement is true or false.
 
 1. Monopolists are price takers.

F
ANSWER: 
 
 2. A monopoly is the sole seller of a product with no close substitutes.

T
ANSWER: 
 
 3. A natural monopoly is a monopoly that uses its ownership of natural resources as a barrier to
entry into its market.

F
ANSWER: 
 
 4. The demand curve facing a monopolist is the market demand curve for its product.

T
ANSWER: 
 
 5. For the monopolist, marginal revenue is always less than the price of the good.

T
ANSWER: 
 
 6. The monopolist chooses the quantity of output at which marginal revenue equals marginal
cost and then uses the demand curve to find the price that will induce consumers to buy that
quantity.

T
ANSWER: 
 
 7. A monopolist produces an efficient quantity of output but it is still inefficient because it
charges a price that exceeds marginal cost and the resulting profit is a social cost.

F
ANSWER: 
 
 8. Using regulations to force a natural monopoly to charge a price equal to its marginal cost of
production will cause the monopoly to lose money and exit the industry.

T
ANSWER: 
 
 9. Price discrimination is only possible if there is no arbitrage.

T
ANSWER: 
 
 10. Price discrimination can raise economic welfare because output increases beyond that which
would result under monopoly pricing.

T
ANSWER: 
 
 11. Perfect price discrimination is efficient but all of the surplus is received by the consumer.

F
ANSWER: 
 
 12. Which of the following is not a barrier to entry in a monopolized market?
a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some good.
c. The costs of production make a single producer more efficient than a large number
of producers.
d. A key resource is owned by a single firm.

A
ANSWER: 
 
 13. A firm whose average total cost continually declines at least to the quantity that could
supply the entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.

A
ANSWER: 
 
 14. A monopolist maximizes profit by producing the quantity at which
a. marginal revenue equals marginal cost.
b. marginal revenue equals price.
c. marginal cost equals price.
d. marginal cost equals demand.
e. none of these answers.

A
ANSWER: 
 
 15. Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets, price
exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets, price
equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized markets, price
exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized markets, price
equals marginal cost.

A
ANSWER: 
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 
 16. Thomson is a monopolist in the production of your textbook because
a. Thomson has a legally protected exclusive right to produce this textbook.
b. Thomson owns a key resource in the production of textbooks.
c. Thomson is a natural monopoly.
d. Thomson is a very large company.

A
ANSWER: 
 
 17. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and quantity
represented by point
a. A.
b. B.
c. C.
d. D.
e. none of these answers.

A
ANSWER: 

 
 18. Refer to Exhibit 4. The efficient price and quantity are represented by point

a. D.
b. A.
c. B.
d. C.
e. none of these answers.
A
ANSWER: 
 
 19. The inefficiency associated with monopoly is due to
a. underproduction of the good.
b. the monopoly's profits.
c. the monopoly's losses.
d. overproduction of the good.

A
ANSWER: 
 
 20. Compared to a perfectly competitive market, a monopoly market will usually generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.

A
ANSWER: 
 
 21. Public ownership of natural monopolies
a. tends to be inefficient.
b. usually lowers the cost of production dramatically.
c. creates synergies between the newly acquired firm and other government-owned
companies.
d. does none of the things described in these answers.

A
ANSWER: 
 
 22. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers according to
their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable to engage
in arbitrage.

A
ANSWER: 
 
 22. A monopoly is able to continue to generate economic profits in the long run because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers

A
ANSWER: 
 
 23. If marginal revenue exceeds marginal cost, a monopolists should
a. increase output.
b. decrease output.
c. keep output the same because profits are maximized when marginal revenue
exceeds marginal cost.
d. raise the price.

A
ANSWER: 

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