Practice Questions

Chapter 8- Monopoly...

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

1) A price setter is a firm that: 1)

A) has some degree of control over its price.
B) faces perfectly inelastic demand.
C) has the ability to set price at any level it wishes.
D) attempts but fails to be perfectly competitive.

2) A pure monopoly exists when: 2)

A) many firms produce a good with no close substitutes.
B) a single firm produces a good with many close substitutes.
C) only a single firm is present in the market.
D) a single firm produces a good with no close substitutes.

3) If a firm functions in an oligopoly, it is: 3)

A) the only firm that produces a good with no close substitutes.
B) one of a large number of firms that produce goods that are either close or perfect
substitutes.
C) one of a small number of firms that produce goods that are either close or perfect
substitutes.
D) one of a large number of firms that produce a good with no close substitute.

4) A monopolistically competitive firm is one: 4)

A) of many firms that all sell the exact same product.
B) of a small number of firms that sell products that are close but not perfect
substitutes.
C) of many firms that sell products that are close but not perfect substitutes.
D) that behaves like a monopolist.

5) The essential feature that differentiates imperfectly competitive firms from perfectly 5)
competitive firms is that an imperfectly competitive firm:
A) faces high barriers to entry.
B) coordinates their output decisions with other firms.
C) faces a downward-sloping demand curve.
D) produces a good with no close substitutes.

6) Given the demand curve it faces, if an imperfectly competitive firm wants to sell 6)
another unit of output, it must:
A) increase its advertising. B) lower its quality.
C) lower its price. D) increase the value of its product.

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 7) If a firm faces a downward-sloping demand curve, then: 7)
A) the firm could be either a perfectly competitive firm or an imperfectly firm.
B) the firm's marginal revenue from selling an additional unit of output is less than
price.
C) the firm's production process exhibits economies of scale.
D) it is a perfectly competitive firm.

8) "Market power" refers to a firm's ability to: 8)

A) influence the price its competitors charge.
B) force consumers to buy high-priced products.
C) raise its price without losing all of its sales.
D) undercut its competitors' prices.

9) A good is characterized by network economies if it: 9)

A) becomes more valuable as more people own it.
B) becomes cheaper to produce as more people buy it.
C) can be used by more than one person at a time.
D) is widely advertised on television.

10) In exchange for a share of the revenues earned on campus, State U has granted 10)
CheapFizz the exclusive right to sell soft drinks in the student union and in vending
machines on campus. Prior to the deal, three soft drink companies sold beverages on
campus; now no other soft drink company is allowed to sell its products on campus.
Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you
would expect a 12-ounce can of CheapFizz to sell for:
A) more than 75 cents because CheapFizz is the only company that can sell soda on
campus.
B) more than 75 cents because the demand curve for CheapFizz soda will shift to the
left.
C) 75 cents because that is the market price.
D) less than 75 cents because CheapFizz will have greater volume and so can lower its
price.

11) In exchange for a share of the revenues earned on campus, State U has granted 11)
CheapFizz the exclusive right to sell soft drinks in the student union and in vending
machines on campus. Prior to the deal, three soft drink companies sold beverages on
campus; now no other soft drink company is allowed to sell its products on campus.
The beneficiaries of this deal is/are _______.
A) State U and CheapFizz B) the students at State U
C) CheapFizz D) State U

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12) Economies of scale exist when: 12)
A) input prices are falling.
B) the average cost of production falls as output rises.
C) firms become larger.
D) doubling all the inputs leads to less than double the output.

13) If
a firm's production process exhibits increasing returns to scale, then doubling all 13)
the firm's inputs will lead output to ________.
A) double B) fall by one-half
C) less than double D) more than double

14) A monopoly that results from economies of scale is called a(n): 14)
A) antitrustviolator. B) cost-plus firm.
C) natural monopoly. D) large-scale monopolist.

15) If a natural monopoly increases the quantity of output it produces, then: 15)
A) it will have to increase its price. B) its average cost will increase.
C) its profit will increase. D) its average cost will decrease.

16) Industries in which firms have high fixed costs and low marginal costs are likely to 16)
have a:
A) large number of large firms. B) small number of large firms.
C) large number of small firms. D) small number of small firms.

17) Both a perfectly competitive firm and a monopolist find that: 17)
A) price is less than marginal revenue.
B) price and marginal revenue are the same.
C) it is best to expand production until the benefit and the cost of the last unit
produced are equal.
D) they can sell as many units of output as they want at the market price.

18) Forall firms, the additional revenue collected from the sale of one additional unit of 18)
output is termed:
A) price. B) average revenue.
C) marginal revenue. D) marginal profit.

19) When a perfectly competitive firm sells additional units of output, ________, and 19)
when a monopolist sells additional units of output, ________.
A) marginal revenue stays the same; marginal revenue rises
B) total revenue does not change; total revenue rises
C) total revenue rises; total revenue falls
D) total revenue always rises; total revenue could rise, fall, or remain unchanged

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20) Suppose the table below describes the demand for a good produced by monopolist. 20)

The monopolist's total revenue from selling 3 units is ________, and the monopolist's
marginal revenue from selling the 3rd unit is ________.
A) $24; 6 B) $28; 8 C) $52; 1 D) $24; 8

21) Suppose the table below describes the demand for a good produced by monopolist. 21)

The monopolist's marginal revenue from selling the 4th unit of output is less than $7
because:
A) the consumer only pays $4 for the 4th unit.
B) marginal cost is greater than $3.
C) demand is perfectly elastic.
D) it has to charge $1 less for each of the first 3 units of output.

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22) Suppose the table below describes the demand for a good produced by monopolist. 22)

Based on the data in the table, we know the firm should:

A) not produce the fifth unit. B) not produce the seventh unit.
C) be able earn an economic profit. D) produce more than 7 units.

23) Suppose a monopolist faces the demand curve shown below. 23)

If the monopolist were to sell 20 units of output, its total revenue would be:
A) $100. B) $1,000. C) $50. D) $140.

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24) Suppose a monopolist faces the demand curve shown below. 24)

The marginal revenue of the 35th unit of output is:

A) $20. B) $0. C) $10. D) $-5.

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25) Suppose a monopolist faces the demand curve shown below. 25)

The monopolist maximizes its profits by:

A) producing the level of output at which marginal revenue equals marginal cost.
B) producing 35 units, since this is where total revenue is maximized.
C) charging $70 for each unit.
D) producing the level of output at which marginal revenue minus marginal cost is
greatest.

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26) Suppose a monopolist faces the demand curve shown below. 26)

If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing
level of output is:
A) 40 units. B) 30 units. C) 20 units. D) 50 units.

27) Theprofit maximizing rule MR = MC applies to: 27)

A) all firms. B) imperfectly competitive firms only.
C) perfectly competitive firms only. D) monopolists only.

28) Theprofit maximizing rule P = MC applies to: 28)

A) perfectly competitive firms only.
B) all firms.
C) monopolists only.
D) both perfectly competitive firms and imperfectly competitive firms.

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29) Supposethe figure below shows the demand curve, marginal revenue curve and 29)
marginal cost curve for a monopolist.

The profit-maximizing level of output for this monopolist is ________ units per day.
A) F B) I C) G D) H

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30) Supposethe figure below shows the demand curve, marginal revenue curve and 30)
marginal cost curve for a monopolist.

The profit-maximizing price for this monopolist to charge is:

A) C. B) E. C) B. D) A.

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31) Supposethe figure below shows the demand curve, marginal revenue curve and 31)
marginal cost curve for a monopolist.

At this monopolist's profit-maximizing level of output, its total revenue equals the area:
A) ELJB. B) 0HNC. C) 0FLE. D) 0FJB.

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32) Supposethe figure below shows the demand curve, marginal revenue curve and 32)
marginal cost curve for a monopolist.

When this monopolist maximizes its profit, consumer surplus equals the area:
A) ABJ. B) AELJ. C) ACN. D) ACKJ.

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33) Supposethe figure below shows the demand curve, marginal revenue curve and 33)
marginal cost curve for a monopolist.

The socially optimal level of output is ________ units per day.

A) G B) I C) H D) F

34) Pricediscrimination means charging: 34)

A) different prices for different products because production costs are different.
B) higher prices to women and minorities.
C) the same price to all buyers even if production costs are different.
D) different prices to different buyers for essentially the same good or service.

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35) Supposethe figure below shows the demand curve, marginal revenue curve and 35)
marginal cost curve for a monopolist.

At the monopolist's profit-maximizing level of output, deadweight loss equals the area:
A) JLN B) JKN C) C0N D) ALN

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