Question 1

For a monopolist, the quantity effect:

Accepted Answer

A)  is the increase in revenue from selling a greater quantity at a lower price.
B)  is the decrease in revenue from selling a greater quantity at a lower price.
C)  is always outweighed by the price effect.
D)  always outweighs the price effect.E) A) and C)
F) C) and D)

Question 2

The graph shown represents the cost and revenue curves faced by a monopoly.  What is the monopolist's profit-maximizing price?

Accepted Answer

A)  $3
B)  $5
C)  $9
D)  $10E) A) and D)
F) None of the above

Question 3

When a monopolist chooses to produce at the level of output where marginal cost equals marginal revenue:

Accepted Answer

A)  profits are maximized.
B)  price is equal to marginal revenue.
C)  price is equal to average total costs.
D)  total revenue is maximized.E) B) and C)
F) B) and D)

Question 4

When a government splits a natural monopoly vertically, it is breaking the monopolist up:

Accepted Answer

A)  along its stages of production.
B)  into smaller companies that provide the same goods and services.
C)  in order to maximize its profits.
D)  in order to capture all efficiencies possible.E) A) and D)
F) A) and B)

Question 5

The existence of a monopoly:

Accepted Answer

A)  creates market inefficiencies.
B)  causes consumers to get less at a higher price.
C)  causes a reduction in total surplus.
D)  All of these result from the existence of a monopoly.E) C) and D)
F) A) and D)

Question 6

To avoid subsidies, the government should cap the price for a natural monopoly at its:

Accepted Answer

A)  marginal cost.
B)  average total cost.
C)  average variable cost.
D)  fixed cost.E) B) and C)
F) A) and B)

Question 7

Which of the following is an example of a public policy response to a monopoly?

Accepted Answer

A)  Public admonishment
B)  Encouraging mergers
C)  Antitrust laws
D)  All of these are examples of a public policy response to a monopoly.E) All of the above
F) B) and C)

Question 8

Antitrust activities can cause inefficiencies by:breaking up a natural monopoly.creating many small firms that cannot capture available economies of scale.reducing the profits of firms.

Accepted Answer

A)  II only
B)  II and III only
C)  I and II only
D)  III onlyE) B) and D)
F) C) and D)

Question 9

For a monopolist, at the profit-maximizing level of output:

Accepted Answer

A)  price is greater than average revenue.
B)  average revenue is greater than marginal cost.
C)  marginal cost is greater than price.
D)  total revenue is equal to total cost.E) A) and B)
F) A) and C)

Question 10

For a monopoly, a negative marginal revenue implies that:

Accepted Answer

A)  the price effect is larger than the quantity effect.
B)  total revenues are increasing.
C)  the demand is price elastic.
D)  the quantity effect is larger than the price effect.E) B) and C)
F) B) and D)

Question 11

The monopolist is able to enjoy profits in the long run because:

Accepted Answer

A)  its price is set above its marginal costs.
B)  there is no threat of competition.
C)  it can charge a price that is higher than its average total costs.
D)  All of these are true.E) B) and D)
F) A) and C)

Question 12

For a monopoly, when marginal revenue is zero:

Accepted Answer

A)  profits are maximized.
B)  total revenue is maximized.
C)  marginal revenue is minimized.
D)  marginal costs are minimized.E) None of the above
F) A) and D)

Question 13

Some economists argue the best response to a monopoly is to:

Accepted Answer

A)  do whatever the public demands.
B)  do nothing at all.
C)  impose high taxes on its output.
D)  None of these are true.E) A) and C)
F) A) and B)

Question 14

In practice, placing a price control on a natural monopoly:

Accepted Answer

A)  is easy and commonly practiced.
B)  is difficult because of the lack of information.
C)  always creates the same outcome as public ownership of the industry.
D)  is never a good idea.E) C) and D)
F) B) and C)

Question 15

A consequence of a publicly-owned natural monopoly is:

Accepted Answer

A)  the loss of the profit motive.
B)  an increase in the motivation to improve efficiency.
C)  increased public pressure to reduce costs.
D)  reduced likelihood to remain open longer than political terms of office.E) All of the above
F) None of the above

Question 16

Which of the following is not a potential barrier to entry into a monopoly market?

Accepted Answer

A)  The market is a natural monopoly.
B)  The incumbent firm owns a key resource.
C)  The government intervenes in the market.
D)  A new type of product is offered.E) B) and C)
F) A) and D)

Question 17

The presence of a privately-owned monopoly is beneficial to:

Accepted Answer

A)  the monopolist.
B)  consumers.
C)  society overall.
D)  government.E) B) and C)
F) A) and D)

Question 18

The monopolist chooses to produce:

Accepted Answer

A)  where marginal cost equals marginal revenue.
B)  at a higher quantity than the perfectly competitive firm.
C)  at an efficient outcome.
D)  at a cost that is equal to a competitive one.E) A) and C)
F) A) and B)

Question 19

With a monopolist's outcome, total surplus is generally _______ that of a competitive market.

Accepted Answer

A)  higher than that
B)  lower than
C)  the same as
D)  Any of these is possible.E) A) and B)
F) B) and C)

Question 20

The graph shown represents the cost and revenue curves faced by a monopoly.  Comparing the perfectly competitive and monopoly outcomes, we can see that:

Accepted Answer

A)  there is deadweight loss in the monopoly market.
B)  a perfectly competitive firm would lose money in this industry.
C)  a perfectly competitive firm would produce Q1 units.
D)  a monopolist would charge P3 and a perfectly competitive firm would charge P1.E) A) and B)
F) A) and C)

Exam 14: Monopoly

The presence of a privately-owned monopoly is beneficial to:

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The monopolist is able to enjoy profits in the long run because:

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Some economists argue the best response to a monopoly is to:

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When a government splits a natural monopoly vertically, it is breaking the monopolist up:

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With a monopolist's outcome, total surplus is generally _______ that of a competitive market.

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When a monopolist chooses to produce at the level of output where marginal cost equals marginal revenue:

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The graph shown represents the cost and revenue curves faced by a monopoly. What is the monopolist's profit-maximizing price?

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For a monopolist, the quantity effect:

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Which of the following is not a potential barrier to entry into a monopoly market?

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A consequence of a publicly-owned natural monopoly is:

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To avoid subsidies, the government should cap the price for a natural monopoly at its:

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For a monopoly, when marginal revenue is zero:

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The monopolist chooses to produce:

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In practice, placing a price control on a natural monopoly:

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The existence of a monopoly:

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For a monopolist, at the profit-maximizing level of output:

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Which of the following is an example of a public policy response to a monopoly?

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Antitrust activities can cause inefficiencies by:breaking up a natural monopoly.creating many small firms that cannot capture available economies of scale.reducing the profits of firms.

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The graph shown represents the cost and revenue curves faced by a monopoly. Comparing the perfectly competitive and monopoly outcomes, we can see that:

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For a monopoly, a negative marginal revenue implies that:

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