Deck 15: Monopoly

Question 1

The De Beers Diamond company is not worried about differentiating its product from all other gemstones.

Answer 1

False

Question 2

When a monopolist increases the quantity that it sells, price decreases, which, all else equal, decreases total revenue; this is called the price effect.

Answer 2

True

Question 3

Monopolists can achieve any level of profit they desire because they have unlimited market power.

Answer 3

False

Question 4

The amount of power that a monopoly has depends on whether there are close substitutes for its product.

Question 5

A patent gives a single person or firm the exclusive right to sell some good or service for a specific period of time.

Question 6

Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices.

Question 7

The three main sources of barriers to entry are monopoly resources, government regulation, and the firm's production process.

Question 8

The fundamental cause of monopolies is barriers to entry.

Question 9

If a product can be produced by a natural monopoly, society will benefit in the form of lower prices if the monopolist is broken up into several smaller firms.

Question 10

A natural monopoly has economies of scale for most if not all of its range of output.

Question 11

If the government deems a newly-invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.

Question 12

Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.

Question 13

A patent gives a single person or firm the exclusive right to sell some good or service forever.

Question 14

Average revenue for a monopoly is the total revenue divided by the quantity produced.

Question 15

When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output effect.

Question 16

The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that it has a monopoly position to some degree.

Question 17

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

Question 18

If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in jewelry which is found only in Afghanistan, the company benefits from a barrier to entry.

Question 19

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

Question 20

For a monopoly, marginal revenue is often greater than the price it charges for its good.

Question 21

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

Question 22

The socially efficient quantity is found where the demand curve intersects the marginal cost curve.

Question 23

Like competitive firms, monopolies charge a price equal to marginal cost.

Question 24

A monopolist's supply curve is vertical.

Question 25

A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost.

Question 26

In a monopoly market, the socially efficient quantity of output is typically higher than the profit-maximizing quantity of output for the monopolist.

Question 27

At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all equal.

Question 28

A monopolist produces where P > MC = MR.

Question 29

The profit that a monopolist earns represents a loss to society that is measured through deadweight loss.

Question 30

A monopolist's supply curve is horizontal.

Question 31

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

Question 32

Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.

Question 33

Deadweight loss measures the loss in society's welfare that occurs because a monopolist can earn profits without the concern of new firms entering its industry.

Question 34

The deadweight loss for a monopolist equals one-half of its profits for any given level of output.

Question 35

A monopolist produces where P = MC = MR.

Question 36

A monopolist does not have a supply curve because the firm's decision about how much to supply is impossible to separate from the demand curve it faces.

Question 37

A monopoly creates a deadweight loss to society because it earns both short-run and long-run positive economic profits.

Question 38

A monopolist's profit is equal to (Price - Marginal Cost) × Quantity.

Question 39

A monopolist maximizes profit by producing an output level where marginal cost equals price.

Question 40

Deadweight loss measures the loss in society's welfare that occurs because a monopolist does not produce the socially efficient level of output.

Question 41

Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society from monopoly power.

Question 42

A monopolist earns higher profits by charging one price than by practicing price discrimination.

Question 43

Price discrimination can increase both the monopolist's profits and society's welfare.

Question 44

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

Question 45

Airlines often separate their customers into business travelers and personal travelers by giving a discount to those travelers who stay over a Saturday night.

Question 46

By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profits.

Question 47

Price discrimination is prohibited by antitrust laws.

Question 48

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.

Question 49

A common solution to monopoly in European countries is public ownership.

Question 50

Some companies merge in order to lower costs through efficient joint production.

Question 51

Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $1,500.

Question 52

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.

Question 53

Goods that do not have close substitutes have downward-sloping demand curves.

Question 54

If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost, the firm has no incentive to reduce costs.

Question 55

If the government regulates the price a natural monopolist can charge to be equal to the firm's marginal cost, the government will likely need to subsidize the firm.

Question 56

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

Question 57

The proper level of government intervention is unclear when dealing with a monopoly.

Question 58

In order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage.

Question 59

A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society.

Question 60

University financial aid can be viewed as a type of price discrimination.

Question 61

A natural monopoly will always operate in the region of the long run average total cost curve where the cost per unit is constant.
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Question 62

It is difficult in a natural monopoly market for the firm to achieve both efficiency and zero economic profit simultaneously, even with regulation.
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Question 63

A key for a monopoly that wants to practice price discrimination is to be able to control the resale of its product.
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Question 64

The supply curve for a monopolist, in the short run, is defined in the same way as that for a competitive firm: it is the portion of the marginal cost curve above average variable cost.

Question 65

Comparing firms in perfectly competitive markets to monopoly firms, which charges higher prices?

Question 66

​Since monopolists that practice price discrimination generally increase market output, compared to a monopoly that charges a single price, practicing price discrimination generally leads to a smaller deadweight loss.

Question 67

State two examples of government-created monopolies.

Question 68

Government intervention is always preferable to doing nothing when reducing the social inefficiencies of monopoly.

Question 69

Barriers to entry only exist for monopoly markets.

Question 70

​As long as as a monopolist is able to control the resale of its product, then it can successfully practice price discrimination.

Question 71

Monopolists can practice price discrimination in all monopoly markets.​

Question 72

A monopolist is able to choose whatever price that it wishes and is only constrained by its greed.
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Question 73

Comparing firms in perfectly competitive markets to monopoly firms, which charges a price equal to marginal cost?

Question 74

The best solution to the problem of welfare loss from monopoly is public ownership.

Question 75

Government intervention always reduces monopoly deadweight loss.

Question 76

Comparing firms in perfectly competitive markets to monopoly firms, which produces more output?

Question 77

What are the three main sources of barriers to entry for monopolies?

Question 78

Firms with substantial monopoly power are quite common because many goods are unique.

Question 79

The government may choose to do nothing to reduce monopoly inefficiency because the "fix" may be worse than the problem.

Question 80

​The best option to control the behavior of a natural monopoly is to use public ownership of the monopoly.