Deck 10: Understanding Monopoly

Question 1

Control of resources is an example of:

A) an externality.
B) consumer surplus.
C) a government-created barrier.
D) a natural barrier.
E) rent-seeking.

Answer 1

D

Question 2

Three natural barriers to entry are:

A) control of resources, patents and copyright law and licensing.
B) economies of scale, problems raising capital, and control of resources.
C) problems raising capital, patents and copyright law, and licensing.
D) control of resources, patents and copyright law, and economies of scale.
E) control of resources, economies of scale, and licensing.

Answer 2

B

Question 3

Two government-created barriers to entry are:

A) licensing and economies of scale.
B) economies of scale and patent system/copyright law.
C) licensing and patent system/copyright law.
D) economies of scale and control of resources.
E) licensing and control of resources.

Answer 3

C

Question 4

The typical result of monopoly is ____________ prices and ____________ output than we find in a competitive market.

A) lower; lower
B) higher; higher
C) higher; lower
D) lower; higher
E) higher; the same

Question 5

Licensing:

A) is a natural barrier.
B) creates more competition.
C) causes more varieties of goods and services at different price levels.
D) creates an opportunity for corruption.
E) always results in zero economic profits.

Question 6

Monopolists:

A) enjoy market power for their specific product.
B) have no market power for their specific product.
C) will never experience a loss.
D) always experience economies of scale.
E) exist in all markets.

Question 7

A monopoly:

A) always makes a profit.
B) can force consumers to purchase what it is selling.
C) is characterized by a single seller who produces a well-defined product for which there are no good substitutes.
D) always has naturally created barriers.
E) always has government-created barriers.

Question 8

Ash is the preferred wood to be used in the production of baseball bats. If a company were to buy the rights to harvesting the ash trees out of all the forests in North America, which of the following barriers of entry has this company created?

A) control of resources
B) problems raising capital
C) economies of scale
D) licensing
E) patents and copyright law

Question 9

Two conditions allow a single seller to become a monopolist. Those two conditions are that the firm must:

A) have something unique to sell and it must be able to estimate its demand curve.
B) have something unique to sell and it must have a way to prevent potential competitors from entering the market.
C) be able to estimate its demand curve and it must have a way to prevent potential competitors from entering the market.
D) be able to segregate its consumers and it must have a way to prevent potential competitors from entering the market.
E) have something unique to sell and it must be able to segregate its consumers.

Question 10

Economies of scale exist:

A) only for monopolists.
B) when long-run average total costs increase.
C) when long-run average total costs decrease.
D) when long-run average total costs are constant.
E) when governments create barriers to entry.

Question 11

Barriers to entry:

A) measure the ability of firms to set the price for a good.
B) do not exist for monopolies.
C) always lead to profits.
D) restrict the entry of new firms into the market.
E) exist for perfectly competitive firms.

Question 12

Control of resources, problems raising capital, and economies of scale are all examples of:

A) government-created barriers.
B) market structures.
C) patents and copyright laws.
D) price-makers.
E) natural barriers.

Question 13

In the soda industry, production costs per unit continue to fall as the firm expands. In this type of industry, smaller rivals trying to enter the industry:

A) will easily be able to gain market power.
B) have lower average costs.
C) do not have high fixed costs.
D) will have much higher average costs.
E) experience a government-created barrier.

Question 14

Market-created and government-created barriers:

A) are the same thing.
B) are regarded by all economists as bad.
C) increase competition in markets.
D) create monopolies.
E) are problems solved only by government intervention.

Question 15

Economies of scale is an example of:

A) rent-seeking
B) consumer surplus.
C) a government-created barrier.
D) an externality.
E) a natural barrier.

Question 16

Raising capital to compete against an entrenched monopolist:

A) is very easy.
B) is unnecessary.
C) can be done only through private investors.
D) is very difficult.
E) can be done only through banks.

Question 17

The best way to limit competition is to:

A) lobby for a government-created barrier.
B) charge a low price.
C) produce a high quantity.
D) control a resource that is essential in the production process.
E) minimize costs.

Question 18

Problems raising capital is an example of:

A) a natural barrier.
B) consumer surplus.
C) a government-created barrier.
D) an externality.
E) rent-seeking.

Question 19

Thomas has developed a new social media site that he feels can compete heavily with Facebook. Unfortunately he cannot find someone to lend him enough money to market his product to consumers. Thomas is facing which kind of barrier to entry?

A) control of resources
B) problems raising capital
C) economies of scale
D) licensing
E) patents and copyright law

Question 20

A natural monopoly:

A) exists when many sellers experience lower average total costs than potential competitors do.
B) exists when a firm has sole ownership of a natural resource.
C) is an example of a government-created barrier.
D) is needed to make a profit in the long run.
E) exists when a single seller experiences lower average total costs than any potential competitor.

Question 21

Patents and copyright law:

A) are natural barriers.
B) create more competition.
C) mean more varieties of goods and services at different price levels.
D) assure inventors that no one else will sell their idea.
E) always result in zero economic profits.

Question 22

A price-maker:

A) is a characteristic held by a perfectly competitive firm.
B) must set the price at the market price.
C) has some control over the price it charges.
D) can sell its product at any price.
E) will always make economic profits.

Question 23

Which of the following can fall below the x axis when graphing price/cost against quantity?

A) demand curve
B) marginal cost curve
C) total cost curve
D) fixed cost curve
E) marginal revenue curve

Question 24

The demand curve for the product of a firm in a competitive market is ____________, and the demand curve for the product of a monopolist is ____________.

A) perfectly inelastic; downward-sloping
B) horizontal; perfectly inelastic
C) downward-sloping; perfectly elastic
D) downward-sloping; horizontal
E) perfectly elastic; downward-sloping

Question 25

The marginal revenue lies ____________ the demand curve because there is a(n) ____________ effect whenever the price is lowered.

A) above; price
B) below; price
C) below; output
D) above; output
E) on; price

Question 26

After a patent on a product expires,

A) other firms must wait to mimic the product.
B) all negative and positive externalities are internalized.
C) rivals can start to mimic the product.
D) no other firms can mimic the product.
E) no further profits are able to be made by the original producer of the good.

Question 27

Christopher's Campground is the only campground located in Abilene, Texas. Christopher's Campground's demand curve is:

A) perfectly elastic.
B) perfectly inelastic.
C) horizontal.
D) the market demand curve.
E) upward-sloping.

Question 28

Patents and copyrights can:

A) create strong incentives to develop new drugs.
B) provide heavy competition in markets.
C) never lead to deadweight loss.
D) assure firms that their products will make a profit.
E) be considered natural barriers.

Question 29

When marginal revenue is negative, the:

A) lost revenues associated with the price effect outweigh the revenue gains created by the output effect.
B) lost revenues associated with the price effect are outweighed by the revenue gains created by the output effect.
C) output effect is relatively small compared to the price effect.
D) firm is maximizing revenues.
E) firm cannot be maximizing profits.

Question 30

The price effect refers to how:

A) lower prices affect the quantity sold.
B) firms can set their prices.
C) firms choose their quantity.
D) lower prices affect revenue.
E) lower output affects the price.

Question 31

Because the demand curve for a monopolist is downward sloping:

A) there is no limit on the monopolist's ability to make a profit.
B) the monopolist can sell its product at any price it wants.
C) the monopolist can sell as many units of its product as it wants.
D) the monopolist is a price-taker.
E) the monopolist has many price-output combinations.

Question 32

Both monopolies and competitive firms:

A) are price-takers.
B) are price-makers.
C) face barriers to entry.
D) make long-run economic profits.
E) try to maximize profits.

Question 33

At low price levels, demand tends to be ____________ and the price effect is ____________, relative to the output effect.

A) inelastic; small
B) inelastic; large
C) elastic; small
D) elastic; large
E) elastic; insignificant

Question 34

The profit-maximizing rule for a monopolist is:

A) marginal revenue = marginal cost.
B) price = marginal cost.
C) price = marginal revenue.
D) average total cost = marginal revenue.
E) average total cost = marginal cost.

Question 35

The output effect refers to how:

A) lower prices affect the quantity sold.
B) firms can set their prices.
C) firms choose their quantity.
D) lower prices affect revenue.
E) lower output affects the price.

Question 36

One argument against patent and copyright laws is that they:

A) provide incentives to invest in research and development.
B) protect intellectual property.
C) hinder creativity.
D) increase competition.
E) limit exposure that can benefit companies and individuals.

Question 37

At high price levels, demand tends to be ____________ and the price effect is ____________, relative to the output effect.

A) inelastic; small
B) inelastic; large
C) elastic; small
D) elastic; large
E) inelastic; insignificant

Question 38

The demand curve for the product of a firm in a competitive market is ____________, and the demand curve for the product of a monopolist is ____________.

A) horizontal; downward-sloping
B) horizontal; horizontal
C) downward-sloping; upward-sloping
D) downward-sloping; horizontal
E) upward-sloping; downward-sloping

Question 39

Apple and Google apply for hundreds of patents every year. These patents:

A) allow Apple and Google to produce goods with no risk of monetary loss.
B) provide incentives for Apple and Google to spend large amounts of money up front on research and development of new products.
C) create more competition among Apple, Google, and other tech firms than would occur without government intervention.
D) make it easy for Apple and Google products to be similar.
E) make it easy for other firms to compete with Apple and Google.

Question 40

In instances when having a single firm in the market makes sense, governments ____________ to minimize negative externalities.

A) will grant a patent or copyright
B) require licenses
C) deregulate industries
D) hand out subsidies
E) break down barriers to entry

Question 41

When a monopolist lowers its price from $80 to $70, the quantity it is able to sell increases from 100 to 150. The change in revenue associated with the output effect is equal to:

A) $3,500.
B) ?$3,500.
C) $500.
D) ?$500.
E) $4,000.

Question 42

Refer to the accompanying figure to answer the questions.

-This firm:

A) is in a competitive market.
B) can make a profit.
C) does not want to maximize profit.
D) cannot make a profit.
E) is not a monopoly because it is incurring a loss.

Question 43

Refer to the accompanying figure to answer the questions.

-This profit-maximizing firm's total profit is equal to:

A) $160.
B) ?$160.
C) $320.
D) ?$320.
E) $100.

Question 44

The profit made by this profit-maximizing firm is:

A) $8.
B) $4.
C) $3.
D) $7.
E) $9.

Question 45

The profit-maximizing price for this firm is:

A) $15.
B) $5.
C) $7.
D) $9.
E) $13.

Question 46

Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?

A) A monopoly contains many firms.
B) A monopoly produces an efficient level of output.
C) A monopoly may earn long-run economic profits.
D) A monopoly has no market power.
E) A monopoly is a price-taker.

Question 47

When the price changes from $50 to $30, the output effect leads to an increase of ____________ in revenue.

A) $20
B) $15
C) $900
D) $600
E) $450

Question 48

When the price changes from $50 to $30, the price effect leads to a loss of ____________ in revenue.

A) $20
B) $15
C) $900
D) $600
E) $450

Question 49

As production increases, the price consumers are willing to pay for the good:

A) increases and then decreases.
B) decreases and then increases.
C) stays the same.
D) increases.
E) decreases.

Question 50

When marginal revenue is positive, the:

A) lost revenues associated with the price effect outweigh the revenue gains created by the output effect.
B) lost revenues associated with the price effect are outweighed by the revenue gains created by the output effect.
C) output effect is relatively small compared to the price effect.
D) firm is maximizing revenues.
E) firm cannot be maximizing profits.

Question 51

The equation of a firm's marginal revenue curve is estimated to be price = 50 ? Q (quantity), and the equations of their marginal cost curve is estimated to be price = 10 + 3Q. The profit-maximizing quantity for this firm is:

A) 5.
B) 10.
C) 15.
D) 50.
E) 40.

Question 52

The equation of a firm's marginal revenue curve is estimated to be P = 50 ? Q (quantity), and the equations of their marginal cost curve is estimated to be P = 10 + 3Q. The profit-maximizing price for this firm is:

A) $5.
B) $10.
C) $15.
D) $50.
E) $40.

Question 53

The profit-maximizing quantity for this firm is:

A) 0 (zero).
B) 1.
C) 3.
D) 4.
E) 5.

Question 54

If a monopolist is producing a quantity where marginal revenue is equal to $125 and the marginal cost is equal to $125, the monopolist should:

A) increase production and lower the price to maximize profits.
B) decrease production and increase the price to maximize profits.
C) continue producing at the current price to maximize profits.
D) increase production and increase the price to maximize profits.
E) decrease production and decrease the price to maximize profits.

Question 55

When a monopolist lowers a price from $80 to $70, the quantity that the firm is able to sell increases from 100 to 150. The change in revenue associated with the price effect is equal to:

A) $3,500.
B) ?$3,500.
C) $1,000.
D) ?$1,000.
E) $4,000.

Question 56

At the profit-maximizing output in a monopoly-controlled market, the price a monopolist charges is:

A) below marginal cost.
B) above marginal cost.
C) above average total cost.
D) below average total cost.
E) equal to marginal cost.

Question 57

If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:

A) increase production and lower the price to maximize profits.
B) decrease production and increase the price to maximize profits.
C) continue producing at the current price to maximize profits.
D) increase production and increase the price to maximize profits.
E) decrease production and decrease the price to maximize profits.

Question 58

The demand curve for Angel's Airport Shuttle is downward-sloping. With only this information, it can be concluded that Angel's Airport Shuttle:

A) is the only firm in the market for airport shuttles.
B) is currently maximizing profits.
C) is a price-maker.
D) makes economic profits.
E) should produce where the demand curve crosses marginal cost.

Question 59

If a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $17, the monopolist should:

A) increase production and lower the price to maximize profits.
B) decrease production and increase the price to maximize profits.
C) continue producing at the current price to maximize profits.
D) increase production and increase the price to maximize profits.
E) decrease production and decrease the price to maximize profits.

Question 60

Refer to the accompanying figure to answer the questions.

-The profit-maximizing price and quantity are:

A) $34 and 20, respectively.
B) $26 and 20, respectively.
C) $18 and 20, respectively.
D) $18 and 30, respectively.
E) $13 and 20, respectively.

Question 61

Refer to the accompanying figure. The revenue received by the profit-maximizing monopolist is:

A) $900.
B) $150.
C) $300.
D) $100.
E) $450.

Question 62

Refer to the accompanying figure to answer the questions.

-The profit-maximizing price and quantity are:

A) $25 and 100, respectively.
B) $25 and 150, respectively.
C) $13 and 100, respectively.
D) $10 and 100, respectively.
E) $10 and 150, respectively.

Question 63

Refer to the accompanying figure to answer the questions.

-If a firm is producing a quantity of 100 and charging a price of $25, it:

A) should raise production to 150 units but lower the price to $10 to maximize profits.
B) should raise production to 150 units and continue to charge $25 to maximize profits.
C) should keep production at 100 units but lower the price to $13 to maximize profits.
D) should keep production at 100 units and lower the price to $10 to maximize profits.
E) is already maximizing profits and should not change the price or quantity produced.

Question 64

Refer to the accompanying figure to answer the questions.

-If a firm is producing a quantity of 150 and charging a price of $13, it:

A) should continue to produce 150 units but lower the price to $10 to maximize profits.
B) should continue to produce 150 units but raise the price to $25 to maximize profits.
C) should lower production to 100 units but keep charging $13 to maximize profits.
D) should lower production to 100 units and raise the price to $25 to maximize profits.
E) is already maximizing profits and should not change the price or quantity produced.

Question 65

Refer to the accompanying figure. The revenue received by the profit-maximizing monopolist in this market is represented by:

A) A + B + C + D + F + G + I + J.
B) B + D + G + E + H.
C) I + J.
D) C + D + F + G + I + J.
E) E + H.

Question 66

To maximize profits, a monopolist chooses the quantity where:

A) revenues are maximized.
B) marginal revenue equals zero.
C) marginal cost equals zero.
D) marginal revenue equals marginal cost.
E) costs are minimized.

Question 67

Refer to the accompanying figure to answer the questions.

-The profit when a firm is profit-maximizing is:

A) $70,000.
B) $50,000.
C) $20,500.
D) $20,000.
E) $25,000.

Question 68

Willow Park is a small community in Texas with only one gas station. The price of gasoline in Willow Park most likely:

A) never changes.
B) is lower than in the big cities in Texas.
C) is determined by competitive market forces.
D) is higher than in the big cities in Texas.
E) produces a surplus of gasoline.

Question 69

Inefficient output and price, few choices, and rent-seeking are all problems associated with:

A) externalities.
B) competitive markets.
C) monopolies.
D) scarcity.
E) trade.

Question 70

Refer to the accompanying figure to answer the questions.

-The total cost when a firm is profit-maximizing is:

A) $70,000.
B) $50,000.
C) $67,500.
D) $60,000.
E) $25,000.

Question 71

Refer to the accompanying figure to answer the questions.

-The profit-maximizing price and quantity are:

A) $25 and 1,000, respectively.
B) $40 and 1,500, respectively.
C) $45 and 1,500, respectively.
D) $50 and 1,000, respectively.
E) $70 and 1,000, respectively.

Question 72

Which of the following is a characteristic of a monopoly but not of a competitive market?

A) A monopoly contains many firms.
B) price > marginal cost
C) price < marginal cost
D) price = marginal cost
E) A monopoly is a price-taker.

Question 73

Monopolies result in a(n) _________ level of output and provide _________ choice to consumers.

A) inefficient; less
B) inefficient; more
C) efficient; less
D) efficient; more
E) high; more

Question 74

Market failure occurs:

A) when the output level of the firm is efficient.
B) when the output level of the firm is inefficient.
C) when firms do not maximize profits.
D) only in the presence of a monopoly.
E) only in the presence of externalities.

Question 75

When a competitive market becomes controlled by a monopoly, the price _________ and the output _________.

A) increases; stays the same
B) increases; increases
C) decreases; stays the same
D) increases; decreases
E) decreases; decreases

Question 76

Refer to the accompanying figure to answer the questions.

-When this firm is producing at the profit-maximizing price and quantity, its total revenue is:

A) $1,000.
B) $1,950.
C) $2,500.
D) $3,750.
E) $5,000.

Question 77

When marginal revenue intersects marginal cost on a graph:

A) profits are maximized for a monopoly but not for a competitive firm.
B) profits are maximized for a competitive firm but not for a monopoly.
C) a monopolist prices the good at that point.
D) a monopolist always makes an economic profit.
E) a monopolist must go up to the demand curve to find the price.

Question 78

Refer to the accompanying figure to answer the questions.

-The total revenue when a firm is profit-maximizing is:

A) $70,000.
B) $50,000.
C) $67,500.
D) $60,000.
E) $25,000.

Question 79

Refer to the accompanying figure to answer the questions.

-If a firm is producing a quantity of 100 and charging a price of $10, it:

A) should continue to produce 100 units but raise the price to $13 to maximize profits.
B) should increase production to 150 units but raise the price to $25 to maximize profits.
C) should continue to produce 100 units but raise the price to $25 to maximize profits.
D) should increase production to 100 units and raise the price to $13 to maximize profits.
E) is already maximizing profits and should not change the price or quantity produced.

Question 80

A big difference between a competitive firm and a monopolist is that a monopolist:

A) does not charge a price equal to marginal revenue.
B) does not set marginal revenue equal to marginal cost to maximize profits.
C) does not try to maximize profits.
D) can always make positive economic profits.
E) cannot set its price at the market price.