Question 1

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
A)not in the best interest of society.
B)one that fails to maximize total economic well-being.
C)inefficient.
D)All of the above are correct.

Accepted Answer

Monopoly firms have the ability to set prices higher than their marginal cost, leading to higher profits for the firm but not necessarily maximizing total economic well-being or being in the best interest of society. This lack of competition often leads to inefficiencies in the market. All three options in the question are correct outcomes of a market with a monopoly.

Question 2

A competitive firm
A)and a monopolist are price takers.
B)and a monopolist are price makers.
C)is a price taker, whereas a monopolist is a price maker.
D)is a price maker, whereas a monopolist is a price taker.

Accepted Answer

A competitive firm is one among many and as such, the price is set by the market. They have no control over price and must accept the market price. A monopolist, on the other hand, is the sole provider of a good or service and has the power to set the price. Therefore, a competitive firm is a price taker, whereas a monopolist is a price maker.

Question 3

A monopoly can earn positive profits because it
A)can sell unlimited quantities at any price it chooses.
B)takes the market price as given and can sell unlimited quantities.
C)can set the price it charges for its output but faces a horizontal demand curve.
D)can maintain a price such that total revenues will exceed total costs.

Accepted Answer

A monopoly can earn positive profits by setting a price that exceeds its total costs. This is because it has no competition and can charge a higher price than in a competitive market. However, the monopoly must consider the demand for its product in setting the price, as if it sets the price too high, demand will decrease and reduce its profits.

Question 4

​When the market for a good is a natural monopoly, this results in
A)​improved product choice for consumers.
B)​many producers charging low prices for the good.
C)​dominance by a single producer of the good.
D)​increased entry by new producers of the good.

Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than any potential competitor. This leads to dominance by a single producer, as other firms cannot compete on price. Therefore, option C is the correct answer. Option A is incorrect because there is no improved product choice when there is only one producer. Option B is incorrect because a natural monopoly allows the dominant firm to charge higher prices without fear of competition. Option D is incorrect because a natural monopoly discourages new firms from entering the market.

Question 5

Which of the following is a characteristic of a monopoly market?
A)​A large number of buyers and sellers.
B)​Mutual interdependence.
C)​Free entry and exit.
D)​A product with no close substitutes.

Accepted Answer

A monopoly market is characterized by a single seller who controls the supply of a good or service that has no close substitutes. This gives the monopolist significant market power, allowing them to set prices higher than competitive levels and earn abnormal profits. A large number of buyers and sellers, mutual interdependence, and free entry and exit are characteristics of competitive markets, not monopolies.

Question 6

Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly
A)does not illustrate profit maximization.
B)is often not in the best interest of society.
C)is characterized by unlimited profits.
D)would be improved if the government produced the product rather than a private firm.

Accepted Answer

A monopolist has the power to set prices and restrict output, which typically leads to higher prices and lower quantity than would occur in a competitive market. This outcome is often not in the best interest of society because it reduces consumer surplus, increases producer surplus, and leads to deadweight loss. Therefore, government intervention may be needed to ensure that the monopolist is behaving in a socially optimal way. Choice A is incorrect because a monopolist can still strive to maximize profits, but may not necessarily produce the level of output that maximizes total surplus. Choice C is incorrect because the monopolist's profit is limited by the demand curve and the cost of production. Choice D is not a guaranteed solution, as government production may also lead to inefficiencies and lack of innovation.

Question 7

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a
A)resource industry.
B)exclusive industry.
C)government monopoly.
D)natural monopoly.

Accepted Answer

A natural monopoly occurs when the economies of scale are so large that one firm can supply the entire market at a lower cost than two or more firms. This is typically the case for industries that require high fixed costs to get started, such as utilities or transportation infrastructure, and where marginal costs are minimal.

Question 8

When a firm experiences continually declining average total costs,
A)the firm is a price taker.
B)society is better served by having one firm supply the product.
C)the firm will earn higher profits than if average total costs are increasing.
D)All of the above are correct.

Accepted Answer

Continually declining average total costs indicate economies of scale, which means that the firm can produce more efficiently at a larger scale. This suggests that society is better served by having one firm supply the product, as competition may lead to inefficiencies and higher prices. The other options are not necessarily true based solely on declining average total costs.

Question 9

When there are economies of scale over the relevant range of output for a monopoly, the monopoly
A)is a natural monopoly.
B)is a government-granted monopoly.
C)has monopoly power due to the ownership of a patent or copyright.
D)has monopoly power due to the ownership of a key production resource.

Accepted Answer

When there are economies of scale over the relevant range of output, a natural monopoly exists. This means that the firm's production costs decrease as it increases its output, making it more efficient than any potential competitors. As a result, the firm has a monopoly over the market, since it can produce at a lower cost and offer lower prices than any new entrants.

Question 10

A natural monopoly arises when
A)there are constant returns to scale over the relevant range of output.
B)there are economies of scale over the relevant range of output.
C)one firm owns a key natural resource.
D)the government gives a single firm the exclusive right to produce a particular good or service.

Accepted Answer

A natural monopoly arises when a single firm can produce goods or services at a lower cost than any potential competitor due to economies of scale. This means that as the firm produces more output, its average costs decrease. This gives the firm a cost advantage over potential competitors, making it difficult for other firms to enter the market and compete with the monopolist.

Question 11

If government officials break up a natural monopoly into four smaller firms, then
A)each firm will be unable to maximize profits due to increased competition.
B)competition will force firms to produce surplus output, which drives up price.
C)the average cost of production will increase.
D)consumers will benefit from lower average total costs.

Accepted Answer

The answer of If government officials break up a natural...

Question 12

Additional firms often do not try to compete with a natural monopoly because
A)they fear retaliation in the form of pricing wars from the natural monopolist.
B)they are unsure of the size of the market in general.
C)they know they cannot achieve the same low costs that the natural monopolist enjoys.
D)the natural monopoly does not make a large profit.

Accepted Answer

Natural monopolies have very high fixed costs, and therefore the first firm to enter the market can spread these costs over a larger output and achieve economies of scale. This means that subsequent firms will not be able to achieve the same low costs as the natural monopolist and will therefore not be able to compete effectively.

Question 13

When a firm experiences continually declining average total costs, the firm is a
A)government-created monopoly.
B)price taker.
C)natural monopoly.
D)revenue maximizer.

Accepted Answer

A firm that experiences continually declining average total costs is a natural monopoly. This means that the firm has a high fixed cost and can operate at a lower average cost than any potential competitor. As a result, the firm has a large market share and can set prices above the competitive level while still making a profit.

Question 14

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly
A)is often not in the best interest of society.
B)maximizes total economic well-being.
C)is efficient.
D)benefits consumers more so than the producer.

Accepted Answer

Monopoly firms have the ability to charge higher prices and restrict output since they are the only producer in the market. This often leads to an outcome that is not in the best interest of society as consumers may have to pay higher prices for limited goods or services, and there may be a lack of innovation and incentive for the firm to improve.

Question 15

A perfectly competitive firm produces where
A)marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
B)marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
C)price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
D)marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

Accepted Answer

In perfect competition, a firm is a price taker and produces where marginal cost equals price to maximize profit. This is because in a perfectly competitive market, there are many firms selling identical products at the same market-determined price. On the other hand, a monopolist has market power and can set a price higher than marginal cost to maximize profit. Thus, a monopolist produces where price exceeds marginal cost.

Question 16

When a firm has a natural monopoly, the firm's
A)marginal cost always exceeds its average total cost.
B)total cost curve is horizontal.
C)average total cost curve is downward sloping.
D)marginal cost curve must lie above the firm's average total cost curve.

Accepted Answer

A natural monopoly occurs when a firm experiences decreasing average total costs over a range of output, leading to a downward sloping average total cost curve. This is typically due to high fixed costs and significant economies of scale.

Question 17

A patent gives the inventor monopoly control over the patented good. Patents also
A)​lead to lower prices for goods.
B)​create incentives to develop new products.
C)lead to an increase in the number of producers of the patented good.
D)​lead to increased entry into the market for the patented good.

Accepted Answer

Patents are intended to provide an incentive for inventors to spend time and resources researching and developing new products by granting them exclusive rights to their invention for a limited period. This exclusive right enables them to charge higher prices for their product without fear of competition, which ultimately provides them with the incentive to continue innovating. Therefore, option B is the only correct option.

Question 18

A monopoly
A)can set the price it charges for its output and earn unlimited profits.
B)takes the market price as given and earns small but positive profits.
C)can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.
D)can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

Accepted Answer

A monopoly can set the price it charges for its output, but it faces a downward-sloping demand curve which means that as it sets a higher price, quantity demanded will decrease. This limits the monopoly's ability to earn unlimited profits as it must balance price and quantity demanded.

Question 19

A perfectly competitive market
A)may not be in the best interests of society, whereas a monopoly market promotes general economic well-being
B)promotes general economic well-being, whereas a monopoly market may not be in the best interests of society.
C)and a monopoly market are equally likely to promote general economic well-being.
D)is less likely to promote general economic well-being than a monopoly market.

Accepted Answer

A perfectly competitive market promotes general economic well-being by ensuring that resources are allocated efficiently and at the lowest cost possible. On the other hand, a monopoly market may not be in the best interests of society since it can lead to higher prices, lower output, and less innovation. Therefore, a perfectly competitive market is generally preferred over a monopoly market in terms of promoting general economic well-being.

Question 20

​Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will
A)​result in lower prices for consumers under all circumstances.
B)​result in higher average costs for each producer than if there were only a single producer.
C)​result in all firms taking full advantage of economies of scale in the production of the good.
D)result in a more efficient outcome than the market with fewer producers.

Accepted Answer

Natural monopolies typically have high fixed costs and low variable costs, which means that the average cost of production decreases as more units are produced. Therefore, a single producer would be able to achieve lower average costs than multiple producers due to economies of scale. With three producers, the competition between them may not be intense enough to drive down prices for consumers, but their average costs will likely be higher than if there were only a single producer.

Quiz 15: Monopoly

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often

A competitive firm

A monopoly can earn positive profits because it

​When the market for a good is a natural monopoly, this results in

Which of the following is a characteristic of a monopoly market?

Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

When a firm experiences continually declining average total costs,

When there are economies of scale over the relevant range of output for a monopoly, the monopoly

A natural monopoly arises when

If government officials break up a natural monopoly into four smaller firms, then

Additional firms often do not try to compete with a natural monopoly because

When a firm experiences continually declining average total costs, the firm is a

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly

A perfectly competitive firm produces where

When a firm has a natural monopoly, the firm's

A patent gives the inventor monopoly control over the patented good. Patents also

A monopoly

A perfectly competitive market

​Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will

When the market for a good is a natural monopoly, this results in

Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will