True/False
Indicate whether the
sentence or statement is true or false.
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1.
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Monopolists are price takers.
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2.
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The most common source of a barrier to entry into a
monopolist's market is that the monopolist owns a key resource necessary for production of that
good.
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3.
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A monopoly is the sole seller of a product with no
close substitutes.
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4.
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A natural monopoly is a monopoly that uses its
ownership of natural resources as a barrier to entry into its market.
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5.
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The demand curve facing a monopolist is the market
demand curve for its product.
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6.
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For the monopolist, marginal revenue is always less
than the price of the good.
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7.
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The monopolist chooses the quantity of output at
which marginal revenue equals marginal cost and then uses the demand curve to find the price that
will induce consumers to buy that quantity.
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8.
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The supply curve for a monopolist is always
positively sloped.
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9.
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A monopolist produces an efficient quantity of
output but it is still inefficient because it charges a price that exceeds marginal cost and the
resulting profit is a social cost.
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10.
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Using regulations to force a natural monopoly to
charge a price equal to its marginal cost of production will cause the monopoly to lose money and
exit the industry.
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11.
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Most economists argue that the most efficient
solution to the problem of monopoly is that the monopoly should be publicly owned.
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12.
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Price discrimination is only possible if there is
no arbitrage.
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13.
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Price discrimination can raise economic welfare
because output increases beyond that which would result under monopoly pricing.
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14.
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Perfect price discrimination is efficient but all
of the surplus is received by the consumer.
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15.
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Universities are engaging in price discrimination
when they charge different levels of tuition to poor and wealthy students.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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Which of the following is not a barrier to entry in
a monopolized market?
a. | A single firm is very large. | b. | The government gives a single firm the exclusive right to produce some
good. | c. | The costs of production make a single producer more
efficient than a large number of producers. | d. | A key resource is
owned by a single firm. |
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17.
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A firm whose average total cost continually
declines at least to the quantity that could supply the entire market is known as a
a. | natural monopoly. | b. | perfect competitor. | c. | government
monopoly. | d. | regulated
monopoly. |
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18.
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When a monopolist produces an additional unit, the
marginal revenue generated by that unit must be
a. | below the price because the price effect outweighs the
output effect. | b. | above the price
because the output effect outweighs the price effect. | c. | above the price because the price effect outweighs the output
effect. | d. | below the price because the output effect outweighs the
price effect. |
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19.
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A monopolist maximizes profit by producing the
quantity at which
a. | marginal revenue equals marginal
cost. | b. | marginal revenue equals
price. | c. | marginal cost equals price. | d. | marginal cost equals demand. | e. | none of these answers. |
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20.
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Which of the following statements about price and
marginal cost in competitive and monopolized markets is true?
a. | In competitive markets, price equals marginal cost; in
monopolized markets, price exceeds marginal cost. | b. | In competitive markets, price equals marginal cost; in monopolized markets,
price equals marginal cost. | c. | In competitive
markets, price exceeds marginal cost; in monopolized markets, price exceeds marginal
cost. | d. | In competitive markets, price exceeds marginal cost; in
monopolized markets, price equals marginal cost. |
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21.
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Thomson is a monopolist in the production of your
textbook because
a. | Thomson has a legally protected exclusive right to
produce this textbook. | b. | Thomson owns a key
resource in the production of textbooks. | c. | Thomson is a
natural monopoly. | d. | Thomson is a very
large company. |
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22.
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Refer to Exhibit 4. The profit-maximizing
monopolist will choose the price and quantity represented by point
a. | A. | b. | B. | c. | C. | d. | D. | e. | none of these answers. |
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23.
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Refer to Exhibit 4. The efficient price and
quantity are represented by point
a. | D. | b. | A. | c. | B. | d. | C. | e. | none of these answers. |
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24.
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The inefficiency associated with monopoly is due
to
a. | underproduction of the good. | b. | the monopoly's profits. | c. | the monopoly's losses. | d. | overproduction of the good. |
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25.
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Compared to a perfectly competitive market, a
monopoly market will usually generate
a. | higher prices and lower
output. | b. | higher prices and higher
output. | c. | lower prices and lower
output. | d. | lower prices and higher
output. |
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26.
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The monopolist's supply curve
a. | does not exist. | b. | is the marginal cost curve above average variable
cost. | c. | is the marginal cost curve above average total
cost. | d. | is the upward-sloping portion of the average total cost
curve. | e. | is the upward-sloping portion of the average variable
cost. |
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27.
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Using government regulations to force a natural
monopoly to charge a price equal to its marginal cost will
a. | cause the monopolist to exit the
market. | b. | improve efficiency. | c. | raise the price of good. | d. | attract additional
firms to enter the market. |
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28.
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The purpose of antitrust (also known as
competition) laws is to
a. | increase competition in an industry by preventing
mergers and breaking up large firms. | b. | regulate the
prices charged by a monopoly. | c. | increase merger
activity to help generate synergies that reduce costs and raise
efficiency. | d. | create public
ownership of natural monopolies. | e. | do all of these
answers. |
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29.
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Public ownership of natural
monopolies
a. | tends to be inefficient. | b. | usually lowers the cost of production dramatically. | c. | creates synergies between the newly acquired firm and other government-owned
companies. | d. | does none of the
things described in these answers. |
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30.
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Which of the follow statements about price
discrimination is not true?
a. | Perfect price discrimination generates a deadweight
loss. | b. | Price discrimination can raise economic
welfare. | c. | Price discrimination requires that the seller be able to
separate buyers according to their willingness to pay. | d. | Price discrimination increases a monopolist's
profits. | e. | For a monopolist to engage in price discrimination,
buyers must be unable to engage in arbitrage. |
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31.
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If regulators break up a natural monopoly into many
smaller firms, the cost of production
a. | will rise. | b. | will fall. | c. | will remain the
same. | d. | could either rise or fall depending on the elasticity of
the monopolist's supply curve. |
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32.
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A monopoly is able to continue to generate economic
profits in the long run because
a. | there is some barrier to entry to that
market. | b. | potential competitors sometimes don't notice the
profits. | c. | the monopolist is financially
powerful. | d. | antitrust laws eliminate competitors for a specified
number of years. | e. | of all of the
things described in these answers |
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33.
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If marginal revenue exceeds marginal cost, a
monopolists should
a. | increase output. | b. | decrease output. | c. | keep output the
same because profits are maximized when marginal revenue exceeds marginal
cost. | d. | raise the price. |
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