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| 1 | |
Monopoly differs from perfect competition in that |
| | A) | the industry demand curve in perfect competition is horizontal while the demand curve facing a monopolist is downward sloping. |
| | B) | The cost structure of a monopolist is higher than the cost structure of a perfectly competitive firm producing the same product. |
| | C) | The total revenue function of a perfectly competitive firm is linear and a monopolist's total revenue function increases and then decreases with respect to quantity sold. |
| | D) | A monopolist has a specific supply curve and a perfectly competitive firm has no specific supply curve. |
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| 2 | |
If the demand curve for the monopolist is P = 100 – 20Q, then the marginal revenue of that firm is |
| | A) | P = 200 – 20Q |
| | B) | P = 50 – 40Q |
| | C) | P = 100 – 20Q |
| | D) | P = 100 – 40Q |
| | E) | Something other than the four options above. |
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| 3 | |
It the demand facing a monopolist is P = 100 – 10Q and marginal cost is constant at 20, then the profit maximizing price and quantity for this monopolist is |
| | A) | P = 4 and Q = 60 |
| | B) | P = 20 and Q = 8 |
| | C) | P = 90 and Q = 10 |
| | D) | P = 60 and Q = 4 |
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| 4 | |
If the firm described in question three above has fixed cost of 200, what is the profit or loss situation of the firm and what should its strategy be? |
| | A) | profit = 40: firm should continue as is in short-run and long-run. |
| | B) | Loss = 40; firm should shut down now. |
| | C) | Loss = 40: firm should continue operating in the short-run but reassess its long run strategy. |
| | D) | None of the above can be certain without more information. |
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| 5 | |
A profit maximizing monopoly firm with a demand curve P = 50 - Q is a perfect price discriminator. If it has marginal costs of 10 and fixed cost of 30, it will produce _____ units of output and will make ______ profit. |
| | A) | 40: 400 |
| | B) | 40: 800 |
| | C) | 40: 770 |
| | D) | 20: 300 |
| | E) | 20: 600 |
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| 6 | |
From the point of view of consumers as a group, a single price monopolist is preferred to a price discriminating monopolist. A price discriminating monopolist will always make more profit or lose less than if it were a single price monopolist. |
| | A) | Both statements are true. |
| | B) | The first statement is true and the second is false. |
| | C) | The first statement is false and the second is true. |
| | D) | Both statements are false. |
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| 7 | |
For airlines to effectively price discriminate they must |
| | A) | be selling tickets in more than one market and the elasticities in the markets must be different for any given market price. |
| | B) | Be sure that the two markets can sell to each other. |
| | C) | Have a horizontal marginal cost function. |
| | D) | Be sure that all of the above are true. |
| | E) | Have both a and b present. |
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| 8 | |
Which is an example of the hurdle model of price discrimination? |
| | A) | stores that use coupons and mail-in rebates |
| | B) | stores that sell heavily discounted damaged items. |
| | C) | Book publishers who offer 50% of during the last day of a convention book display. |
| | D) | Travel agencies that offer free vacations if the customer attends a promotional session. |
| | E) | All of the above are examples of hurdle price discrimination because the customer must be willing to accept some inconvenience in order to get the reduced price. |
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| 9 | |
The social welfare loss, that makes single price monopoly an efficiency problem for economists, exists because |
| | A) | monopolies transfer value to the producer that would normally go to the consumer in perfect competition. |
| | B) | the monopolist does not equate marginal cost and marginal revenue. |
| | C) | the monopolist stops producing where price is greater than marginal cost so some output that is valued above cost never gets produced. |
| | D) | the threat of monopoly power, even if not used, makes people feel helpless. |
| | E) | all of the above are true. |
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| 10 | |
Natural monopolies exist because |
| | A) | of patent laws. |
| | B) | one company controls key inputs into production. |
| | C) | of government regulations which privilege one company. |
| | D) | economies of scale. |
| | E) | of all of the above. |
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| 11 | |
Public transportation systems are often regulated monopolies that receive subsidies. The subsidies exist primarily because |
| | A) | the regulated price is below ATC. |
| | B) | the regulated price allows only normal profit so the subsidy partially offsets the loss of monopoly profit for the firm. |
| | C) | the lower fares and the subsidy system is an efficient way to help poor people who need transportation. |
| | D) | they result in campaign contributions back to the politicians that provide the subsidies. |
| | E) | of all of the above. |
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| 12 | |
The strongest case against the notion that monopoly suppresses innovation is |
| | A) | that government regulatory penalties are severe if suppression is discovered. |
| | B) | that innovation usually is profitable for monopolists. |
| | C) | that it is impossible to keep original research secret in an era of electronic information and corporate espionage. |
| | D) | that humans are creative beings who innovate for its own sake and they would not permit their creativity to be stifled in the interest of monopoly profit. |
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| 13 | |
Networking in the economy can lead to monopoly market structures because |
| | A) | to network effectively a firm must have government regulation protecting the heavy initial investments. |
| | B) | The more people using the product, the more valuable the product is to everyone. This means the first firm in the market may dominate the market. |
| | C) | Networks are another name for backward vertical integrating which leads to control of key inputs. |
| | D) | Networking arises due to patent rights that a firm secures. These rights become the basis for monopoly control in a market. |
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| 14 | |
Of all the factors that lead to monopoly power, according to your text one is by far the most enduring. Which one? |
| | A) | controlling supply sources. |
| | B) | economies of scale |
| | C) | patents |
| | D) | government licenses |
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| 15 | |
Which of the following is not true? |
| | A) | Perfectly competitive firms have a linear positive sloped total revenue function while monopolies have an increasing and then decreasing total revenue function. |
| | B) | Perfectly competitive firms face a horizontal demand curve and monopolies face a downward sloping demand curve. |
| | C) | Perfectly competitive firms and monopoly firms both generally have U shaped ATC curves. |
| | D) | Both perfectly competitive firms and monopolies control prices by altering their output. |
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| 16 | |
A monopoly demand curve is P = 500 – 5Q. Without knowing anything about costs, which of the following prices would definitely not be a profit maximizing option for the firm? |
| | A) | 400 |
| | B) | 300 |
| | C) | 200 |
| | D) | It is impossible to make a judgment about the prices listed unless something is known about the cost structure. |
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| 17 | |
X-inefficiency would most likely occur in which of the following circumstances? |
| | A) | State owned and operated water supply companies |
| | B) | Exclusive contracting for garbage collecting by a city government |
| | C) | A private drug company selling a patented drug. |
| | D) | A firm that had been forced to break up in an antitrust case. |
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| 18 | |
From the graph of a firm's situation shown below, what is a good estimate of the short run profit maximizing output and price? Estimate from the numbers shown. <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap12_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (6.0K)</a>]]>
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| | A) | output = 70, price = 40 |
| | B) | output = 110, price = 40 |
| | C) | output = 70, price = 60 |
| | D) | output = 50, price = 75 |
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| 19 | |
A monopoly should definitely shut down if its |
| | A) | marginal revenue is below its average total cost at all output levels. |
| | B) | marginal revenue is below its marginal cost at all output levels. |
| | C) | demand curve is below its average variable cost at all output levels. |
| | D) | marginal revenue is below its average variable cost at all output levels. |
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| 20 | |
Which statement about a profit maximizing price discriminating monopolist is false? |
| | A) | To price the two segregated markets effectively, the firm will need to know the marginal revenue function in each separate market. |
| | B) | The output of the firm occurs where the vertical sum of the marginal revenue curves equals the marginal cost of producing. |
| | C) | The market with the most elastic demand will have the lowest price. |
| | D) | Firms that sell services have an easier time price discriminating than firms that sell generic type products. |
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| 21 | |
Given the demand curve P = 500 – 5Q and a constant marginal cost of 100, if the firm is a single price profit maximizing monopolist, how much deadweight loss to society will result from the monopolists behavior? |
| | A) | 3,000 |
| | B) | 4,000 |
| | C) | 8,000 |
| | D) | 9,000 |
| | E) | None of the above are the correct answer. |
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| 22 | |
If a firm has significant economies of scale with constantly falling ATC so that producing at lowest costs are possible only if one firm produces in the industry, then |
| | A) | the firm cannot price at marginal cost and make a profit. |
| | B) | A profit maximizing strategy will create substantial deadweight loss to society. |
| | C) | Social efficiency can only be attained if the firm is subsidized by the public. |
| | D) | All of the above are true. |
| | E) | None of the above are true because falling costs are good for everyone no matter what the goals of the firm may be. |
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