Chap024

CHAPTER 24 Pure Monopoly

TopicQuestion numbers___________________________________________________________________________________________________

1.Monopoly concept; definition1-72.Barriers to entry8-133.Monopoly demand curve14-734.Profit maximization74-1165.Economic implications117-1456.Price discrimination146-1647.Regulated monopolies165-179Consider This180-181Last Word182-184True-False185-208___________________________________________________________________________________________________

Multiple Choice Questions

Monopoly concept; definition

Type: D Topic: 1 E: 438 MI: 194 1.Pure monopoly means: A)any market in which the demand curve to the firm is downsloping. B)a standardized product being produced by many firms. C)a single firm producing a product for which there are no close substitutes. D)a large number of firms producing a differentiated product. Answer: C

Type: D Topic: 1 E: 438 MI: 194 2.Which of the following is correct? A)Both purely competitive and monopolistic firms are "price takers." B)Both purely competitive and monopolistic firms are "price makers." C)A purely competitive firm is a "price taker," while a monopolist is a "price maker." D)A purely competitive firm is a "price maker," while a monopolist is a "price taker." Answer: C

Type: A Topic: 1 E: 438-439 MI: 194-195 3.A purely monopolistic industry: A)has no entry barriers. B)has a downward sloping demand curve. C)produces a product or service for which there are many close substitutes. D)earns only a normal profit in the long run.Answer: D

Type: D Topic: 1 E: 438 MI: 194 4.A pure monopolist is:A)any firm realizing all existing economies of scale. B)any firm whose demand curve is downsloping. C)any firm which can engage in price discrimination. D)a one-firm industry. Answer: D

Type: A Topic: 1 E: 439 MI: 195 5.Pure monopolists may obtain economic profits in the long run because: A)of advertising. C)of barriers to entry. B)marginal revenue is constant as sales increase. D)of rising average fixed costs. Answer: C

Type: F Topic: 1 E: 439 MI: 195 6.Which of the following approximates a pure monopoly? A)the foreign exchange market C)the diamond market B)the Kansas City wheat market D)the soft drink market Answer: C

Type: A Topic: 1 E: 439 MI: 195 7.Which of the following is a characteristic of pure monopoly? A)close substitute products B) barriers to entry C) the absence of market power D) "price taking"Answer: B

Barriers to entry

Type: A Topic: 2 E: 439-441 MI: 195-197 8.Which of the following is not a barrier to entry? A)patents B) X-inefficiency C) economies of scale D) ownership of essential resources Answer: B

Type: A Topic: 2 E: 439 MI: 195 9.Barriers to entering an industry: A)are justified because they result in allocative efficiency. B)are justified because they result in productive efficiency. C)are the basis for monopoly. D)apply only to purely monopolistic industries. Answer: C

Type: A Topic: 2 E: 440 MI: 196 10.Patents: A)give firms the exclusive right to produce or control a product for 100 years. B)discourage research and innovation. C)are a source of monopoly. D)are also called trademarks.Answer: D

Type: A Topic: 2 E: 440 MI: 196 11.A natural monopoly occurs when: A)long-run average costs decline continuously through the range of demand. B)a firm owns or controls some resource essential to production. C)long-run average costs rise continuously as output is increased. D)economies of scale are obtained at relatively low levels of output.Answer: A

Type: A Topic: 2 E: 440 MI: 196 12.Large minimum efficient scale of plant combined with limited market demand may lead to:A)natural monopoly. B) patent monopoly C) government franchise monopoly. D) shared monopoly.Answer: A

Type: A Topic: 2 E: 439-441 MI: 195-197 13.What do economies of scale, the ownership of essential raw materials, and patents have in common? A)They must all be present before price discrimination can be practiced. B)They are all barriers to entry. C)They all help explain why a monopolist's demand and marginal revenue curves coincide. D)They all help explain why the long-run average cost curve is U-shaped. Answer: B

Monopoly demand curve

Type: A Topic: 3 E: 441 MI: 197 14.The nondiscriminating pure monopolist's demand curve: A)is the industry demand curve. B)shows a direct or positive relationship between price and quantity demanded. C)tends to be inelastic at high prices and elastic at low prices. D)is identical to its marginal revenue curve.Answer: D

Type: A Topic: 3 E: 441-442 MI: 197-198 15.The nondiscriminating monopolist's demand curve: A)is less elastic than a purely competitive firm's demand curve. B)is perfectly elastic. C)coincides with its marginal revenue curve. D)is perfectly inelastic. Answer: A

Type: A Topic: 3 E: 441-442 MI: 197-198 16.If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue: A)may be either greater or less than $35. C)will be less than $35. B)will also be $35. D)will be greater than $35. Answer: C

Type: A Topic: 3 E: 441-442 MI: 197-198 17.A nondiscriminating pure monopolist's demand curve: A)is perfectly inelastic. C)lies above its marginal revenue curve. B)coincides with its marginal revenue curve. D)lies below its marginal revenue curve. Answer: C

Type: A Topic: 3 E: 441-442 MI: 197-198 18.For an imperfectly competitive firm: A)total revenue is a straight, upsloping line because a firm's sales are independent of product price. B)the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. C)the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. D)the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold. Answer: C

Type: A Topic: 3 E: 442-443 MI: 198-199 19.For a nondiscriminating imperfectly competitive firm: A)the marginal revenue curve lies above the demand curve. B)the demand and marginal revenue curves coincide. C)the demand curve intersects the horizontal axis where total revenue is at a maximum. D)marginal revenue will become zero at that output where total revenue is at a maximum. Answer: D

Type: A Topic: 3 E: 443-444 MI: 199-200 20.When a firm is on the inelastic segment of its demand curve, it can: A)increase total revenue by reducing price. B)decrease total costs by decreasing price. C)increase profits by increasing price. D)increase total revenue by more than the increase in total cost by increasing price.Answer: C

Use the following to answer questions 21-23:

Type: G Topic: 3 E: 443-444 MI: 199-200 21.Refer to the above diagram. If price is reduced from P1 to P2, total revenue will: A)increase by A minus C. C)decrease by A minus C. B)increase by C minus A. D)decrease by C minus A. Answer: B

Type: G Topic: 3 E: 443-444 MI: 199-200 22.Refer to the above diagram. The quantity difference between areas A and C for the indicated price reduction measures: A)marginal cost. B) marginal revenue. C) monopoly price. D) a welfare or efficiency loss. Answer: B

Type: G Topic: 3 E: 442-443 MI: 198-199 23.The above diagram implies that whenever a firm's demand curve is downsloping: A)price discrimination is not possible. B)monopolists will be more efficient than competitors. C)the demand and marginal revenue curves will coincide. D)marginal revenue is less than price. Answer: D


Answer the next question(s) on the basis of the demand schedule shown below:

Type: T Topic: 3 E: 442 MI: 198 24.Refer to the above data. The marginal revenue obtained from selling the third unit of output is: A)$6. B) $1. C) $3. D) $5. Answer: C

Type: T Topic: 3 E: 443 MI: 199 25.Refer to the above data. At the point where 3 units are being sold, the coefficient of price elasticity of demand: A)cannot be estimated. C)is less than unity (one).B)suggests that the market is purely competitive. D)is greater than unity (one).Answer: D

Type: A Topic: 3 E: 442 MI: 198 26.A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is: A)-$1,000. B) $9,000. C) $10,000. D) $1,000. Answer: D


Type: G Topic: 3 E: 416 MI: 172 27.Refer to the above two diagrams for individual firms. Figure 1 pertains to: A)an imperfectly competitive firm. C)an oligopolist. B)a purely competitive firm. D)a pure monopolist. Answer: B

Type: G Topic: 3 E: 416 MI: 172 28.Refer to the above two diagrams for individual firms. In Figure 1 line B represents the firm's: A)demand and marginal revenue curves. C)marginal revenue curve only. B)demand curve only. D)average revenue curve only. Answer: A

Type: G Topic: 3 E: 416 MI: 172 29.Refer to the above two diagrams for individual firms. In Figure 1, line A represents the firm's: A)demand and marginal revenue curves. C)marginal revenue curve only. B)demand curve only. D)total revenue curve only. Answer: D

Type: G Topic: 3 E: 441 MI: 197 30.Refer to the above two diagrams for individual firms. Figure 2 pertains to: A)a market characterized by government regulation of price and output. B)either an imperfectly competitive or a purely competitive seller. C)a purely competitive seller. D)an imperfectly competitive seller. Answer: D

Type: G Topic: 3 E: 441-442 MI: 197-198 31.Refer to the above two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by: A)lines B and C respectively. C)lines A and B respectively.B)lines A and C respectively. D)line B. Answer: A

Type: A Topic: 3 E: 441-442 MI: 197-198 32.With respect to the pure monopolist's demand curve it can be said that: A)the stronger the barriers to entry, the more elastic is the monopolist's demand curve. B)price exceeds marginal revenue at all outputs greater than 1. C)demand is perfectly inelastic. D)marginal revenue equals price at all outputs. Answer: B

Type: A Topic: 3 E: 441 MI: 197 33.The pure monopolist's demand curve is: A)identical with the industry demand curve. C)perfectly inelastic. B)of unit elasticity throughout. D)perfectly elastic. Answer: A


Type: G Topic: 3 E: 441-442 MI: 197-198 34.Refer to the above diagram. This firm is selling in: A)a market in which there are an extremely large number of other firms producing the same product. B)an imperfectly competitive market. C)a market in which demand is elastic at all prices. D)a purely competitive market. Answer: B

Type: G Topic: 3 E: 442-443 MI: 198-199 35.Refer to the above diagram. Demand is relatively elastic: A)in the P2P1 price range. C)in the P2P4 price range. B)in the 0P1 price range. D)only at price P2. Answer: C

Type: G Topic: 3 E: 442-443 MI: 198-199 36.Refer to the above diagram. Demand is relatively inelastic: A)at price P3. B) at any price below P2. C) in the P2P4 price range. D) in the P2P3 price range. Answer: B

Type: G Topic: 3 E: 444 MI: 200 37.Refer to the above diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by: A)selling the product at the highest possible price at which a positive quantity will be demanded. B)producing Q1 units and charging a price of P1. C)producing Q3 units and charging a price of P3. D)producing Q2 units and charging a price of P2. Answer: D

Type: A Topic: 3 E: 441-442 MI: 197-198 38.Price exceeds marginal revenue for the pure monopolist because the: A)law of diminishing returns is inapplicable. B)demand curve is downsloping. C)monopolist produces a smaller output than would a purely competitive firm. D)demand curve lies below the marginal revenue curve. Answer: B

Type: A Topic: 3 E: 442-443 MI: 198-199 39.The demand curve faced by a pure monopolist: A)may be either more or less elastic than that faced by a single purely competitive firm. B)is less elastic than that faced by a single purely competitive firm. C)has the same elasticity as that faced by a single purely competitive firm. D)is more elastic than that faced by a single purely competitive firm. Answer: B

Type: A Topic: 3 E: 443 MI: 199 40.The marginal revenue curve for a monopolist:A)is a straight, upward sloping curve.B)rises at first, reaches a maximum, and then declines.C)becomes negative when output increases beyond some particular level.D)is a straight line, parallel to the horizontal axis.Answer: C

Type: G Topic: 3 E: 442 MI: 198 41. If the firm in the above diagram lowers price from P1 to P2, it will: A)lose P1P 2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales. B)lose P1P 2ca in revenue from the price cut but increase revenue by Q1acQ2 from the increase in sales. C)incur a decline in total revenue because it is operating on the elastic segment of the demand curve. D)incur an increase in total revenue because it is operating on the inelastic segment of the demand curve. Answer: A

Type: G Topic: 3 E: 442 MI: 198 42.The quantitative difference between areas Q1bcQ 2 and P1P2ba in the above diagram measures: A)marginal cost. B) total revenue. C) marginal revenue. D) average revenue. Answer: C

Type: A Topic: 3 E: 441 MI: 197 43.Which of the following is characteristic of a pure monopolist's demand curve? A)Average revenue is less than price. B)Its elasticity coefficient is 1 at all levels of output. C)Price and marginal revenue are equal at all levels of output. D)It is the same as the market demand curve. Answer: D

Type: A Topic: 3 E: 441 MI: 197 44.Because the monopolist's demand curve is downsloping: A)MR will equal price.B)price must be lowered to sell more output. C)the elasticity coefficient will increase as price is lowered. D)its supply curve will also be downsloping.Answer: B

Type: A Topic: 3 E: 443 MI: 199 45.The pure monopolist's demand curve is relatively elastic: A)in the price range where total revenue is declining. B)at all points where the demand curve lies above the horizontal axis. C)in the price range where marginal revenue is negative. D)in the price range where marginal revenue is positive. Answer: D

Type: A Topic: 3 E: 443 MI: 199 46.When the pure monopolist's demand curve is elastic, marginal revenue: A)may be either positive or negative. B) is zero. C) is negative. D) is positive. Answer: D

Type: A Topic: 3 E: 443 MI: 199 47.When total revenue is increasing: A)marginal revenue may be either positive or negative. B)the demand curve is relatively inelastic. C)marginal revenue is positive. D)marginal revenue is negative. Answer: C

Type: A Topic: 3 E: 443-444 MI: 199-200 48.A nondiscriminating monopolist: A)will never produce in the output range where marginal revenue is positive. B)will never produce in the output range where demand is inelastic. C)will never produce in the output range where demand is elastic. D)may produce where demand is either elastic or inelastic, depending on the level of production costs. Answer: B

Type: A Topic: 3 E: 443 MI: 199 49.For a pure monopolist the relationship between total revenue and marginal revenue is such that: A)marginal revenue is positive when total revenue is at a maximum. B)total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing. C)marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing. D)marginal revenue is positive so long as total revenue is positive. Answer: C

Type: A Topic: 3 E: 441 MI: 197 50.A pure monopolist's demand curve is: A)downsloping. B) upsloping. C) parallel to the vertical axis. D) parallel to the horizontal axis. Answer: A

Type: A Topic: 3 E: 441-442 MI: 197-198 51.For a pure monopolist marginal revenue is less than price because: A)the monopolist's demand curve is perfectly elastic. B)the monopolist's demand curve is perfectly inelastic. C)when a monopolist lowers price to sell more output, the lower price applies to all units sold. D)the monopolist's total revenue curve is linear and slopes upward to the right. Answer: C


Type: G Topic: 3 E: 443 MI: 199 52.Refer to the above diagram for a nondiscriminating monopolist. Demand is elastic: A)in the q1q 3 output range. C)for all levels of output less than q2. B)only for outputs greater than q4. D)for all levels of output greater than q2. Answer: C

Type: G Topic: 3 E: 442 MI: 198 53.Refer to the above diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output: A)q4. B) q3. C) q2. D) q1. Answer: C

Type: G Topic: 3 E: 444 MI: 200 54.Refer to the above diagram for a nondiscriminating monopolist. The profit-seeking monopolist will: A)always produce at output q2. C)never produce an output larger than q2. B)always produce more than q2. D)never produce an output larger than q1. Answer: C

Type: A Topic: 3 E: 444 MI: 200 55.Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should: A)retain its current price-quantity combination. C)charge a higher price. B)increase both price and quantity sold. D)charge a lower price. Answer: C

Type: A Topic: 3 E: 444 MI: 200 56.A pure monopolist should never produce in the: A)elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price. B)inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price. C)inelastic segment of its demand curve because it can always increase total revenue by more than it increases total cost by reducing price. D)segment of its demand curve where the price elasticity coefficient is greater than one. Answer: B

Type: A Topic: 3 E: 441 MI: 197 57.Assuming no change in product demand, a pure monopolist: A)can increase price and increase sales simultaneously because it dominates the market. B)adds an amount to total revenue which is equal to the price of incremental sales. C)should produce in the range where marginal revenue is negative. D)must lower price to increase sales. Answer: D

Type: A Topic: 3 E: 443-444 MI: 199-200 58.If a monopolist were to produce in the inelastic segment of its demand curve: A)total revenue would be at a maximum. C)the firm would be maximizing profits. B)marginal revenue would be negative. D)it would necessarily incur a loss.Answer: D

Type: A Topic: 3 E: 443 MI: 199 59.If a pure monopolist is operating in a range of output where demand is elastic: A)it cannot possibly be maximizing profits. C)marginal revenue will be positive and rising. B)marginal revenue will be positive but declining. D)total revenue will be declining. Answer: B

Type: A Topic: 3 E: 442-443 MI: 198-199 60.Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that:A)demand is inelastic at this price. C)the firm is maximizing profits. B)total revenue is increasing. D)total revenue is at a maximum. Answer: B

Type: A Topic: 3 E: 442-443 MI: 198-199 61.A pure monopolist is selling 6 units at a price of $12. If the marginal revenue of the seventh unit is $5, then: A)price of the seventh unit is $10. C)price of the seventh unit is greater than $12. B)price of the seventh unit is $11. D)firm's demand curve is perfectly elastic. Answer: B

Type: A Topic: 3 E: 442 MI: 198 62.The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures: A)the quantity demanded. C)total revenue. B)product price and average revenue. D)product price and marginal revenue. Answer: B

Type: G Topic: 3 E: 442 MI: 198 63. The above diagram indicates that the marginal revenue of the sixth unit of output is:A)$1. B) -$1. C) $4. D) $24. Answer: B

Type: A Topic: 3 E: 427 MI: 183 64.Which of the following is incorrect? Imperfectly competitive producers: A)face downsloping demand curves. B)do not compete with one another. C)can alter their output by changing price. D)find that, when they reduce price, their total revenue increases by less than the new price. Answer: B

Use the following to answer question 65:

Answer the next question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist:

Type: T Topic: 3 E: 443 MI: 199 65.The monopolist will select its profit-maximizing level of output somewhere within the: A)3-5 unit range of output. C)1-4 unit range of output. B)1-3 unit range of output. D)2-4 unit range of output. Answer: B

Type: A Topic: 3 E: 442-443 MI: 198-199 66.A nondiscriminating pure monopolist finds that it can sell its fiftieth unit of output for $50. We can surmise that the marginal: A)cost of the fiftieth unit is also $50. C)revenue of the fiftieth unit is less than $50. B)revenue of the fiftieth unit is also $50. D)revenue of the fiftieth unit is greater than $50. Answer: C

Type: A Topic: 3 E: 442 MI: 198 67.If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be: A)equal to its price. B)the price at which that unit is sold less the price reductions which apply to all other units of output. C)the price at which that unit is sold plus the price increases which apply to all other units of output. D)indeterminate unless marginal cost data are known. Answer: B

Type: A Topic: 3 E: 443 MI: 199 68.Assuming a pure monopolist's demand curve is downsloping, its total revenue: A)is rising. B) is falling. C) may be either rising or falling. D) must be negative. Answer: C


Type: G Topic: 3 E: 443 MI: 199 69.Which of the above diagrams correctly portray a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves? A)A B) B C) C D) D Answer: B

Type: G Topic: 3 E: 454 MI: 210 70.Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a pure monopolist that is practicing perfect price discrimination? A)A B) B C) C D) D Answer: A

Type: G Topic: 3 E: 415-416 MI: 171-172 71.Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a purely competitive seller? A)A B) B C) C D) D Answer: C

Type: A Topic: 3 E: 442 MI: 198 Status: New 72.Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the twenty-first unit of output is:A)$9.75. B) $204.75. C) $4.75. D) $.25.Answer: C

Type: A Topic: 3 E: 442 MI: 198 Status: New 73.Suppose that a pure monopolist can sell 10 units of output at $5 per unit and 11 units at $4.90 per unit. The marginal revenue of the eleventh unit is:A)$3.90. B) $.10. C) $53.90. D) $4.90.Answer: A

Profit maximization

Type: A Topic: 4 E: 444-445 MI: 200-201 74.The MR = MC rule: A)applies only to pure competition. B)applies only to pure monopoly. C)does not apply to pure monopoly because price exceeds marginal revenue. D)applies both to pure monopoly and pure competition. Answer: D

Type: A Topic: 4 E: 444-445 MI: 200-201 75.In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: A)average total cost. B) marginal revenue. C) average variable cost. D) average cost. Answer: B

Type: A Topic: 4 E: 444-445 MI: 200-201 76.An unregulated pure monopolist will maximize profits by producing that output at which: A)P = MC. B) P = ATC. C) MR = MC. D) MC = AC. Answer: C

Type: C Topic: 4 E: 444-445 MI: 200-201 Status: New 77.Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is:A)$4 or less. B) $3.90 or less. C) $3.50 or less.. D) $3.40 or less.Answer: D

Type: C Topic: 4 E: 444-445 MI: 200-201 Status: New 78.Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is:A)$1 or less. B) $.75 or less. C) $1.75 or less. D) $2 or less.Answer: B


Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 79.Refer to the above data for a nondiscriminating monopolist. This firm will maximize its profit by producing:A)3 units. B) 4 units. C) 5 units. D) 6 units.Answer: B

Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 80.Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm will be operating in the:A)perfectly elastic portion of its demand curve.C)elastic portion of its demand curve. B)perfectly inelastic portion of its demand curve.D)inelastic portion of its demand curve.Answer: C

Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 81.Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by ____ and its average total cost by ____.A)$20; $27.33. B) $10; $10.40. C) $24; $27.33. D) $30; $20.50.Answer: D

Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 82.Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total costs will be:A)$300. B) $248. C) $198. D) $126.Answer: C

Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 83.Refer to the above data. At its profit-maximizing output, this firm's total revenue will be:A)$300. B) $198. C) $180. D) $280.Answer: D

Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 84.Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be:A)$82. B) zero. C) $54. D) $27.Answer: A

Type: A Topic: 4 E: 444-445 MI: 200-201 85.A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: A)a loss that could be reduced by producing more output. B)a loss that could be reduced by producing less output. C)an economic profit that could be increased by producing more output. D)an economic profit that could be increased by producing less output. Answer: C

Type: A Topic: 4 E: 446 MI: 202 86.Which of the following statements is incorrect? A)A monopolist's 100 percent market share ensures economic profits. B)The monopolist's marginal revenue is less than price for any given output greater than 1. C)A monopolistic firm produces a product having no close substitutes. D)A pure monopolist's demand curve is the industry demand curve. Answer: A

Type: A Topic: 4 E: 444-445 MI: 200-201 87.If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by: A)reducing output and raising price. C)increasing both price and output. B)reducing both output and price. D)raising price while keeping output unchanged. Answer: A


Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist:

Type: T Topic: 4 E: 444-445 MI: 200-201 88.Refer to the above data. Equilibrium price for the monopolist will be: A)$5.00 B) $2.90. C) $3.35. D) $4.50. Answer: D

Type: T Topic: 4 E: 444-445 MI: 200-201 89.Refer to the above data. The equilibrium level of output will be: A)4 units. B) 7 units. C) 6 units. D) 5 units. Answer: D

Type: T Topic: 4 E: 444-445 MI: 200-201 90.Refer to the above data. The monopolist will realize a: A)profit of $8.50. B) profit of $7.50. C) profit of $16. D) loss of $14. Answer: C


Type: G Topic: 4 E: 445 MI: 201 91.Refer to the above diagram. To maximize profits or minimize losses this firm should produce: A)E units and charge price C. C)M units and charge price N.B)E units and charge price A. D)L units and charge price LK. Answer: B

Type: G Topic: 4 E: 445 MI: 201 92.Refer to the above diagram. In equilibrium total revenue will be: A)NM times 0M. B) 0AJE. C) 0EGC. D) 0EHB. Answer: B

Type: G Topic: 4 E: 445 MI: 201 93.Refer to the above diagram. In equilibrium total cost will be: A)NM times 0M. B) 0AJE. C) 0CGC. D) 0BHE. Answer: D

Type: G Topic: 4 E: 445 MI: 201 94.Refer to the above diagram. In equilibrium the firm will realize: A)an economic profit of ABHJ. C)a loss of GH per unit. B)an economic profit of ACGJ. D)a loss of JH per unit. Answer: A

Type: A Topic: 4 E: 444 MI: 200 95.In equilibrium which of the following conditions are common to both unregulated monopoly and to pure competition? A)MC = P B) MC = ATC C) MR = MC D) P = MR Answer: C

Type: A Topic: 4 E: 444-445 MI: 200-201 96.A pure monopolist: A)will realize an economic profit if price exceeds ATC at the equilibrium output. B)will realize an economic profit if ATC exceeds MR at the equilibrium output. C)will realize an economic loss if MC intersects the downsloping portion of MR. D)always realizes an economic profit. Answer: A

Type: A Topic: 4 E: 444-445 MI: 200-201 97.If a pure monopolist is producing at that output where P = ATC, then: A)its economic profits will be zero. B)it will be realizing losses. C)it will be producing less than the profit-maximizing level of output. D)it will be realizing an economic profit. Answer: A

Type: A Topic: 4 E: 444 MI: 200 98.A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price: A)equals marginal revenue. C)will always equal ATC. B)may be greater or less than ATC. D)always exceeds ATC. Answer: B

Type: A Topic: 4 E: 444 MI: 200 99.The short-run profit maximizing position of an unregulated pure monopolist is characterized by: A)P = minimum ATC. B) P = MC. C) MR = MC. D) MC = ATC. Answer: C


Type: G Topic: 4 E: 445 MI: 201 100.Refer to the above diagram for a pure monopolist. Monopoly price will be: A)e. B) c. C) b. D) a. Answer: B

Type: G Topic: 4 E: 445 MI: 201 101.Refer to the above diagram for a pure monopolist. Monopoly output will be: A)between f and g. B) h. C) g. D) f . Answer: D

Type: G Topic: 4 E: 445 MI: 201 102.Refer to the above diagram for a pure monopolist. Monopoly profit: A)cannot be determined from the information given. B)will be ae per unit. C)will be bc per unit. D)will be ac per unit. Answer: A

Type: A Topic: 4 E: 446 MI: 202 103.In the short run a pure monopolist's profit: A)will be maximized where price equals average total cost. B)may be positive, zero, or negative. C)are always positive. D)will be zero. Answer: B

Type: A Topic: 4 E: 444 MI: 200 104.Purely competitive firms and pure monopolists are similar in that: A)the demand curves of both are perfectly elastic. C)both are price makers. B)significant entry barriers are common to both. D)both maximize profit where MR = MC. Answer: D

Type: A Topic: 4 E: 446 MI: 202 105.In the short run, a monopolist's economic profits:A)are always positive because the monopolist is a price-maker.B)are usually negative because of government price regulation.C)are always zero because consumers prefer to buy from competitive sellers.D)may be positive or negative depending on market demand and cost.Answer: D

Type: A Topic: 4 E: 443-444 MI: 199-200 106.A profit-maximizing monopolist will set its price:A)as far above ATC as possible.B)along the elastic portion of its demand curve.C)where the marginal cost curve intersects the demand curve.D)as close as possible to the minimum point of ATC.Answer: B

Type: A Topic: 4 E: 444 MI: 200 107.Under which of the following situations would a monopolist increase profits by lowering price (and increasing output):A)if it discovered that it was producing where MC = MRB)if it discovered that it was producing where its MC curve intersects its demand curveC)if it discovered that it was producing where MC < MRD)under none of the above circumstances because a monopolist would never lower priceAnswer: C


Type: G Topic: 4 E: 445 MI: 201 108.Refer to the above diagram. If this industry is purely competitive, the profit-maximizing price and quantity will be: A)P3 and Q3. B)P1 and Q1. C)P2 and Q2. D)indeterminate on the basis of the information given. Answer: C

Type: G Topic: 4 E: 445 MI: 201 109.Refer to the above diagram. If this industry is comprised of only one seller, the profit-maximizing price and quantity will be: A)P3 and Q3. B) P1 and Q1. C) P2 and Q2. D) indeterminate on the basis of the information given. Answer: A

Type: A Topic: 4 E: 446 MI: 202 110.When a pure monopolist is producing its profit -maximizing output, price will: A)be less than MR. B) equal neither MC nor MR. C) equal MR. D) equal MC. Answer: B

Use the following to answer question 111:

Type: G Topic: 4 E: 443 MI: 199 111.Assume a pure monopolist is charging price P and selling output Q as shown on the above diagram. On the basis of this information we can say that: A)if marginal costs were somehow zero, the firm would be maximizing its profits. B)if marginal costs were positive the firm would increase profits by reducing price and selling more output. C)the firm is producing where the price elasticity coefficient is less than one. D)the firm is a "price taker."Answer: A

Type: A Topic: 4 E: 445-446 MI: 201-202 112.The supply curve for a monopolist is: A)perfectly elastic. B)upsloping. C)that portion of the marginal cost curve lying above minimum average variable cost. D)nonexistent. Answer: D

Type: A Topic: 4 E: 445-446 MI: 201-202 113.The supply curve of a pure monopolist: A)is that portion of its marginal cost curve which lies above average variable cost. B)is the same as that of a purely competitive industry. C)is its average variable cost curve. D)does not exist because prices are not "given" to a monopolist. Answer: D

Type: A Topic: 4 E: 445 MI: 201 114.If the variable costs of a profit-maximizing pure monopolist decline, the firm should: A)produce more output and charge a higher price. C)reduce both output and price. B)produce more output and charge a lower price. D)raise both output and price. Answer: B

Type: A Topic: 4 E: 446-447 MI: 202-203 115.In the short run a pure monopolist: A)always earns an economic profit. B)always earns a normal profit. C)always realizes a loss. D)may realize an economic profit, a normal profit, or a loss. Answer: D

Type: A Topic: 4 E: 446 MI: 202 116.To maximize profit a pure monopolist must: A)maximize its total revenue. B)maximize the difference between marginal revenue and marginal cost. C)maximize the difference between total revenue and total cost. D)produce where average total cost is at a minimum. Answer: C

Economic implications


Type: G Topic: 5 E: 416, 443 MI: 172, 199 117.Refer to the above diagrams. Firm A is a:A)pure competitor and Firm B is a pure monopoly.B)pure competitor, as is Firm B.C)pure monopoly and Firm B is a pure competitor.D)pure monopoly, as is Firm B.Answer: A

Type: G Topic: 5 E: 416 MI: 172 118.Refer to the above diagrams. The demand for Firm A's product is:A)perfectly elastic over all ranges of output.B)perfectly inelastic over all ranges of output.C)elastic for prices above $1 and inelastic for prices below $1.D)inelastic for prices above $1 and inelastic for prices below $1.Answer: A

Type: G Topic: 5 E: 443 MI: 199 119.Refer to the above diagrams. The demand for Firm B's product is:A)perfectly elastic over all ranges of output.B)perfectly inelastic over all ranges of output.C)elastic for prices above $4 and inelastic for prices below $4.D)inelastic for prices above $4 and inelastic for prices below $4.Answer: C

Type: G Topic: 5 E: 443 MI: 199 120.If $4 is Firm B's profit-maximizing price, its:A)ATC must be $4. B) MC must be $4. C) MR must be $4. D) MC must be zero.Answer: D

Type: G Topic: 5 E: 416 MI: 172 121.Firm A's average revenue is:A)zero. B) $1. C) less than $1. D) more than $1.Answer: B

Type: A Topic: 5 E: 442-443 MI: 198-199 122.Economic profit in the long run is: A)possible for both a pure monopoly and a pure competitor. B)possible for a pure monopoly, but not for a pure competitor. C)impossible for both a pure monopolist and a pure competitor. D)only possible when barriers to entry are nonexistent. Answer: B

Type: A Topic: 5 E: 448 MI: 204 123.Which of the following statements is correct? A)The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero. B)In seeking the profit-maximizing output the pure monopolist underallocates resources to its production. C)The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest. D)Purely monopolistic sellers earn only normal profits in the long run. Answer: B

Type: A Topic: 5 E: 448 MI: 204 124.Confronted with the same unit cost data, a monopolistic producer will charge: A)the same price and produce the same output as a competitive firm. B)a higher price and produce a larger output than a competitive firm. C)a higher price and produce a smaller output than a competitive firm. D)a lower price and produce a smaller output than a competitive firm. Answer: C

Type: A Topic: 5 E: 448 MI: 204 125.An important economic problem associated with pure monopoly is that, at the profit maximizing outputs, resources are: A)overallocated because price exceeds marginal cost. B)overallocated because marginal cost exceeds price. C)underallocated because price exceeds marginal cost. D)underallocated because marginal cost exceeds price. Answer: C

Type: A Topic: 5 E: 448 MI: 204 126.A single-price monopoly is economically undesirable because, at the profit maximizing output:A)marginal revenue exceeds product price at all profitable levels of production. B)monopolists always price their products on the basis of the ability of consumers to pay rather than on costs of production. C)MC > P. D)society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce. Answer: D

Type: C Topic: 5 E: 445, 447-448 MI: 201, 203-204 127.If a pure monopolist is producing more output than the MR = MC output: A)the firm may, or may not, be maximizing profits. B)it will be in the interest of the firm, but not necessarily of society, to reduce output. C)it will be in the interest of the firm and society to increase output. D)it will be in the interest of the firm and society to reduce output. Answer: B

Type: A Topic: 5 E: 448 MI: 204 128.At its profit-maximizing output, a pure nondiscriminating monopolist achieves: A)neither productive efficiency nor allocative efficiency. B)both productive efficiency and allocative efficiency. C)productive efficiency but not allocative efficiency. D)allocative efficiency but not productive efficiency.Answer: A

Type: A Topic: 5 E: 448 MI: 204 129.The profit-maximizing output of a pure monopoly is economically inefficient because in equilibrium: A)price equals minimum average total cost. C)marginal cost exceeds price. B)marginal revenue equals marginal cost. D)price exceeds marginal cost. Answer: D

Type: A Topic: 5 E: 448 MI: 204 130.A single-price pure monopoly is economically inefficient: A)only because it produces beyond the point of minimum average total cost. B)only because it produces short of the point of minimum average total cost. C)because it produces short of minimum average cost and price is greater than marginal cost. D)because it produces beyond minimum average total cost and marginal cost is greater than price. Answer: C

Type: A Topic: 5 E: 448 MI: 204 131.Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's: A)price, output, and average total cost would all be higher. B)price and average total cost would be higher, but output would be lower. C)price, output, and average total cost would all be lower. D)price and output would be lower, but average total cost would be higher. Answer: B


Type: G Topic: 5 E: 447 MI: 203 132.Refer to the above diagrams. Diagram (A) represents:A)equilibrium price and quantity in a purely competitive industry.B)the pure monopoly model.C)an industry in which there is productive efficiency but not allocative efficiency.D)a single firm operating in a purely competitive industry.Answer: A

Type: G Topic: 5 E: 447 MI: 203 133.Refer to the above diagrams. Diagram (B) represents:A)the pure competition model.B)an industry in which there is allocative efficiency but not productive efficiency.C)the pure monopoly model.D)a long-run constant-cost industry.Answer: C

Type: G Topic: 5 E: 447-448 MI: 203-204 134.Refer to the above diagrams. In diagram (B) the profit-maximizing quantity is:A)g and the profit-maximizing price is e.C)g and the profit-maximizing price is f.B)h and the profit-maximizing price is e.D)g and the profit-maximizing price is d.Answer: D

Type: G Topic: 5 E: 447-448 MI: 203-204 135.Refer to the above diagrams. With the industry structure represented by diagram:A)(A) there will be only a normal profit in the long run, while in (B) an economic profit can persist.B)(A) price exceeds marginal cost, resulting in allocative inefficiency.C)(B) price equals marginal cost, resulting in allocative efficiency.D)(B) equilibrium price and quantity will be e and h, respectively.Answer: A

Type: G Topic: 5 E: 447-448 MI: 203-204 136.Refer to the above diagrams. With the industry structure represented by diagram:A)(A) there will be allocative inefficiency.C)(B) output will be less than in diagram (A).B)(A) economic profit can persist in the long run.D)(B) output will be the same as in diagram (A).Answer: C

Type: G Topic: 5 E: 447-448 MI: 203-204 137.Refer to the above diagrams. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one reprsented in (A).A)higher; higher. B) higher, lower. C) lower, lower. D) lower, higher.Answer: B

Type: D Topic: 5 E: 449-450 MI: 205-206 138.X-inefficiency refers to a situation in which a firm: A)is not as technologically progressive as it might be. B)encounters diseconomies of scale. C)fails to realize all existing economies of scale. D)fails to achieve the minimum average total costs attainable at each level of output. Answer: D

Type: A Topic: 5 E: 450 MI: 206 139.Which of the following is not a possible source of natural monopoly?A)large-scale network effects.C)greater use of specialized inputs.B)simultaneous consumption.D)rent-seeking behavior.Answer: D

Type: F Topic: 5 E: 450 MI: 206 140.There is some evidence to suggest that X-inefficiency is: A)absent whenever two or more producers are competing with one another. B)not encountered in either competitive or monopolistic firms. C)more likely to occur in monopolistic firms than in competitive firms. D)more likely to occur in competitive firms than in monopolistic firms. Answer: C


Type: G Topic: 5 E: 449-450 MI: 205-206 141.Refer to the above long-run cost diagram for a firm. If the firm produces output Q1 at an average total cost of ATC1, then the firm is: A)producing the potentially profit-maximizing output, but is failing to minimize production costs. B)incurring X-inefficiency, but is realizing all existing economies of scale. C)incurring X-inefficiency and is failing to realize all existing economies of scale. D)producing that output with the most efficient combination of inputs and is realizing all economies of scale. Answer: C

Type: G Topic: 5 E: 449-450 MI: 205-206 142.Refer to the above long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC 2, then the firm is: A)producing the potentially profit-maximizing output, but is failing to minimize production costs. B)incurring X-inefficiency, but is producing that output at which all existing economies of scale might be realized. C)incurring X-inefficiency and is failing to produce the output at which all economies of scale might be realized. D)producing that output with the most efficient combination of inputs and is realizing all existing economies of scale. Answer: B

Type: G Topic: 5 E: 449-450 MI: 205-206 143.Refer to the above long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC3, then the firm is: A)producing the potentially profit-maximizing output, but is failing to minimize production costs. B)incurring X-inefficiency, but is realizing all existing economies of scale. C)incurring X-inefficiency and is failing to realize all existing economies of scale. D)producing that output with the most efficient combination of inputs and is realizing all existing economies of scale. Answer: D

Type: A Topic: 5 E: 450 MI: 206 144.In which one of the following market models is X-inefficiency most likely to be the greatest? A)pure competition B) oligopoly C) monopolistic competition D) pure monopoly Answer: D

Type: A Topic: 5 E: 450 MI: 206 145.In which one of the following market models is X-inefficiency least likely to be present? A)pure competition B) oligopoly C) monopolistic competition D) pure monopoly Answer: A

Price discrimination

Type: D Topic: 6 E: 451 MI: 207 146.Price discrimination refers to: A)selling a given product for different prices at two different points in time. B)any price above that which is equal to a minimum average total cost. C)the selling of a given product at different prices that do not reflect cost differences. D)the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. Answer: C

Type: A Topic: 6 E: 452-453 MI: 208-209 147.If a monopolist engages in price discrimination, we can expect: A)profits to increase and output to fall. B)both profits and output to increase. C)both profits and output to decrease. D)the demand curve to lie below the marginal revenue curve. Answer: B

Type: A Topic: 6 E: 451-452 MI: 207-208 148.The practice of price discrimination is associated with pure monopoly because: A)it can be practiced whenever a firm's demand curve is downsloping. B)monopolists have considerable ability to control output and price. C)monopolists usually realize economies of scale. D)most monopolists sell differentiated products. Answer: B

Type: A Topic: 6 E: 452 MI: 208 149.Which of the following is not a precondition for price discrimination? A)The commodity involved must be a durable good. B)The good or service cannot be resold by original buyers. C)The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand. D)The seller must possess some degree of monopoly power. Answer: A

Type: A Topic: 6 E: 453 MI: 209 150.A perfectly discriminating pure monopolist will charge each buyer: A)different prices to compensate for differences in the characteristics of the product. B)the same price if per unit cost is constant for each unit of the product. C)that price which equals the buyer's marginal cost. D)the maximum price each would be willing to pay. Answer: D

Type: A Topic: 6 E: 453 MI: 209 151.Other things equal, in which of the following cases would economic profit be the greatest? A)an unregulated monopolist which is able to engage in price discrimination B)an unregulated monopolist C)a regulated monopolist charging a price equal to average total cost D)a regulated monopolist charging a price equal to marginal cost Answer: A

Type: A Topic: 6 E: 453 MI: 209 152.If a pure monopolist can engage in perfect price discrimination: A)the marginal revenue curve and the total revenue curve will now coincide. B)the marginal revenue curve will now shift to a position above the demand curve. C)the marginal revenue curve will now coincide with the demand curve. D)marginal revenue will become less at each level of output than it would be without price discrimination. Answer: C

Type: A Topic: 6 E: 453 MI: 209 153.If a monopolist engages in perfect price discrimination, it will: A)realize a smaller profit. B)charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic. C)produce a smaller output than when it did not discriminate. D)charge a competitive price to all its customers.Answer: B

Type: A Topic: 6 E: 453 MI: 209 154.The vertical distance between the horizontal axis and any point on a perfectly discriminating monopolist's demand curve measures: A)the quantity demanded. C)product price and marginal revenue. B)total revenue. D)average revenue and average total cost. Answer: C


Answer the next question(s) on the basis of the following information for a pure monopolist:

Type: T Topic: 6 E: 445-446 MI: 201-202 155.How many units would the above profit-maximizing monopolist produce? A)1 B) 2 C) 3 D) 4 Answer: C

Type: T Topic: 6 E: 445-446 MI: 201-202 156.The above monopolist should set its price at: A)$300. B) $250. C) $200. D) $15. Answer: C

Type: T Topic: 6 E: 445-446 MI: 201-202 157.At its profit-maximizing output, the above monopolist: A)incurs a loss. C)earns a normal profit of $250. B)earns an economic profit of $250. D)earns an economic profit of $150. Answer: B

Type: T Topic: 6 E: 453 MI: 209 158.If the above monopolist could engage in perfect price discrimination, it would: A)not alter its level of output. C)decrease output by 1 unit. B)increase output by 1 unit. D)increase output by 2 units. Answer: B

Type: T Topic: 6 E: 453 MI: 209 159.If the above monopolist could engage in perfect price discrimination, its total revenue would be: A)$600. B) $1250. C) $800. D) $1400. Answer: D

Type: T Topic: 6 E: 453 MI: 209 160.If the above monopolist could engage in perfect price discrimination, its economic profit would be: A)$650. B) $920. C) $1000. D) $740. Answer: B


Type: G Topic: 6 E: 452-453 MI: 208-209 161.Assume the above figure applies to a perfectly discriminating pure monopolist, that is, to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. The profit-maximizing output: A)will be l. B) will be j. C) will be k. D) cannot be determined from the information given. Answer: C

Type: G Topic: 6 E: 452-453 MI: 208-209 162.Assume the above figure applies to a perfectly discriminating pure monopolist, that is, to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. Total revenue will be: A)0efk. B) 0dfk. C) 0cgl. D) 0bhk. E) 0aij. Answer: A

Type: G Topic: 6 E: 452-453 MI: 208-209 163.Assume the above figure applies to a perfectly discriminating pure monopolist, that is, to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. The total economic profit for this monopolist: A)will be cdfg. B)will be bdfh.C)will be befh. D)cannot be determined from the information given.Answer: C

Type: A Topic: 6 E: 452-453 MI: 208-209 164.Other things equal, a perfectly discriminating monopolist will: A)realize a smaller economic profit than a nondiscriminating monopolist. B)produce a larger output than a nondiscriminating monopolist. C)produce the same output as a nondiscriminating monopolist. D)produce a smaller output than a nondiscriminating monopolist. Answer: B

Regulated monopolies

Type: A Topic: 7 E: 454 MI: 210 165.If the long-run average total cost curve of an industry is declining at the point where it intersects the industry demand curve, we can expect: A)an overallocation of resources. B)the industry will be purely competitive. C)the industry will be monopolistically competitive. D)the industry will be a natural monopoly. Answer: D


Type: A Topic: 7 E: 454 MI: 210 166.Refer to the above diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging: A)a price above P3 and selling a quantity less than Q3. B)price P3 and producing output Q3. C)price P2 and producing output Q2. D)price P1 and producing output Q1. Answer: B

Type: G Topic: 7 E: 455 MI: 211 167.Refer to the above diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at: A)P1. B) P3. C) P2. D) P4. Answer: A

Type: G Topic: 7 E: 454-455 MI: 210-211 168.Refer to the above diagram for a pure monopolist. If a regulatory commission seeks to achieve the most efficient allocation of resources to this line of production, it will set a price of: A)P1. B) P3. C) P2. D) P4. Answer: C

Type: A Topic: 7 E: 454-455 MI: 210-211 169.Refer to the above diagram for a pure monopolist. If a regulatory commission sets price to achieve the most efficient allocation of resources, it will have to: A)tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit. B)subsidize the monopolist or the monopolist will go bankrupt in the long run. C)subsidize the monopolist P1P4 per unit to allow the monopolist to break even. D)tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit. Answer: B

Type: D Topic: 7 E: 455 MI: 211 170.The dilemma of regulation refers to the idea that: A)the regulated price which achieves allocative efficiency is also likely to result in persistent economic profits. B)the regulated price which results in a "fair return" restricts output by more than would unregulated monopoly. C)regulated pricing always conflicts with the "due process" provision of the Constitution. D)the regulated price which achieves allocative efficiency is also likely to result in losses. Answer: D

Type: A Topic: 7 E: 455 MI: 211 171.If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to: A)minimum average fixed cost. B) average total cost. C) marginal cost. D) marginal revenue. Answer: B

Type: A Topic: 7 E: 454-455 MI: 210-211 172.If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price: A)at which the marginal cost curve intersects the demand curve. B)at which marginal revenue is zero. C)at which the average total cost curve intersects the demand curve. D)which corresponds with the equality of marginal cost and marginal revenue. Answer: A

Type: A Topic: 7 E: 455 MI: 211 173.Suppose for a regulated monopoly that price equals minimum ATC but price exceeds MC. This means that: A)both productive and allocative efficiency are being achieved. B)productive efficiency is being achieved, but not allocative efficiency. C)allocative efficiency is being achieved, but not productive efficiency. D)neither productive nor allocative efficiency is being achieved. Answer: B

Type: A Topic: 7 E: 455 MI: 211 174.If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then: A)the firm will realize an economic profit. B)the firm will earn only a normal profit.C)allocative efficiency will be worsened. D)the firm must be subsidized or it will go bankrupt. Answer: D

Type: A Topic: 7 E: 454-455 MI: 210-211 175.If a regulatory commission forces a natural monopoly to charge a price equal to its marginal cost: A)the monopoly may incur a loss. C)output will decrease. B)resource allocation will be worsened. D)the firm will earn only a normal profit. Answer: A

Type: A Topic: 7 E: 454-455 MI: 210-211 176.If a regulatory commission forces a natural monopoly to charge a price equal to its average total cost: A)output will decrease. C)resource allocation will worsen. B)the monopolist will realize a normal profit. D)the firm will earn an economic profit. Answer: B


Type: G Topic: 7 E: 454 MI: 210 177.Refer to the above diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would: A)maximize profits. B)increase output beyond the profit-maximizing level. C)reduce output below the profit-maximizing level. D)be unable to make a normal profit. Answer: A

Type: G Topic: 7 E: 454-455 MI: 210-211 178.Refer to the above diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would: A)produce output Q1 and realize an economic profit. B)produce output Q3 and realize an economic profit. C)close down in the short run. D)produce output Q3 and realize a normal profit. Answer: D

Type: G Topic: 7 E: 454-455 MI: 210-211 179.Refer to the above diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output: A)Q2 and realize a normal profit. C)Q3 and realize an economic profit. B)Q4 and realize a normal profit. D)Q4 and realize a loss. Answer: D

Consider This Questions

Type: A E: 452 MI: 208 Status: New 180.(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because:A)children have an elastic demand for game ticket but an inelastic demand for concession items.B)children have an inelastic demand for game tickets but an elastic demand for concession items.C)the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.D)children can personally "consume" only a single game ticket, but can personally consume more than one concession item. Answer: C

Type: A E: 452 MI: 208 Status: New 181.(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. Which of the following conditions of price discrimination explain why this occurs?A)The seller must have some monopoly power; that is, it must be able to set the product price.B)The seller must be able to identify buyers by group characteristics such as age or income.C) Groups must have different elasticities of demand for the product.D)The items cannot be bought by people in the low-price group and transferred to members of the high-price group.Answer: D

Last Word Questions

Type: F E: 456 MI: 212 182.(Last Word) DeBeers Consolidated Mines markets about:A)65 percent of the world's rough-cut diamonds.C)50 percent of the world's rough-cut diamonds.B)80 percent of the world's rough-cut diamonds.D)33 percent of the world's rough-cut diamonds.Answer: A

Type: F E: 456 MI: 212 183.(Last Word) Over a recently ended 66-year period, DeBeers:A)earned only a normal profit because of its high mining and marketing costs.B)operated substantially in accord with the predictions of the unregulated monopoly model.C)was subject to U.S. antimonopoly laws and therefore could not control diamond prices.D)was regulated by the South African government and thus had to limit prices to average total cost.Answer: B

Type: F E: 456 MI: 212 184.(Last Word) In a recent policy change, DeBeers has decided to:A)sell off its entire inventory of diamonds.B)abandon its policy of profit maximization.C)purchase the entire output of other mines and withhold diamonds from the market to bolster diamond prices.D)abandon its 66-year policy of trying to monopolize the sale of rough-cut diamonds.Answer: D

True/False Questions

Type: A E: 445 MI: 201 185.In the long run a pure monopolist must produce at that output where average total cost is at a minimum. Answer: False

Type: A E: 445 MI: 201 186.A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal. Answer: False

Type: A E: 445 MI: 201 187.In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum. Answer: False

Type: A E: 446 MI: 202 188.In the short run a pure monopolist will charge the highest price the market will bear for its product. Answer: False

Type: A E: 446-447 MI: 202-203 189.Pure monopolists always earn economic profits. Answer: False

Type: A E: 442 MI: 198 190.If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5. Answer: True

Type: A E: 447 MI: 203 191.Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output. Answer: False

Type: A E: 442-443 MI: 198-199 192.Because of the ability to influence price, a pure monopolist can increase price and increase volume of sales simultaneously. Answer: False


Type: A E: 444-445 MI: 200-201 193.Refer to the above diagram for a nondiscriminating monopolist. The profit-maximizing output for this firm is M . Answer: True

Type: G E: 445 MI: 201 194.Refer to the above diagram for a nondiscriminating monopolist. At the profit-maximizing output the firm's economic profit will be BAFG. Answer: True

Type: G E: 445 MI: 201 195.Refer to the above diagram for a nondiscriminating monopolist. At output R economic profits will be zero. Answer: True

Type: G E: 445 MI: 201 196.Refer to the above diagram for a nondiscriminating monopolist. At output Q production will be unprofitable. Answer: False

Type: G E: 445 MI: 201 197.Refer to the above diagram for a nondiscriminating monopolist. The profit-maximizing price for this firm is J . Answer: False

Type: G E: 445 MI: 201 198.Refer to the above diagram for a nondiscriminating monopolist. At output M total variable cost will be 0CHM . Answer: False

Type: G E: 447-448 MI: 203-204 199.Refer to the above diagram for a nondiscriminating monopolist. From society's point of view it would be desirable to have the monopolist produce a larger output than M . Answer: True

Type: G E: 447-448 MI: 203-204 200.Refer to the above diagram for a nondiscriminating monopolist. At output Q average variable cost is QJ . Answer: False


Type: G E: 443 MI: 199 201.Refer to the above diagrams. Both firms are selling their products in purely competitive markets. Answer: False

Type: G E: 416 MI: 172 202.Refer to the above diagrams. The demand for Firm A's product is perfectly elastic. Answer: True

Type: G E: 443 MI: 199 203.Refer to the above diagrams. The demand for Firm B's product is elastic at all prices in excess of $4. Answer: True

Type: G E: 442-443 MI: 198-199 204.Refer to the above diagrams. Firm B's average revenue curve coincides with its marginal revenue curve. Answer: False

Type: G E: 443 MI: 199 205.Refer to the above diagrams. The demand for Firm B's product is inelastic at all prices below $4. Answer: True

Type: G E: 441-442 MI: 197-198 206.Refer to the above diagrams. If drawn, Firm A's average revenue curve would lie below its demand curve. Answer: False

Type: F E: 449 MI: 205 207.Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.Answer: True

Type: F E: 449 MI: 205 208.Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.Answer: True

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Chap024