Chapter 10

(11) Refer to the figure at right. Which monopoly charges a greater price​ markup? A. The monopoly in panel​ (a). B. The monopoly in panel​ (b). C. Both firms charge the same markup. D. The monopoly with more elastic demand.

B

(24) Refer to the figure at right. The producer net gains equal A. area A ​+ C. B. area A−C. C. area A. D. area A−B.

B

(25) Refer to the figure at right. The loss of consumer surplus equals A. area A ​+ B​ + C. B. area A​ + B. C. area A−B. D. area A.

B

(26) The revenue and cost curves in the figure at right are those of a natural monopoly. If the monopolist is not​ regulated, the price will be set at A. P3. B. P2. C. P1. D. P4. E. none of the above.

B

As the manager of a firm you calculate the marginal revenue is​ $152 and marginal cost is​ $200. You should A. reduce output beyond the level where marginal revenue equals zero. B. reduce output until marginal revenue equals marginal cost. C. expand output. D. expand output until marginal revenue equals zero. E. do nothing without information about your fixed costs.

B

Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be A. to decrease the price of rice to the Japanese people. B. to decrease the consumer surplus of Japanese rice consumers. C. a welfare gain for the Japanese people. D. increase the consumption of rice by the Japanese people. E. to decrease the producer surplus of Japanese rice producers.

B

The Lerner index measures A. a​ firm's potential profitability. B. the amount of monopoly power a firm chooses to exercises when maximizing profits. C. an​ industry's potential market power. D. a​ firm's potential monopoly power.

B

The monopolist that maximizes profit A. does not impose a cost on society because the selling price is above marginal cost. B. imposes a cost on society because the selling price is above marginal cost. C. imposes a cost on society because the selling price is equal to marginal cost. D. does not impose a cost on society because price is equal to marginal cost.

B

The​ ________ elastic a​ firm's demand​ curve, the greater its​ ________. A. ​more; monopoly power B. ​less; monopoly power C. ​more; costs D. ​less; output

B

What is the value of the Lerner index under perfect​ competition? A. Two times the price B. 0 C. 1 D. Infinity

B

What would a​ profit-maximizing monopoly do in the short run if its fixed costs​ increased? A. Raise its price by enough to cover the higher fixed costs. B. Keep price and output the same. C. Reduce its price so it would be able to sell more of its product. D. Shut down.

B

(1) For the monopolist shown in the figure at​ right, the​ profit-maximizing level of output is A. Q2. B. Q3. C. Q1. D. Q4.

C

(31) Refer to the figure at right. In moving from the competitive level of output and price to the monopoly level of output and​ price, the monopolist is able to add to producer surplus A. the area BCEH less the area GFH. B. the area BCEH. C. the area BCEF less the area GFH. D. the area BCEF. E. none of the above.

C

A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. This action by the firm may be an example of using a​ __________ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products. A. subsidy B. positive externality C. barrier to entry D. natural monopoly

C

Assume that a​ profit-maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the A. ​firm's output does not maximize​ profit, but we cannot conclude whether the output is too large or too small. B. firm is maximizing profit. C. ​firm's output is smaller than the​ profit-maximizing quantity. D. ​firm's output is larger than the​ profit-maximizing quantity.

C

Suppose​ Orange, Inc. sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the​ market, the demand facing Orange becomes​ __________ elastic and the Lerner index achieved by the firm in this market​ __________. A. ​less; declines B. ​more; increases C. ​more; declines D. ​less; increases

C

Using the Lerner Index of Monopoly​ Power, if Firm A has greater monopoly power than Firm​ B, then A. Firm A will earn greater profits than Firm B. B. Firm A faces a more elastic demand curve than Firm B. C. Firm​ A's markup ratio​ [as measured by ​(P−​MC)/P​] will be greater than Firm​ B's markup ratio. D. All of the above.

C

Which of the following is NOT true regarding​ monopoly? A. The monopoly price is determined from the demand curve. B. A monopoly demand curve is downward sloping. C. A monopolist can charge as high a price as it likes. D. Monopoly is the sole producer in the market.

C

Which of the following statements about natural monopolies is​ true? A. Natural monopolies cannot be regulated. B. Natural monopolies are only found in the markets for natural resources​ (like crude oil and​ coal). C. For natural​ monopolies, marginal cost is always below average cost. D. For natural​ monopolies, average cost is always increasing.

C

(27) The revenue and cost curves in the figure at right are those of a natural monopoly. Suppose that the government decides to limit monopoly power with price regulation. If the government sets the price at the competitive​ level, it will set the price at A. P2. B. P1. C. P3. D. P4. E. none of the above.

D

Compared to the equilibrium price and quantity sold in a competitive​ market, a monopolist will charge a​ ____________ price and sell a​ ___________ quantity. A. ​lower; larger B. ​higher; larger C. ​lower; smaller D. ​higher; smaller E. None of the above

D

For a​ monopolist, changes in demand will lead to changes in A. price with no change in output. B. both price and quantity. C. output with no change in price. D. any of the above can be true.

D

The monopolist has no supply curve because A. although there is only a single seller at the current​ price, it is impossible to know how many sellers would be in the market at higher prices. B. the relationship between price and quantity depends on both marginal cost and average cost. C. there is a single seller in the market. D. the quantity supplied at any particular price depends on the​ monopolist's demand curve. E. the​ monopolist's marginal cost curve changes considerably over time.

D

Under which of the following scenarios is it most likely that monopoly power will be exhibited by​ firms? A. When there are few firms in the market and the demand curve faced by each firm is relatively elastic B. When there are many firms in the market and the demand curve faced by each firm is relatively elastic C. When there are many firms in the market and the demand curve faced by each firm is relatively inelastic D. When there are few firms in the market and the demand curve faced by each firm is relatively inelastic

D

Use the following two statements to answer this​ question: I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measured using the Lerner​ Index: L​ = (P− ​AC)/AC. A. I is​ false, and II is true. B. Both I and II are true. C. I is​ true, and II is false. D. Both I and II are false.

D

A certain town in the Midwest obtains all of its electricity from one​ company, Northstar Electric. Although the company is a​ monopoly, it is owned by the citizens of the​ town, all of whom split the profits equally at the end of each year. The CEO of the company claims that because all of the profits will be given back to the​ citizens, it makes economic sense to charge a monopoly price for electricity. True or​ false? Explain. A. True. Since the monopoly price is higher than marginal​ cost, the firm earns positive economic profits. And since these profits are given back to the​ citizens, they are better off. B. True. Since electric utilities are natural​ monopolies, monopoly pricing is most efficient. And since any profits are given back to the​ citizens, they are better off. C. False. Since the monopoly price is higher than marginal​ cost, the firm earns negative economic profits.​ So, there are no profits to give back to the citizens. D. False. Since the monopoly price is higher than marginal​ cost, more than the efficient quantity is produced resulting in a deadweight loss. E. False. Since the monopoly price is higher than marginal​ cost, less than the competitive quantity is​ produced, so there is still a deadweight loss even if all the profits are given back to the citizens.

E

Rent seeking is A. one firm consistently following the actions of another. B. charging the maximum price allowed by a regulatory agency based on a​ firm's expected rate of return. C. a seller affecting the price of a good. D. gaining additional benefit derived from purchasing one more unit of a good. E. spending money in socially unproductive efforts to​ acquire, maintain, or exercise monopoly.

E

Which of the following does not create a barrier to​ entry? A. A government license required to practice law. B. A patent for a new drug. C. A copyright on a new computer program. D. Economies of scale in production. E. All of the above create barriers to entry.

E

Which of the following is least likely to affect the amount of monopoly power a firm is likely to​ have? A. The number of firms in the market. B. The extent to which related firms compete. C. The price elasticity of demand. D. The availability of close substitutes. E. The shape of the market supply curve.

E

(30) Refer to the figure at right. At output Qm​, and assuming that the monopoly has set its price to maximize​ profit, the consumer surplus is A. CDE. B. BDEF. C. 0DEQm. D. ADEG. E. none of the above.

A

If a monopolist sets its output such that marginal​ revenue, marginal​ cost, and average total cost are​ equal, economic profit must be A. positive. B. zero. C. negative. D. indeterminate from the given information.

A