Chapter 15

Which of the following is not correct?

Public ownership is the most common and effective public policy toward monopolies in the United States.

Which of the following statements best describes the business practice of price discrimination?

Selling the same good at different prices to different customers

Which legislation was passed by Congress in 1890 in order to reduce the market power of large and powerful "trusts?"

Sherman Act

Which of these is an example of a government-owned monopoly?

The U.S. Postal Service

What is not correct?

The government should never intervene to improve monopoly inefficiency.

Which of the following is an example of price discrimination?

The local movie theater charges less money for a ticket to a senior citizen than to an adult.

George Stigler expressed concern about the trade-offs between market failure and political failure in the American economy. This concern supports which of the following solutions that policymakers can take to respond to the problem of a monopoly?

do nothing

Which of the following statements is not correct? Monopolies are socially inefficient because they

earn profits at the expense of consumers.

A monopolist's profits with price discrimination will be _____ if the firm charged just one price.

higher than

The market demand curve faced by a competitive firm is ______, and it is ______ for a typical monopolist.

horizontal; downward sloping

Deadweight loss exists when a market is operated by a monopoly because the monopolist produces at an output level that is _______ the socially optimal level.

less than

What is economic welfare generally measured by?

total surplus

Which of the following statements comparing monopoly with competition is correct?

With perfect price discrimination, the total surplus under monopoly can be the same as under competition.

Which of the following is not an example of a barrier to entry?

A new pastry chef opens a popular new bakery.

Which of the following is an example of price discrimination?

AAA members receive a discount at certain retail shops if they show their card.

Which of the following is not an example of price discrimination?

An ice cream shop charges more money for ice cream in a cone versus a cup.

Which of the following statements about antitrust laws is true?

Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through more efficient joint production.

Which of the following statements is true?

Average revenue is the same as price for both competitive and monopoly firms.

Which legislation was passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits?

Clayton Act

Hotel rooms are usually cheaper per night if you stay for a longer period of time. Which of the following is not a reason for this price discrepancy?

Hotels are not profit-maximizing.

Which of the following is not true about patents and copyrights?

If a firm has a patent or copyright, its fixed costs are reduced.

Which of the following is not true about a natural monopoly?

It is taking advantage of diseconomies of scale.

Marvin's Motors is a monopoly provider of automotive service in the small town of Nowhere. When Marvin reduces his price for oil changes from $25 to $20, he sells 10 additional oil changes per month and his total revenue increases by $40. Which of the following statements is correct?

The output effect is stronger than the price effect.

Which of the following is not true about patents, copyrights, and trademarks?

They cause a firm to earn lower profit.

When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect. Which of the following statements describes the output effect?

When a monopoly increases the amount it sells, more output is sold, which tends to increase total revenue.

Which of the following would be most likely to have monopoly power?

a local water and sewer company

Which of the following is a characteristic of a monopoly?

barriers to entry

Which of the following do antitrust laws not allow the government to do?

collect revenues through the antitrust tax

When a monopolist chooses the profit-maximizing level of output, he sets the marginal cost equal to

marginal revenue and reads the price from the demand curve at that quantity.

Suppose Plumber Supplies Inc. owns 75% of the world's copper, a key resource used in the production of pipes. Which of the following reasons describes the fundamental barrier to entry for the pipe supplies industry?

monopoly resource

Which of the following is not a characteristic of a monopoly?

one buyer

For a monopoly firm,

price always exceeds marginal revenue.

Which of the following is not an example of price discrimination?

A hair salon charges a higher price for a haircut if you get your hair washed than if you don't.

Which of the following statements is not correct?

A monopolist can charge any price and sell any quantity that they choose.

How does monopoly that engages in perfect price discrimination compare to a competitive market?

In both cases, total social welfare is maximized.

The simplest way for a monopoly to arise is for

a single firm to own a key resource.

Which of the following is an example of a market force that can prevent firms from successfully price discriminating?

arbitrage

The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve. (true or false)

false

A monopolist produces ____ than the socially efficient quantity of output and at a _____ price than in a competitive market.

less; higher

Which of the following is not a difference between monopolies and perfectly competitive markets?

Average revenue is equal to the market price for a competitive firm but not for a monopoly.

Which of these arguments supports splitting up monopolies?

Competition is almost always more efficient.

What happens when a monopolist increases the price of its good?

Consumers buy less.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, which of the following is not true?

Deadweight loss still remains in this market.

Which of the following is not a result of allowing drug companies to be monopolists in the drugs they discover?

It lowers the price consumers will have to pay on these drugs.

Why is monopoly profit not a social problem?

It represents a transfer from the consumer to the producer with no loss in total surplus.

Which of these is the best example of a barrier to entry?

Kevin obtains a copyright for the new app he invented.

Suppose a firm has a monopoly on the sale of boomerangs and faces a downward-sloping demand curve. When selling the 20th boomerang, the firm will always receive ________ on the 20th boomerang then it received on the 19th boomerang.

Less marginal revenue

Which of the following is not a possible strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies?

Mandate that the firm release more stock options

Which of the following statements is not correct about how competitive firms differ from monopolies?

Monopolies cannot make positive profit in the long run but competitive firms can.

Which of the following statements about price discrimination is not true?

Price discrimination does not require the firm to separate customers according to their willingness to pay.

If the government regulates the price that a natural monopoly can charge to be equal to the firm's average total cost, which of the following is not true?

The firm will earn positive profits.

Which of the following is not a requirement for allowing a local theater to increase its profits through price discrimination by charging a higher price to adults and a lower price to children?

The theater must offer a matinee and an evening show

Monopoly pricing prevents some mutually beneficial trades from taking place. Which of the following is not true about those unrealized, mutually beneficial trade?

They are offset by the higher profits earned by a monopolist.

What is one reason to regulate electric companies instead of using antitrust laws to break up these monopolies?

They are usually natural monopolies.

How do natural monopolies differ from other monopolies?

They do not need to worry about competition eroding their monopoly position.

In a monopoly market, which of these occurs when marginal revenue equals zero?

Total revenue is maximized.

When we compare economic welfare in a monopoly to a competitive market, what do the profits earned by a monopolist represent?

a transfer of benefits from the consumer to the producer

How can the economic efficiency of a monopolist not be measured?

by the monopolist's profit

When a monopoly decreases its output and sales, the output effect works to ______ total revenue, and the price effect works to ______ total revenue.

decrease; increase

Marvin's Motors is a monopoly provider of automotive service in the small town of Nowhere. When Marvin reduces his price for oil changes from $25 to $20, he sells 10 additional oil changes per month. If Marvin's total revenue from oil changes decreases, the output effect is stronger than the price effect. (true or false)

false

Suppose that PF Pharmaceuticals has a patent for a new drug that will cure heart failure. Which of the following reasons describes the fundamental barrier to entry for this industry?

government regulation

When a monopolist is regulated on the basis of cost,

there is no incentive for the monopolist to reduce its cost.

The intersection of the demand curve and the marginal-cost curve is equivalent to the socially-optimal level of output. (true or false)

true

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customer's gender. (true or false)

true