Chapter 9

The above figure shows the demand and marginal cost curves for a monopoly. The deadweight loss of this monopoly equals a. c+f b. h c. c d. c+d+e+f

a. c+f

If the inverse demand function for a monopoly's product is p=100-2Q, then the firm's marginal revenue function is a. 100-4Q b. 200-4Q c. -2 d. 200-2Q

a. 100-4Q

As other firms enter a monopoly's market, the monopoly's market power a. declines b. increases c. is unaffected d. increases according to the Lerner Index but decreases according to the price/marginal cost ratio

a. declines

If the inverse demand curve a monopoly face is p=100-2Q, and MC and AC are constant at 16, then maximum profit a. equals $822 b. equals $336 c. equals $1,218 d. cannot be determined solely from the information provided

a. equals $882 P=$58 Q=21 AC=$16 profit= (P-AC)*Q profit= (58-16)*21= 882

An exclusive right to sell a new and useful product, process, substance, or design for a fixed period of time is called a a. patent b. monopoly c. barrier to entry d. research disincentive

a. patent

A firm will increase its spending on advertising until a. the marginal benefit of advertising equals the marginal cost of advertising b. it has deterred all future entry c. it has monopolized the market d. the marginal benefit of advertising is zero

a. the marginal benefit of advertising equals the marginal cost of advertising

A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because a. the mill controls a key input b. the mill has a very inelastic supply curve c. the government will declare it a monopoly d. the mill is a natural monopoly

a. the mill controls a key input

A profit-maximizing monopolist will never operate in the portion of the demand curve with price elasticity equal to a. -1 b. -1/3 c. -3 d. none of the above-the price elasticity does not matter

b. -1/3 recall that MR= p(1+1/E)

If the inverse demand curve a monopoly faces is p=100-2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly set prices equal to a. 25 b. 58 c. 21 d. 16

b. 58

Limited government licenses that create a monopoly do so because a. the license generates a marginal cost advantage b. a barrier to enter the market exists c. the monopoly will become a natural monopoly d. all of the above

b. a barrier to enter the market exists

The more inelastic the demand curve, a monopoly a. will face a lower marginal cost b. will lose fewer sales as it raises its price c. will earn less profit d. will have a smaller Lerner Index (-1/E)

b. will lose fewer sales as it raises its price

The monopoly can shift the demand for its product rightward by a. moving along the learning curve b. accommodating entry c advertising new uses for its product d. all of the above

c advertising new uses for its product

Which of the following total cost functions suggests the presence of a natural monopoly? a. TC = 2q b. TC = 100 + 2q^2 c. TC = 100 + 2q d. all of the above

c. TC = 100 + 2q Large fixed cost and small variable cost a. ATC=2 b. ATC = 100/q+2q c. ATC = 100/q+2 Natural monopoly arises from economics of scale, or the ATC decreases when q increase

One difference between a monopoly and a competitive firm is that a. a monopoly maximizes profit by setting marginal revenue equal to marginal cost b. a monopoly is a price taker c. a monopoly faces a downward sloping demand curve d. none of the above

c. a monopoly faces a downward sloping demand curve

If the demand for a monopoly's output shifts rightward, the change in quantity produced is NOT predictable because a. the monopoly is a price taker b. the monopoly's marginal cost curve might not be upward sloping c. the monopoly has no supply curve d. the monopoly is a profit maximizer

c. the monopoly has no supply curve

A monopoly incurs a marginal cost of $1 for each unit produced. IF the price elasticity of demand equals -2.0, the monopoly maximizes profit by charging a price of a. $1.50 b. $3.00 c. $1.00 d. $2.00

d. $2.00 LI= 1/2 (P-MC)/P=LI or (P-1)/P=LI 1/2=(P-1)/P 1/2P=P-1 (1/2P-1P)=-1 -.5P=-1 P=2

Which of the following could create a cost advantage for a monopoly? a. standardization b. better technology c. lower friction due to better organization d. all of the above

d. all of the above

The ability of a monopoly to charge a price that exceeds marginal cost depends on the a. slope of the demand curve b. price elasticity of supply c. shape of the marginal cost curve d. price elasticity of demand

d. price elasticity of demand

If the demand for a firm's output is perfectly elastic, then the firm's Learner Index equal a. one-half b. infinity c. one d. zero

d. zero