Econ. 2302 Ch. 15

Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly can earn unlimited profits.

(i) only

Price discrimination requires the firm to a. separate customers according to their willingness to pay. b. differentiate between different units of its product. c. engage in arbitrage. d. All of the above are correct.

A. separate customers according to their willingness to pay

Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopoly the exclusive right to produce the good.

All of the above are correct

The De Beers Diamond monopoly is a classic example of a monopoly that A. is government-created. B. arises from the ownership of a key resource. C. results in very little advertising of the product that the monopolist produces. D. was broken up by the government a long time ago.

B. Arises for the ownership of a key resource

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are a. of little concern to society. b. a deadweight loss to society. c. a sunk cost to society. d. also observed in competitive markets.

B. a deadweight loss to society

A monopoly's marginal cost will a. be less than its average fixed cost b. be less than the price per unit of its product. c. exceed its marginal revenue. d. equal its average total cost.

B. be less than the price per unit of its product

For a typical natural monopoly, average total cost is a. falling and marginal cost is above average total cost. b. falling and marginal cost is below average total cost. c. rising and marginal cost is below average total cost. d. rising and marginal cost is above average total cost.

B. falling and marginal cost is below average total cost

The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? a. marginal cost and demand b. marginal cost and marginal revenue c. average total cost and marginal revenue d. average variable cost and average revenue

B. marginal cost and marginal revenue

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as a. price segregation. b. price discrimination. c. arbitrage. d. monopoly pricing.

B. price discrimination

The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" is called the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

B. sherman act

A monopoly firm can sell 150 units of output for $12.00 per unit. Alternatively, it can sell 151 units of output for $11.95 per unit. The marginal revenue of the 151st unit of output is a. $-11.95. b. $-4.45. c. $4.45. d. $11.95.

C. 4.45

Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true? a. Meatball prices will be less than marginal cost. b. Meatball prices will equal marginal cost. c. Meatball prices will exceed marginal cost. d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs.

C. Meatball prices will exceed marginal cost

The socially efficient level of production occurs where the marginal cost curve intersects which of the following curves? a. average variable cost b. average total cost c. demand d. marginal revenue

C. demand

In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products.

C. lower its price

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.

C. marginal revenue is less than the price of the product

A government-created monopoly arises when A. government spending in a certain industry gives rise to monopoly power. B. the government exercises its market control by encouraging competition among sellers. C. the government gives a firm the exclusive right to sell some good or service. D. All of the above could qualify as government-created monopolies.

C. the government gives a firm the exclusive right to sell some good or service

Many movie theaters allow discount tickets to be sold to senior citizens because a. senior-citizen laws mandate such discounts. b. efforts of goodwill show community respect and win loyal patrons. c. the theaters are profit maximizers. d. senior citizens usually comprise a solid portion of those who voice their opinions.

C. the theaters are profit maximizers

Let P = price, MR = marginal revenue, and MC = marginal cost. For a profit-maximizing monopolist, a. P = MR = MC. b. P = MR < MC. c. P = MR > MC. d. P > MR = MC.

D. P > MR=MC

Discount coupons have the ability to help a grocery store a. price discriminate. b. target its customers based on their individual willingness to pay. c. maximize its profit. d. All of the above are correct.

D. all of the above are correct

When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly a. will experience a loss. b. will experience a price below average total cost. c. may rely on a government subsidy to remain in business. d. All of the above are correct.

D. all of the above are correct

When a natural monopoly exists, it is A. always cost effective for government-owned firms to produce the product. B. never cost effective for one firm to produce the product. C. always cost effective for two or more private firms to produce the product. D. never cost effective for two or more private firms to produce the product.

D. never cost effective for two or more private firms to produce the product

The key difference between a competitive firm and a monopoly firm is the ability to select A. the level of competition in the market. B. the level of production. C. inputs in the production process. D. the price of its output.

D. the price of its output