ECON212 Chapter 9 Test Bank

A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit? a. Raise price and lower output. b. Lower price and lower output. c. Raise price and raise output. d. Lower price and raise output.

a

Because monopolists are protected by high barriers to entry, they: a. may be able to earn long-run economic profits. b. will not minimize the per-unit cost of producing their output. c. will price their product at the highest possible price. d. seek economic profit; however, they are not able to earn it in the long run.

a

By calculating the data provided in Exhibit 9-5, how much is the profit if the firm decides to produce 7 units? a. 0. b. 24. c. 16. d. 12.

a

If the profit-maximizing monopoly in Exhibit 9-7 becomes a profit-maximizing perfectly competitive market, the price will go from a. $8 to $6. b. $10 to $8. c. $10 to $6. d. $6 to $8.

a

In Exhibit 9-3, how much vaccine should GeneTech produce to maximize its profit? a. 300 doses per hour. b. 400 doses per hour. c. Between 400 and 500 doses per hour. d. 500 doses per hour.

a

In contrast to a perfectly competitive firm, a monopolist operates in the long run a. at a price higher than marginal cost. b. with a profit equal to zero. c. at an efficient level of output. d. at the minimum point on its average total cost curve.

a

Suppose a perfectly competitive market results in a long-run equilibrium price of $8 and quantity of 500. If this same market were a monopoly, which of the following price and quantity combinations would be the most likely? a. Price: $10, Quantity: 350 b. Price: $8, Quantity: 500 c. Price: $6, Quantity: 650 d. Price will equal marginal revenue and quantity will be found where marginal revenue equals marginal cost.

a

To maximize its profit, a monopoly should choose a price where demand is: a. elastic. b. inelastic. c. unitary elastic. d. vertical.

a

Which of the following best explains why the monopolist's marginal revenue is less than the selling price? a. To sell more units, the monopolist must reduce price on all units sold. b. As the monopolist expands output, the average total cost will decline. c. The monopolist charges each consumer the highest possible price. d. When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.

a

Which of the following is not associated with the monopoly market structure? a. many sellers b. a single seller c. a unique product d. impossible entry into the market

a

Which of the following is true for a monopolist but not for a firm in perfect competition? a. The marginal revenue curve is downward-sloping. b. Marginal revenue equals price. c. Economic profits are zero in the long-run. d. The marginal revenue curve lies above the demand curve.

a

Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is a competitive price taker? a. Marginal revenue and market price are equal for the competitive price taker but not for the monopolist. b. The monopolist does not always produce the output that equates marginal cost and marginal revenue; the competitive price taker does. c. The monopolist charges the highest price possible; the competitive price taker charges a price equal to its per-unit cost. d. A monopolist can earn economic profit in the short run; a competitive price taker cannot.

a

A monopoly sets a market price that is higher than the marginal cost of production. This fact implies that a monopoly's allocation of resources is: a. unfair. b. inefficient. c. discriminatory. d. excessive.

b

According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $6, what would you advise Rudd to do? a. Stay where he is currently operating because he is charging the profit maximizing price. b. Increase price and decrease output. c. Decrease price and increase output. d. Increase output and hold price constant.

b

At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is: a. perfectly elastic, as is the perfectly competitive firm's. b. elastic but not perfectly elastic, and a perfectly competitive firm's demand curve is perfectly elastic. c. elastic but not perfectly elastic, as is the perfectly competitive firm's. d. inelastic, while a perfectly competitive firm's demand curve is perfectly elastic.

b

For a monopolist: a. price equals average total cost. b. price is above marginal revenue. c. marginal revenue equals zero. d. marginal cost equals zero.

b

In Exhibit 9-1, the marginal revenue curve corresponding to the monopolist's demand curve would be a straight line drawn between points: a. A to B. b. A to D. c. C to B. d. C to D.

b

In Exhibit 9-3, what is the maximum hourly profit that GeneTech can earn from its vaccine? a. $1,500. b. $3,000. c. $4,500. d. $10,500.

b

Refer to Exhibit 9-2. Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profit by choosing price equal to: a. $40. b. $20. c. $10. d. $30.

b

Suppose both a monopolist and a perfectly competitive firm charge a price corresponding to the quantity at the intersection of the marginal cost and marginal revenue curves. If this price is between each firm's average variable cost and average total cost curves, a. the perfectly competitive firm will continue to operate in the short run but the monopolist will shut down. b. both firms will continue to operate in the short run. c. both firms will shut down in the short run. d. the perfectly competitive firm will continue to operate in spite of the loss but the monopolist will earn a profit.

b

Suppose there are four buyers all considering purchasing round-trip airfare from Boston to Miami with the following price elasticities of demand for this purchase: Buyer A: 1.5, Buyer B: 0.7, Buyer C: 1.0, Buyer D: 2.3. If the airline knows of these elasticities and practices price discrimination, which buyer will pay the highest price for the airfare? a. Buyer A b. Buyer B c. Buyer C d. Buyer D

b

Which of the following factors is not a barrier limiting the entry of potential competitors into a market? a. legally enforced patent rights b. an inelastic demand for a product c. economies of scale d. ownership of a vital resource

b

A monopolist can earn an economic profit only when: a. marginal cost equals marginal revenue, and the same is true for a perfectly competitive firm. b. marginal cost equals price, while a perfectly competitive firm earns a profit if average total cost is less than price. c. average total cost is less than price and the same is true for a perfectly competitive firm. d. average variable cost exceed marginal cost, while a perfectly competitive firm earns a profit if average total cost exceeds marginal cost.

c

A monopolist will maximize profits by: a. setting his price as high as possible, while a perfectly competitive firm will take price from the market. b. setting his price at the level that will maximize per-unit profit, while a perfectly competitive firm will minimize per-unit loss. c. producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will. d. producing the output where price equals marginal cost, while a perfectly competitive firm will produce where marginal revenue equals marginal cost.

c

A monopoly firm can sell its fourth unit of output for a price of $250. To sell more than five units, it must expect to receive a price: a. equal to $250. b. greater than $250. c. less than $250. d. equal to $340.

c

A natural monopoly is a market where: a. a single firm has control over a vital natural resource. b. many smaller firms can produce the entire market output at the same per-unit cost as could one large firm. c. a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms. d. many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm.

c

According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do? a. Stay where he is currently operating because he is charging the profit-maximizing price. b. Increase price and increase output. c. Decrease price and increase output. d. Increase output and hold price constant.

c

An example of price discrimination is the price charged for: a. an economics textbook at a campus bookstore. b. gasoline. c. a piece of art sold at an auction. d. a postage stamp.

c

As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), what price should the monopoly charge for its product? a. $60 per unit. b. $90 per unit. c. $120 per unit. d. $150 per unit.

c

Comparing a perfectly competitive market to a monopoly, which of the following is true? a. Price will be higher and quantity will be lower in the perfectly competitive market than in the monopoly. b. Price will be higher than marginal cost in the perfectly competitive market but will be equal to marginal cost in the monopoly. c. Price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly. d. at that point on the market demand curve which intersects the marginal cost curve.

c

Refer to Exhibit 9-5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit? a. 2. b. 6. c. 4. d. 7.

c

Ricky and Anita are 10 year-olds who have a lemonade stand on a busy beach and would like to practice price discrimination. They know that they are the only sellers of lemonade on the beach and that adults have a less elastic demand for lemonade than kids so they decide to sell their lemonade for $0.25 to kids and $0.50 to adults. Will their price discrimination be successful? Why or why not? a. Yes, they have all of the necessary criteria to successfully price discriminate. b. Yes, the only necessary conditions is that they know the relative elasticities of the market segments. c. No, the kids who buy their lemonade can practice arbitrage. d. No, Ricky and Anita are price takers.

c

Which of the following correctly describes price discrimination? a. Selling different products to different people for the same price. b. Selling different products to identical people for different prices. c. Selling the same product to different people for different prices. d. Selling the same product to the same person for the same price.

c

Which of the following describes the monopoly market structure? a. few firms operating as price takers b. single firm operating as a price taker c. single firm that is a price maker d. many firms that are price makers

c

Which of the following distinguishes a natural monopoly from monopoly caused by ownership of a vital resource? a. The natural monopoly has a marginal cost curve above its average cost curve at all levels of output, whereas the marginal cost in other monopolies is above average cost. b. The natural monopoly does not require any government intervention because it is only efficient to have one large firm supplying the market, but other monopolies do require government intervention to maintain efficiency. c. The natural monopoly has a downward-sloping long-run average cost curve as opposed to a U-shaped long-run average cost curve. d. The natural monopoly occurs with naturally occurring products like gold and diamonds, whereas other monopolies occur with man-made products.

c

Which of the following firms best fits the definition of a monopoly? a. General Motors b. Exxon Mobil c. Local electric utility d. AT&T

c

Which of the following is true under natural monopoly? a. The marginal cost curve will be above the average cost curve. b. The monopolist will set price equal to marginal cost and will earn economic profits. c. Economies of scale exist. d. Output is produced under conditions of constant cost.

c

A monopolist faces a downward-sloping demand curve because: a. the demand for its product is inelastic. b. the industry demand curve is horizontal. c. resource prices increase as the monopolist expands output. d. the entire market demand curve is the monopolist's demand curve.

d

A monopoly: a. can increase price and increase output at the same time. b. can charge any price it wants and still sell all of its output. c. can sell any output it produces provided it accepts the market price. d. must lower price in order to increase output.

d

An industry is said to be a natural monopoly when: a. legal barriers limit entry into the market. b. diseconomies of scale are present in the market. c. the market demand for the product supplied by a firm is inelastic. d. long-run average cost continues to decline as the quantity of output increases.

d

As shown in Exhibit 9-8, if the monopolist produces the profit-maximizing output, total revenue is the rectangular area: a. OQAP1. b. OQ2BP2. c. OQ3CP3. d. OQ2DP4.

d

Consider Exhibit 9-3. Suppose GeneTech's patent expires and the market for the vaccine becomes perfectly competitive. Which of the following price and quantity combinations would be most likely? a. $45 per dose and 100 doses per hour b. $40 per dose and 200 doses per hour c. $35 per dose and 300 doses per hour d. $28 per dose and 450 doses per hour

d

Economists do not think price discrimination is unfair because a. people with higher incomes should pay higher prices than those with lower incomes. b. if the prices charged to some buyers get too high, those who are able to buy at lower prices will just resell their purchases to the people facing the high prices. c. economists are concerned with efficiency rather than fairness. d. more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price.

d

For a monopolist with a downward-sloping demand curve, a. when the price is equal to zero, marginal revenue is equal to zero. b. the coefficient of price elasticity of demand is zero. c. as price increases, marginal revenue decreases. d. as price decreases, marginal revenue decreases.

d

Monopolists are criticized because they are inefficient. What is meant by this statement? a. Monopolists could use their resources better elsewhere. b. Monopolists don't innovate enough to control pollution. c. Monopolists produce a large quantity of waste. d. Monopolists usually don't produce at the minimum of the ATC.

d

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as: a. buying long. b. selling short. c. a tariff. d. arbitrage.

d

Under both perfect competition and monopoly, a firm: a. is a price taker. b. is a price maker. c. will shut down in the short-run if price falls short of average total cost. d. sets marginal cost equal to marginal revenue.

d

When the monopolist is maximizing total profit in Exhibit 9-6, the average total cost of producing that output level is: a. $4. b. $6. c. $7. d. $8.

d

Which of the following best explains an economic criticism of unregulated monopolists? a. Monopolists do not try to minimize their fixed costs of production. b. Monopolists produce where marginal revenue is greater than marginal costs. c. Monopolists attempt to produce too many products, and as a result, their prices are high, and consumer's waste time trying to choose between too many options. d. Monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them.

d

Which of the following does not represent an arbitrage transaction? a. Traders buy silks where they are abundant and cheap, and haul them along a trail to another place where they would be quite scarce and valued. b. An investor buys a stock when the company is new and relatively unknown and then sells the stock for a much higher price when the company is well-known and profitable. c. Someone buys a block of Final Four tickets and scalp them at the game. d. A boat manufacturer buys the electrical components for its boats from the lowest cost supplier and then sells the boats to consumers.

d

Why do economies of scale and monopoly power exist with network goods? a. Many small firms must develop to serve all of the consumers willing to pay for access to the network good, so their costs are driven down. b. Network goods require a group of sellers working together and this cooperation reduces the firms' cost per unit. c. Just as the value of a network good decreases to each user as the total number of users increases, so does the long run average cost decrease as output increases. d. As the number of people connected to a network increases, the greater the benefits each person gets and the smaller the cost per unit to supply.

d