Quiz 09: Monopoly
If a monopolist that does not practice price discrimination is operating at an output level where price equals average total cost, we can conclude that:
its economic profit is $0.
For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is:
less than $140.
A price-discriminating monopolist divides its customers into two segments based on price elasticity of demand. If it sells its product for a price of $42 in the market segment where demand is relatively less price elastic, the price in the market segment where demand is more price elastic will be:
less than $42.
A monopolist maximizes profit at the output rate where its total revenue equals total cost.
false
A monopolist that earns a profit in the short run will always earn a profit in the long run.
false
A monopolist's marginal revenue curve is flatter than its demand curve.
false
A natural monopoly emerges from legal restrictions imposed by a government.
false
A monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each, or sell 150 units for $2 each. This implies that, for the given range of output, elasticity of demand for the monopolist's product is:
one.
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's average revenue is:
$10.
Which of the following is true for a monopolist that engages in perfect price discrimination?
Perfect price discrimination allows the monopolist to reap the entire gains from production.
Which of the following does a monopoly control that a perfectly competitive firm does not control?
Price
Which of the following is not a condition for price discrimination?
The presence of strong diseconomies of scale
For a monopolist producing a level of output at which market demand is inelastic, _____.
a decrease in price decreases total revenue.
As a monopolist increases the quantity of output produced, _____.
both price and marginal revenue decrease, but marginal revenue falls faster than price
The supply curve for a monopolist:
does not exist.
Suppose a single firm supplies all the ceramic windlasses in the U.S. The demand curve that the firm faces is:
elastic only at the profit-maximizing output.
A monopolist's demand curve is:
identical to its market demand curve.
A profit-maximizing monopolist that produces in the short run will:
increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
If the government breaks up a monopoly that does not practice discrimination and faces a horizontal marginal cost curve into a perfectly competitive market, _____.
output will increase and price will decrease
The practice of charging different prices to different consumers for the same product is called:
price discrimination.
A non-discriminating monopolist observes that marginal revenue is $23 and marginal cost is $30 at its present output level. In order to maximize profit it should:
raise price and lower output.
A natural monopoly forms when:
the long-run average cost incurred by a firm declines as the firm expands output.
The demand curve a monopolist uses in making an output decision is:
the same as the market demand curve.
A profit-maximizing monopolist supplies the quantity at which:
total revenue exceeds total cost by the greatest amount.
A monopolist's supply curve is the portion of its marginal cost curve that lies above its average variable cost curve.
false
A profit-maximizing monopolist will always operate where demand is unit elastic.
false
Assuming a constant cost industry, consumer surplus would be greater under monopoly than if the industry were perfectly competitive.
false
DeBeers Consolidated Mines is a natural monopoly.
false
Monopolists always earn positive short-run economic profit.
false
Monopolists can earn positive economic profits in the long run because they are more productively efficient than perfectly competitive firms.
false
Price discrimination will occur whenever a firm faces an upward-sloping demand curve.
false
Price-discriminating, profit-maximizing monopolists charge higher prices to buyers who have more elastic demand curves.
false
Total deadweight loss in society is reduced through rent seeking by monopolists.
false
A monopolist that fails to recover a short-run loss in the long run generally leaves the market.
true
Anything that prevents new firms from competing on an equal basis with existing firms in an industry is called a barrier to entry.
true
Average revenue, demand, and price are all depicted by the same curve for a monopoly.
true
Rent-seeking activities are socially wasteful because they use scarce resources but do not add to society's output.
true
A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total cost curve.
true
Which of these is likely to be true of perfect competition but not of monopoly?
A firm can face competition from new entrants into the market in the long run.
Which of the following is most likely to be considered a natural monopoly?
A municipal water company
Which of the following describes a monopolized market structure?
A single firm producing a highly differentiated product and serving the entire market
Which of the following is observed when perfect price discrimination is practiced by a monopolist?
Consumer surplus is zero.
Incorrect. A perfectly competitive firm and a monopolist will both leave their respective industries if they suffer a loss in the long run. See 9-4: Perfect Competition and Monopoly Compared
Firms go out of business in the long run if total revenue cannot cover total cost.
For which of the following products would price discrimination be easiest?
Haircuts
Which of the following is true of a patent?
It gives a firm a temporary exclusive right to produce a new good.
Which of the following is true of a monopolist in the short run?
It is constrained by consumer demand in setting price.
Which of the following is most likely to be true of a monopoly in long-run equilibrium if it enjoys a patent and earns economic profit in the short run?
It will earn a positive economic profit in the long run.
Which of the following prevents potential competitors from entering a monopolized market?
Legal restrictions
Which of the following is true of marginal revenue earned by a non-price-discriminating monopolist that charges a single price?
Marginal revenue earned by a monopolist is less than the price of its product.
Which of the following conditions is true at the profit-maximizing output for both a perfectly competitive firm and a monopoly?
Marginal revenue equals marginal cost
Irving R. Associates is granted a patent for a new product for which there are no close substitutes. Which of the following conditions must be true at the profit-maximizing output produced by this firm?
Marginal revenue is equal to marginal cost.
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be concluded about the firm's marginal revenue for this output level?
Marginal revenue is less than $10 but more than zero.
Which of the following is true for a monopolist?
Marginal revenue is negative where demand is inelastic.
Which of the following is true of the profit earned by a monopolist?
Normal profit is ensured where price is equal to average total cost.
Which of the following equations describes the relationship between market price (P), average revenue (AR), and marginal revenue (MR) for a non-discriminating monopolist?
P = AR > MR
Which of these is a similarity between a monopolist that does not practice price discrimination and a perfectly competitive firm?
Price equals average revenue at all output rates for both types of firms.
Which of the following is true when a perfectly competitive firm is in short-run equilibrium but not when a non-discriminating monopolist is in equilibrium?
Price equals marginal cost.
Which of these is a key difference between a perfectly competitive firm and a monopolist that does not practice price discrimination?
Price is equal to marginal revenue for a perfectly competitive firm in equilibrium but not for a monopolist.
Suppose a monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each or sell 140 units for $2 each. Which of the following is true?
The demand for the monopolist's product is price inelastic for the given range of output.
Which of the following would distinguish a competitive firm from a monopolist?
The slope of the demand curve faced by the firm
A major fruit juice manufacturer fails in its attempt to engage in price discrimination between students and all other consumers of fruit juice. Which of the following explanations is most likely to account for this failure?
The students resold the juice to other consumers.
Which of the following factors explain the difference in long-run profits earned by a monopolist and a perfectly competitive firm?
There are no barriers to entry in perfect competition.
Which of the following can be concluded about a monopolist whose marginal revenue is zero for a particular output level?
Total revenue earned by the monopolist is maximum at that output level.
A natural monopoly forms when a firm has:
a downward-sloping long-run average cost curve.
A monopolist is likely to overcome a short-run economic loss in the long run by:
advertising for its product.
The profit-maximizing quantity for a monopolist that faces an upward-sloping marginal cost curve will:
be less than the revenue-maximizing quantity.
Patents stimulate investment:
by giving inventors an incentive to incur up-front costs of developing new products.
If a perfectly competitive industry is monopolized, consumer surplus:
can be expected to decrease.
A monopolist that engages in perfect price discrimination:
charges a different price for every unit sold.
A monopolist practices price discrimination by:
charging different buyers different prices for the same product.
Unlike perfectly competitive firms, monopolists:
earn long-run economic profits.
A monopolist can either sell 100 units for $3 each or sell 160 units for $2 each. This implies that, for the given range of output, elasticity of demand for the monopolist's product is:
greater than one but not infinite.
When compared to firms in perfect competition, monopolists tend to charge:
higher prices and offer lower quantities of output.
McDonald's makes its unique McRib sandwich "available for a limited time only," usually in the fall. Such a strategy is likely to:
increase its marginal value to the consumer.
A profit-maximizing monopolist never produces along the:
inelastic portion of the demand curve because marginal revenue is negative there.
The demand curve facing a non-discriminating monopolist:
is the same as its average revenue curve.
A monopolist is said to have market power because:
it faces a downward-sloping demand curve.
A non-price discriminating monopolist's demand curve:
lies to the right of its marginal revenue curve.
Gilligan runs the only dry-cleaning business on a desert isle. If the cost of cleaning fluid falls, he can increase profit by:
lowering price.
Perfectly competitive firms and monopolistic firms determine their respective profit-maximizing output levels where:
marginal cost equals marginal revenue.
When a price-discriminating monopolist divides its customers into two market segments, the price in each segment is determined by finding the level of output where that market's:
marginal revenue equals marginal cost.
Barriers to entry:
may allow monopolies to earn profit in the long run.
The actual deadweight loss from monopoly in the United States is likely to be greater than the calculated estimates because some:
monopolists spend resources to secure and maintain their monopoly.
For a monopolist, average revenue is:
more than marginal revenue at all output levels.
Suppose a restaurant has a monopoly in a certain small town. Its rent, which is one of the several fixed costs it incurs whether it sells food or not, has gone up. In the short run, the restaurant should:
pay the higher rent and leave menu prices unchanged.
Suppose the marginal cost for the 1,000th unit of a monopolist's output is $40, marginal revenue is $30, the average variable cost of producing 1,000 units is $30, and the average total cost is $50. In order to maximize profit or minimize loss in the short run, the firm should:
produce fewer than 1,000 units but still operate.
If the marginal cost curve shifts upward, a profit-maximizing monopolist that does not practice price discrimination is likely to respond in the short run by:
raising price and decreasing output.
If the marginal cost of production for a profit-maximizing monopolist increases suddenly in the short run, it will:
raising price and decreasing output. restrict output to extract a higher price from customers.
Empirical estimates indicate that the annual deadweight loss of monopoly in the United States:
ranges from about 1 percent to 5 percent of national income.
When a monopolist practices perfect price discrimination, _____.
the equilibrium quantity traded in the market is the same but consumer surplus is lower than under perfect competition
Suppose the marginal revenue for a particular level of a monopolist's output is $40. This implies that:
total revenue is increasing for this output range.
In the short run, a monopolist will always shut down when:
total variable cost is greater than total revenue at all output levels.
