MacroEconomics Chapter 15

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 False

False

The profit-maximizing monopolist will choose the price and quantity represented by point a. A. b. B. c. C. d. D. e. None of the above is correct.

a. A.

Which of the following statements about price and marginal cost in competitive and monopolized markets is true? a. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost. b. In competitive markets, price exceeds marginal cost; in monopolized markets, price exceeds marginal cost. c. In competitive markets, price exceeds marginal cost; in monopolized markets, price equals marginal cost. d. In competitive markets, price equals marginal cost; in monopolized markets, price equals marginal cost.

a. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost.

When a monopolist produces an additional unit, the marginal revenue generated by that unit must be a. below the price because the price effect outweighs the output effect. b. above the price because the price effect outweighs the output effect. c. above the price because the output effect outweighs the price effect. d. below the price because the output effect outweighs the price effect.

a. below the price because the price effect outweighs the output effect.

Compared to a perfectly competitive market, a monopoly market will usually generate a. higher prices and lower output. b. lower prices and lower output. c. higher prices and higher output. d. lower prices and higher output.

a. higher prices and lower output.

A monopolist maximizes profit by producing the quantity at which a. marginal revenue equals marginal cost. b. marginal revenue equals price. c. marginal cost equals price. d. marginal cost equals demand. e. none of the above occurs.

a. marginal revenue equals marginal cost.

Public ownership of natural monopolies a. tends to be inefficient. b. usually lowers the cost of production dramatically. c. creates synergies between the newly acquired firm and other government-owned companies. d. does none of the above.

a. tends to be inefficient.

If regulators break up a natural monopoly into many smaller firms, the cost of production a. will rise. b. could either rise or fall depending on the elasticity of the monopolist's supply curve. c. will remain the same. d. will fall.

a. will rise.

The profit earned by the profit-maximizing monopolist is represented by the area a. P4ABP2. b. P4ACP1. c. P4AQ10. d. P3DQ20. e. None of the above is correct.

b. P4ACP1.

Which of the following statements about price discrimination is not true? a.Price discrimination adds to social welfare in the form of increased total surplus. b.Price discrimination does not require the firm to separate customers according to their willingness to pay. c.Price discrimination will not be successful in the presence of arbitrage. d.Price discrimination is a rational pricing strategy for a profit-maximizing monopoly.

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

The purpose of antitrust laws is to a. regulate the prices charged by a monopoly. b. increase competition in an industry by preventing mergers and breaking up large firms. c. increase merger activity to help generate synergies that reduce costs and raise efficiency. d. create public ownership of natural monopolies. e. do all of the above.

b. increase competition in an industry by preventing mergers and breaking up large firms.

If marginal revenue exceeds marginal cost, a monopolist should a. decrease output. b. increase output. c. raise the price. d. keep output the same because profits are maximized when marginal revenue exceeds marginal cost.

b. increase output.

Cengage Learning is a monopolist in the production of your textbook because a. Cengage Learning is a very large company. b. the government has granted Cengage Learning exclusive rights to produce this textbook. c. Cengage Learning owns a key resource in the production of textbooks. d. Cengage Learning is a natural monopoly

b. the government has granted Cengage Learning exclusive rights to produce this textbook.

A monopoly is able to continue to generate economic profits in the long run because a. potential competitors sometimes don't notice the profits. b. there is some barrier to entry to that market. c. the monopolist is financially powerful. d. antitrust laws eliminate competitors for a specified number of years. e. of all of the above.

b. there is some barrier to entry to that market.

The inefficiency associated with monopoly is due to a. the monopoly's profits. b. underproduction of the good. c. the monopoly's losses. d. overproduction of the good.

b. underproduction of the good.

A monopoly can sell 200 units of output for $40 per unit. Alternatively it can sell 201 units of output for $38 per unit. The marginal revenue of the 201st unit of output is a.$362. b.-$362. c.-$2. d.-$324.

b.-$362.

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? a.Antitrust laws b.Do nothing c.Regulation d.Public ownership

b.Do nothing

Refer to the Figure . What is the price and quantity for this natural monopolist under fair return pricing? a.M and W b.R and X c.N and X d.U and Y

b.R and X

Monopoly pricing prevents some mutually beneficial trades from taking place. Which of the following is not true about those unrealized, mutually beneficial trade? a.They are a function of a reduction in the quantity produced by a monopolist in comparison to a competitive market. b.They are offset by the higher profits earned by a monopolist. c.They are not a concern if a market is perfectly competitive. d.They represent a deadweight loss to society.

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

A monopolist produces ____ than the socially efficient quantity of output and at a _____ price than in a competitive market. a.less; lower b.less; higher c.more; higher d.more; lower

b.less; higher

Which of the following is not a barrier to entry in a monopolized market? a. The costs of production make a single producer more efficient than a large number of producers. b. The government gives a single firm the exclusive right to produce some good. c. A single firm is very large. d. A key resource is owned by a single firm.

c. A single firm is very large.

The deadweight loss associated with monopoly pricing is represented by the area a. P4ABP2. b. P4ACP1. c. ABD. d. P2BCP1. e. None of the above is correct.

c. ABD.

Which of the following statements about price discrimination is not true? a. Price discrimination requires that the seller be able to separate buyers according to their willingness to pay. b. Price discrimination increases a monopolist's profits. c. Perfect price discrimination generates a deadweight loss. d. Price discrimination can raise economic welfare. e. For a monopolist to engage in price discrimination, buyers must be unable to engage in arbitrage.

c. Perfect price discrimination generates a deadweight loss.

Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will a. raise the price of the good. b. attract additional firms to enter the market. c. cause the monopolist to exit the market. d. improve efficiency.

c. cause the monopolist to exit the market.

The efficient price and quantity are represented by point a. A. b. B. c. C. d. D. e. None of the above is correct.

d. D.

A firm whose average total cost continually declines at least to the quantity that could supply the entire market is known as a a. regulated monopoly. b. government monopoly. c. perfect competitor. d. natural monopoly.

d. natural monopoly.

Refer to the figure. The deadweight loss caused by a profit-maximizing monopoly amounts to a.$350. b.$500. c.$125. d.$250.

d.$250.

The monopolist's supply curve a. is the upward-sloping portion of the average variable cost. b. is the upward-sloping portion of the average-total-cost curve. c. is the marginal-cost curve above average variable cost. d. is the marginal-cost curve above average total cost. e. does not exist.

e. does not exist.