Micro ch. 10

If a firm can change market prices by altering its output, then it A Has market power. B. Faces a flat demand curve. C. Is a price taker. D. Engages in marginal cost pricing.

A Has market power.

Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. In order to increase sales by one bicycle per month, the monopolist must lower the price of its bicycles by $50 to $650 per bicycle. The marginal revenue of the 11th bicycle is A. $150. B. -$50. C. $50. D. $7,150.

A. $150.

Which of the following is likely to be a monopolist? A. A drug firm that has a patent granting it the exclusive right to produce a drug. B. A large firm like GM, which has a substantial portion of the car market. C. The Boeing Company, which is one of the largest producers of airplanes. D. An Indonesian restaurant in a large city.

A. A drug firm that has a patent granting it the exclusive right to produce a drug.

In Figure 24.1, total revenue is represented by the area A. ABFE. B. CDFE. C. ABGHE. D. ABDC.

A. ABFE.

Markets that exhibit economies of scale over the entire range of market output A. Are natural monopolies. B. Are perfectly competitive. C. Have downward-sloping short-run average total cost curves. D. Have upward-sloping long-run average total cost curves.

A. Are natural monopolies.

An In the News article titled "Jury Rules Magnetek Unit Is Liable for Keeping Technology off Market" reported, "A county superior court jury in Oakland ordered a unit of Magnetek Inc. to pay $25.8 million to two California entrepreneurs . . the unit had failed to bring the pair's energy-saving fluorescent-light technology to market in a profitable manner ... in favor of an outmoded technology." The most correct implication of this quotation is that Magnetek A. Attempted to suppress R&D. B. Is a highly efficient, high-tech industry. C. Makes zero economic profits. D. Charges lower prices than might be expected in a competitive market.

A. Attempted to suppress R&D.

Compared with a competitive market with the same cost and market demand circumstances, a monopolist has A. Less pressure to reduce costs and less reason to improve quality. B. Less pressure to reduce costs and more reason to improve quality. C. More pressure to reduce costs and less reason to improve quality. D. More pressure to reduce costs and more reason to improve quality.

A. Less pressure to reduce costs and less reason to improve quality.

A profit-maximizing monopolist produces the rate of output where A. MR = MC and determines price based on the demand curve. B. Price = MC. C. MR = MC and can set price at any amount it chooses. D. MR = MC and determines price based on ATC.

A. MR = MC and determines price based on the demand curve.

The In the News article "XM-Sirius Merger Made Simple: One Is Always Less Than Two" discusses the proposed merger of two satellite radio companies. Antitrust officials will examine the merger in order to A. Prevent the abuse of market power. B. Prevent economies of scale. C. Protect the government from frivolous lawsuits. D. Increase the profitability of monopolies.

A. Prevent the abuse of market power.

Price discrimination allows a producer to A. Reap the highest possible average price for the quantity supplied. B. Increase the elasticity of consumer demand. C. Minimize marginal costs. D. Decrease total costs.

A. Reap the highest possible average price for the quantity supplied.

Google is currently being investigated by A. The European Antitrust Authority. B. The U.S. Justice Department. C. Intel corporation. D. The FTC.

A. The European Antitrust Authority.

Which of the following markets best illustrates the practice of price discrimination? A. The airline market. B. The fast-food market. C. Wheat farming. D. The personal computer market.

A. The airline market.

Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market? A. The market price of the product will fall. B. The total market quantity of output produced will fall C. Profits for the market will increase. D. The industry demand curve for the product will shift.

A. The market price of the product will fall.

According to the In the News article, "U.S. Sues over Drug's Price Hike," Ovation pharmaceuticals violated federal law in 2006 when it bought a competitor's drug, creating a monopoly for the heart treatment used on premature babies, then raised the price. If a monopoly increases the price of its product, it must believe that it faces a(n) A. Elastic demand curve. B. Inelastic demand curve. C. Horizontal demand curve. D. Contestable market.

B. Inelastic demand curve.

There is an inherent tendency of a monopoly industry to A. Lower prices and increase output. B. Inhibit productivity advances. C. Increase innovation. D. Use minimum average cost pricing.

B. Inhibit productivity advances.

Google holds market power by all of the following strategies except A. Purchasing rivals. B. Low pricing. C. Exclusive dealings with advertisers. D. Elimination of search results for competitors.

B. Low pricing.

Dynamic pricing allows a seller to A. Always charge the nighest price. B. Move prices up when demand is high, and lower prices for a similar product when the demand is low. C. Keep the same price no matter what happens with demand. D. Change prices when the quantity supplied changes.

B. Move prices up when demand is high, and lower prices for a similar product when the demand is low.

If tourists are charged a much higher price than the natives of a country for exactly the same item, what kind of pricing is involved? A. Monopoly pricing. B. Price discrimination. C. Competitive pricing. D. MC = MR pricing.

B. Price discrimination.

Market power is A. A characteristic of all market structures. B. The ability to alter the market price of a product. C. Most common for competitive firms. D. Enjoyed by all firms at high levels of output.

B. The ability to alter the market price of a product.

The federal government's lawsuit against AT&T was motivated in large part by A. AT&T's inefficient and inadequate R&D expenditures. B. The extension of its market power to other markets. C. Its practice of price discrimination. D. The diseconomies of scale resulting from AT&T's enormous size.

B. The extension of its market power to other markets.

Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is A. $500. B. $199,500. C. -$500. D. $9,500.

C. -$500.

A patent gives a firm the exclusive right to produce a product for A. 6 months. B. 2 years. C. 20 years. D. Forever.

C. 20 years.

All of the following can be used to increase monopoly power except A. Acquisitions. B. Lawsuits. C. Antitrust laws. D. Discounts for customer loyalty.

C. Antitrust laws.

Monopolists set prices A. On the marginal revenue curve. B. Without constraints since there is no competition. C. At the output where marginal revenue equals marginal cost. D. At the minimum of the long-run average total cost curve.

C. At the output where marginal revenue equals marginal cost.

The primary purpose of antitrust policy in the United States is to A. Issue patents. B. Limit foreign competition. C. Encourage competition. D. Regulate monopolies.

C. Encourage competition.

A firm can take advantage of economies of scale through A. Investment decisions to increase capacity. B. A production decision to increase capacity. C. Investment decisions to reduce capacity. D. A production decision to increase output.

C. Investment decisions to reduce capacity.

A monopolist will find that its marginal revenue curve A. Is the same as its demand curve. B. Lies above its demand curve and is flatter than its demand curve. C. Lies below its demand curve and is steeper than its demand curve. D. Lies below its demand curve and has the same slope as its demand curve.

C. Lies below its demand curve and is steeper than its demand curve.

If a monopolist is producing a level of output where MR is less than MC, then it should A. Shift its marginal cost curve upward. B. Increase its output. C. Lower its output. D. Lower its price.

C. Lower its output.

Which of the following rules is satisfied when a monopoly maximizes profits? A. Price = AVC. B. Price < MC. C. MR = MC. D. MR > MC.

C. MR = MC.

Monopolists are price A. Takers, as are competitive firms. B. Takers, but competitive firms are price makers. C. Makers, but competitive firms are price takers. D. Makers, as are competitive firms.

C. Makers, but competitive firms are price takers.

In monopoly and perfect competition, a firm should expand production when A. Marginal revenue is below marginal cost. B. Price is below marginal cost. C. Marginal revenue is above marginal cost. D. Price is above marginal cost.

C. Marginal revenue is above marginal cost.

Which of the following is an argument in favor of a competitive market structure rather than monopoly? A. Monopolies have greater ability to pursue research and design. B. The lure of monopoly power provides a greater incentive for invention and innovation. C. Monopolies produce less at a higher price than competitive markets, ceteris paribus. D. Economies of scale allow a single firm to produce at lower cost than in a competitive market, ceteris paribus.

C. Monopolies produce less at a higher price than competitive markets, ceteris paribus.

According to the In The News article "Intel's Concessions Settle Antitrust Suit," Intel Corp. agreed to A. Be broken up into two smaller companies. B. Allow price controls on its chips for two years. C. Stop paybacks to computer makers and retailers that exclusively use Intel chips. D. No longer pursue patents.

C. Stop paybacks to computer makers and retailers that exclusively use Intel chips.

Which of the following is the same for monopoly and competition under the same cost and demand conditions? A. The amount of output that is produced. B. Economic profits. C. The goal of maximizing profits. D. Efficiency of production at the profit-maximizing output.

C. The goal of maximizing profits.

Price discrimination is best defined as A. Charging an excessive price for a product. B. The charging of different prices by different companies for the same product. C. The selling of an identical good at different prices to different consumers by a single seller. D. The selling of differentiated goods to consumers at different prices.

C. The selling of an identical good at different prices to different consumers by a single seller.

A barrier to entry is A. A law established by the government to protect new industries. B. A commitment on the part of big business to allow smaller companies to compete. C. An obstacle that prevents additional workers from entering an industry, such as a union. D. An obstacle that makes it difficult for new firms to enter a market.

D. An obstacle that makes it difficult for new firms to enter a market.

Consumers may not experience the benefits of economies of scale because a natural monopoly A. Has higher costs with higher output. B. Engages in marginal cost pricing. C. Increases output beyond efficient levels. D. Charges prices higher than competitive levels.

D. Charges prices higher than competitive levels.

Which of the following is not an example of price discrimination by the only movie theater in town? A. Charging a lower price for children under the age of 12. B. Charging a lower price for matinees. C. Charging a lower price for people over the age of 65. D. Charging one price at all times for all customers.

D. Charging one price at all times for all customers.

Which of the following is a barrier to entry in a monopoly market? A. Economic profit of the monopolist. B. Antitrust laws. C. A rising long-run average total cost curve. D. Economies of scale.

D. Economies of scale.

The profit-maximizing rate of output in Figure 24.1 is A. I. B. H. C. E. D. F

D. F

Microsoft's argument against the government's antitrust suit included all but which one of the following? A. It dominated the computer industry because it produced the best products. B. It must behave like a competitive firm because of potential competition. C. The market, rather than the government, could make the best decision for consumers. D. It was a natural monopolist.

D. It was a natural monopolist.

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces A. The same output and charges the same price as the competitive industry. B. More output and charges a higher price than the competitive industry. C. Less output and charges a lower price than the competitive industry. D. Less output and charges a higher price than the competitive industry.

D. Less output and charges a higher price than the competitive industry.

The Microsoft Corporation was sued by the government for all but which one of the following antitrust violations? A. Discouraging computer manufacturers from installing any operating system other than Microsoft's. B. Buying out potential competitors. C. Bundling software. D. Stealing competitors' secrets.

D. Stealing competitors' secrets.

For a monopolist, marginal revenue equals A. Price. B. Price times quantity. C. The change in quantity divided by the change in total revenue. D. The change in total revenue divided by the change in quantity.

D. The change in total revenue divided by the change in quantity.

Which of the following does not contribute to a firm maintaining a monopoly? A. A patent. B. Exclusive control of important resources. C. Mergers and acquisitions. D. The presence of many close substitutes for its product.

D. The presence of many close substitutes for its product.

An In The News article titled "Ticketmaster Rolls Out Dynamic Pricing" indicates that Ticketmaster A. No longer has a monopoly on online ticket ordering. B. Was broken into two separate companies because of its monopoly position. C. Will lower ticket prices on all events. D. Will allow seats at certain events to be priced by supply and demand.

D. Will allow seats at certain events to be priced by supply and demand.