Chapter 14: Monopoly and Monopolistic Competition

C. not at their minimum.

At the profit maximizing level for a monopolistic competitor, average total costs are: A. at their minimum. B. at their maximum. C. not at their minimum.

C. natural monopoly.

Average total costs fall as output increases for a: A. perfect competitor. B. monopolistic competitor. C. natural monopoly.

B. monopolistic.

A market structure in which one firm makes up the entire market is called: A. monopolistic competition. B. monopolistic. C. perfectly competitive. D. oligopolistic.

B. monopolistic competition.

A market structure in which there are many firms selling differentiated products and few barriers to entry is called: A. perfect competition. B. monopolistic competition. C. oligopoly. D. monopoly.

C. can earn a profit, zero profit, or even incur a loss.

A monopolist: A. earns only normal profits. B. earns only economic profits. C. can earn a profit, zero profit, or even incur a loss. D. always earns profits.

C. takes into account the effect that increasing output has on marginal revenue.

A monopolistic competitor: A. ignores the effect that restricting increasing output has on marginal revenue. B. takes market price as given. C. takes into account the effect that increasing output has on marginal revenue. D. realizes that increasing output has no effect on marginal revenue.

D. marginal cost.

A natural monopolist would make a loss if it charged a price equal to: A. marginal revenue. B. average cost. C. average revenue. D. marginal cost.

Natural Monopoly

A single firm can produce at a lower cost than can two or more firms in a __________.

B. decreases.

As output increases, marginal revenue of a monopolist: A. does not change. B. decreases. C. increases.

B. both perfectly and monopolistically competitive firms.

In the long run, profit is zero for: A. neither perfectly nor monopolistically competitive firms. B. both perfectly and monopolistically competitive firms. C. monopolistically competitive firms only. D. perfectly competitive firms only.

A. Perfect competitor

Which of the following firms produces at the point where average total costs are minimum? A. Perfect competitor B. Monopolistic competitor C. Monopolist

B. Monopolist

Which of the following types of firms can earn a profit in the long run? A. Monopolistic competitor B. Monopolist C. Perfect competitor

Monopoly

__________ is a market structure in which one firm makes up the entire market.

Monopolistic Competition

__________ is a market structure in which there are many firms selling differentiated products and few barriers to entry. Four distinguishing characteristics include: 1. Many sellers. 2. Differentiated products. 3. Multiple dimensions of competition. 4. Easy entry of new firms in the long run.

Price-Discriminate

__________ refers to the ability to charge different prices to different individuals or groups of individuals. For example, students as compared to businesspeople.

Natural Monopoly

A __________ is an industry in which a single firm can produce at a lower cost than can two more firms.

Patent

A __________ is legal protection of a technical innovation that gives the person holding it sole right to use that innovation.

Both C. and D.

Characteristics of monopolistic competition include: (Check all that apply.) A. few dimensions of competition. B. barriers to entry of new firms in the long run. C. differentiated products. D. many sellers.

Both A. and B. (Comparing monopoly and perfect competition)

If a monopolist takes over what had been a competitive market: (Check all that apply.) A. prices would rise. B. output would fall. C. prices would fall. D. output would rise.

Both A. and C.

If a monopolistic competitor is making losses, which of the following adjustments may occur in the long run? A. The average total cost curve shifts downwards as the firm contracts marketing expenditures. B. The average total cost curve shifts upwards as the firm contracts marketing expenditures. C. Existing firms exit the market. D. New firms enter the market.

Both A. and C.

If a monopolistic competitor is making profits, which of the following adjustments may occur in the long run? A. New firms enter the market. B. The average total cost curve shifts downwards as the firm contracts marketing expenditures. C. The average total cost curve shifts upwards as the firm contracts marketing expenditures. D. Existing firms exit the market.

B. profit. (Profits and monopoly)

If price exceeds average total cost at the profit-maximizing level of output, a monopolist will make: A. a loss. B. profit. C. zero profit.

A. there is no welfare loss.

In a market with a price-discriminating monopolist, A. there is no welfare loss. B. welfare loss is maximized. C. producer surplus goes to consumers. D, output falls.

A. 4 units.

Refer to the graph above for a monopolistic competitor with demand curve D, marginal revenue curve MR and marginal cost curve MC. At what level of output will the firm produce? A. 4 units. B. 10 units. C. 5 units. D. 6 units.

A. B and D (Welfare loss from monopoly)

Refer to the graph shown for a monopolist. What is the welfare loss from the monopoly? A. B and D B. A and C C. D D. B

B. $15

Refer to the graph shown for a monopolistic competitor with demand curve D, marginal revenue curve MR and marginal cost curve MC. What price will the firm charge for its products? A. $25 B. $15 C. $5 D. $10

A. None of the regions

Refer to the graph shown for a monopolistic firm facing demand curve D, marginal revenue curve MR, marginal cost curve MC and average total cost curve ATC. Which region represents the profit that the monopolist makes? A. None of the regions B. Regions II and III C. Regions I and II D. Region I

C. Regions I and II

Refer to the graph shown for a monopolistic firm facing demand curve D, marginal revenue curve MR, marginal cost curve MC and average total cost curve ATC. Which region represents the profit that the monopolist makes? A. Region II B. Region I C. Regions I and II D. None of the regions

A. 4 units.

Refer to the graph shown for a monopolistic firm with demand curve D, marginal revenue curve MR and marginal cost curve Mc. At what level of output will the monopolist produce? A. 4 units. B. 6 units. C. 5 units. D. 10 units.

C. MR2

Refer to the graph shown. The correct marginal revenue curve for the given demand curve D is: A. MR3 B. D C. MR2 D. MR1

D. Price $36, Quantity 2

Refer to the table above for a monopoly producing shoes. What is the price and output level which the firm will produce? A. Price $35, Quantity 2 B. Price $32, Quantity 3 C. Price $40, Quantity 1 D. Price $36, Quantity 2

A. Price $50, Quantity 4 (Determining the monopolist's price and output numerically)

Refer to the table above for a monopoly producing sunglasses. What is the price and output level at which the firm will produce? A. Price $50, Quantity 4 B. Price $52, Quantity 3 C. Price $54, Quantity 2 D. Price $50, Quantity 3

Both A. and B. (Comparing perfect competition and monopolistic competition)

The difference between the average total cost curve in a perfectly competitive market and a monopolistically competitive market is that at the long-run profit maximizing level __________. (Check all that apply.) A. the demand curve of a perfectly competitive firm is tangent to its ATC at its minimum point, while the demand curve of a monopolistically competitive firm is not B. the ATC of a monopolistically competitive firm is tangent to its demand curve, while the ATC of a perfectly competitive firm is not C. the ATC of a monopolistically competitive firm is at its minimum, while the ATC of a perfectly competitive firm is not D. the ATC of a perfectly competitive firm is at its minimum, while the ATC of a monopolistically competitive firm is no

Below

The marginal revenue curve of a monopolistic competitor is __________ (above/below/the same as) the demand curve.

B. MC = MR

The profit maximization rule for a monopolist is: A. MC = D B. MC = MR C. MR =D

B. elasticities of demand.

To raise profits, a price-discriminating monopolist would charge different prices to different consumers based on their: A. elasticities of supply. B. elasticities of demand. C. budget lines. D. indifference curves.

True (The MR curve for a perfect competitor is horizontal because it takes price as given. It is downward sloping for a monopolist because when it lowers price, it must lower the price for all preceding units.)

True or false: A key difference between monopolists and perfect competitors is that the marginal revenue curve facing a perfect competitor is horizontal, while the marginal revenue curve facing a monopolist is downward sloping.

False

True or false: A monopolist's marginal revenue is always below is price because to sell more it must lower its price.

True (Output, prices, and profit of a monopolistic competitor)

True or false: A monopolistic competitor takes into account the effect that increasing output has on marginal revenue.

False

True or false: Compared to a perfectly competitive market, in a monopoly, output is higher and price is lower because a monopoly takes into account the effect that restricting output has on marginal product.

False

True or false: In the long run, a monopolistic competitor incurs loss.

False (The marginal revenue curve reflects the change in total revenue, not the change in price.)

True or false: The marginal revenue curve for a monopolist reflects the increase in price the firm will get by expanding output.

C. increase output. (MR = MC determines the profit-maximizing output)

When MC < MR, the monopolist will: A. not change output. B. decrease output. C. increase output.

Both A. and B.

When MC = MR, the monopolist is maximizing profit because: (Check all that apply.) A. if MR > MC, the monopolist gains profit by increasing output. B. if MR > MC, the monopolist gains profit by decreasing output. C. if MR < MC, the monopolist gains profit by decreasing output. D. if MR < MC, the monopolist gains profit by increasing output.

A., B., and D.

Which of the following are barriers to entry in a monopoly? (Check all that apply.) A. economies of scale. B. government restrictions. C. diseconomies of scale. D. natural ability.

B., D., and E. (Key differences between a monopolist and a perfect competitor)

Which of the following are the key differences between a monopolist and a perfect competitor? (Check all that apply.) A. A monopolist produces where MC = MR, while a perfect competitor does not. B. A monopolist is protected by barriers to entry, while a perfect competitor does not. C. competitor is not. The monopolist maximizes per unit profit, while a perfect competitor maximizes total profit. D. As the number of units in a monopolist sells, the price it can get for those units falls, while a perfect competitor cannot affect market price. E. A monopolist takes into account the fact that its output decision can affect price, while a perfect competitor does not.