Chapter 7 Monopoly Practice Quiz

Which of the following is least likely a characteristic of a monopoly?

differentiated products (In general, a monopolistic firm's product is unique since it is the only producer. This is different from differentiated, which implies some competition but a difference between producers.)

If an increase in the size of a factory results in reductions in minimum average costs, this is known as

economies of scale. (A natural monopoly is typically one with very high fixed costs that prohibit other firms from entering the market and as a result the monopolist becomes the dominant seller naturally. If new firms try to enter, the dominant firm can expand output and lower price to a level that new entrants cannot afford.)

The essence of an oligopoly market structure is

few firms (In oligopoly, there are only a few firms selling a similar product, in large industries.)

Which of the following is not a characteristic of perfect competition?

product differentiation (In perfect competition, one seller's product is exactly like the other seller's product. They are perfect substitutes for each other.)

Which of the following is a major threat to a monopoly market structure?

technological innovation (Technology can erode monopoly power. New innovations can break up the monopoly and replace them with competitors. Kodak film was replaced by digital cameras and iphones.)

In oligopoly

the fewness of firms creates mutual interdependence in pricing among the firms (In oligopoly, there are only a few firms, do the pricing of one firm affects the pricing of the other, competing firms.)

All of the following are characteristics of a monopoly except that

the monopoly's size, that is, its scale of production, is always very large (A monopoly does not have to be large. It just has to be the only seller of that product. It could also be very small.)

Which of the following is likely to be a monopolist?

the sole producer of a new medical device for people with limited mobility (the sole producer of a new medical device for people with limited mobility)

Which of the following is a common barrier to entry in a monopoly market?

A patent on a new product. (Examples of barriers to entry include patents, monopoly franchises, regulation, economies of scale, and control of key inputs.)

Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition

A barrier to entry is

An obstacle that makes it difficult for new firms to enter a market. (Barriers to entry are obstacles, such as patents, that make it difficult or impossible for would-be producers to enter a particular market.)

If the entire output of a market is produced by a single seller, the firm

Is a monopoly. (A monopoly is a single firm that produces the entire market supply of a good.)

Which of the following is NOT true for a monopoly?

It is a price taker. (Since a monopolist has control of both the production and distribution of a product or service they are a price maker.)

An industry dominated by one firm is

a monopoly. (A monopoly is control of the production and distribution of a product or service by one firm.)

Which of the following is likely to be a monopolist?

a small firm with a patent granting it the exclusive right to produce a drug (An exclusive right to use a process or produce or sell a particular product for a designated period of time is a patent, and a firm that has the patent owns the legal right to act as a monopoly in the market for that particular drug.)

A firm's influence over the price of the good produced in monopoly, oligopoly, monopolistic competition, and perfect competition is, respectively,

complete, considerable, little, none (A monopolist has complete control over price. It can name the price it charges. An oligopolist has considerable control over price. There are just a few firms, so there are not many competitors to compete with, on price. A monopolistic competitor has little control over price. They have a lot of competitors. They can raise their price a little, however if they raise it too much, the customer will just go to another seller to buy the item. The perfect competitor has no control over price. They take whatever the market price is. This is determined by supply and demand.)

All the following are reasons why it is difficult for new firms to compete in an existing monopoly market except that the existing monopoly

is a big firm (A monopolist does not have to be big. It could be small, as long as they are the only seller of the product.)

A patent

is a government grant of exclusive ownership of an innovation. (The government grants patents in order to encourage innovation even though it gives the owner an exclusive market. This ensures that developers are compensated for their risk as they can exert market power in the market for a set period of time.)

Monopolists are price

makers, but perfectly competitive firms are price takers (Unlike a firm in a perfectly competitive industry whose output is small relative to the total market, a monopolist is effectively the market supply and therefore has the dominant power to set the market price.)

An industry structure with many firms, each of which has some distinct brand image, is called

monopolistic competition. (Monopolistic competition emphasizes product differentiation and branding is one way to differentiate.)