Econ 102 Quiz Week 11 - Monopoly
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:
$19.
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:
$20,000.
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:
-$5,000.
Which of the following is true?
A monopoly firm is a price-maker. The profit-maximizing solution occurs where MR = MC. If demand is downward sloping, P > MR.
Which of the following statements concerning monopoly is true?
A monopoly has no rivals.
Which of the following statements regarding entry barriers is correct?
Entry barriers exist in monopoly and oligopoly markets.
Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?
In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market.
Which of the following statements is correct for a firm that can price-discriminate?
It should adjust prices so that customers with price-elastic demand pay lower prices than those with inelastic demand.
Which of the following is true regarding monopolies?
Monopolies produce too little and charge too much from the standpoint of efficiency.
Which of the following statements about the differences between monopoly and perfect competition is incorrect?
Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
In the short run, a monopoly will stop producing if:
P < AVC.
In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________.
P = MR = MC; P > MR = MC
A downward-sloping demand curve will ensure that:
P > MR.
Which of the following is not an example of price discrimination?
Street vendors increase the price of umbrellas when it is raining. a special Fourth of July sale
You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?
You own exclusive rights to harvest lemons from all domestic citrus orchards.
Which of the following is not a barrier to entry?
a ban on certain kinds of advertising
In monopoly:
a basic condition for efficiency is violated because P > MC.
Natural monopolies include all of the following except:
a diamond mining company.
An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:
a monopoly.
In order to engage in price discrimination a firm must be:
a price-setter, and it must be able to identify consumers whose elasticities differ. Correct
If a firm wants to charge different customers different prices, it must be:
a price-setter.
The demand curve for a monopoly is:
above the marginal revenue curve. above the MR curve. the industry demand curve. also the industry demand curve.
Conditions that prevent the entry of new firms in a monopoly market are:
barriers to entry.
Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:
barriers to entry.
If a monopolist is producing a quantity that generates MC < MR, then profit:
can be increased by increasing production.
A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:
charge a lower price in the United States and a higher price in Japan.
Compared to a perfectly competitive industry, a monopolist:
charges a higher price. Correct
Suppose GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. We would expect the ________ to increase from the breakup and ________ to decrease from the breakup.
consumer surplus and total surplus; producer surplus
Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student-athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?
control of a scarce resource or input
Which of the following is a barrier to entry?
control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)
A monopolist responds to a decrease in demand by ________ price and ________ output.
decreasing; decreasing
The De Beers company is described as a monopolist in the production of:
diamonds.
The main reason a monopoly engages in price discrimination is that:
doing so increases its profits.
The demand curve facing a monopolist is:
downward sloping, like the industry demand curve in perfect competition. downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________ demand curve.
downward-sloping; perfectly elastic
One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________ demand curve.
downward-sloping; perfectly elastic
The large barriers to entry are a reason a monopoly:
earns an economic profit in the long run.
Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following?
economies of scale
When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:
economies of scale.
Because tourist demand for airline flights is relatively ________, small ________ in ticket price will result in relatively ________ in additional tourists.
elastic; reductions; large increases
The motivation for a firm with market power to engage in price discrimination is to:
enhance its profitability.
In a monopoly in the long run:
entry by other firms will not occur.
Bob owns a trout farm with monopoly power in North Carolina. Bob's optimal output occurs where marginal revenue ________. Because of monopoly power, Bob's supply curve ________.
equals marginal cost; does not exist
De Beers became a monopoly by:
establishing control over diamond mines.
A natural monopolist that is price regulated at the marginal cost output level will:
eventually incur losses if MC is less than ATC.
If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would ________ and output would ________.
fall; increase
The profit-maximizing rule MR = MC is:
followed by all types of firms.
Goods that are subject to network externalities tend to be ones:
for which the value of the good to an individual is higher when more people use it.
All of the following are examples of price discrimination except:
generally lower prices at Walmart than at Target.
The monopoly firm's profit-maximizing price is:
given by the point on the demand curve for the profit-maximizing quantity.
If your local government gave you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:
government-created barriers.
A natural monopoly exists whenever a single firm:
has economies of scale over the entire range of production that is relevant to its market.
Because of monopoly, consumers experience ________ than with perfect competition.
higher prices
Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to:
higher prices for men and lower prices for women as long as the CoffeeBarn could prevent women from reselling drinks to men.
A monopoly is producing at the output level where average total cost equals $30, marginal revenue is $40, and the price is $50. If ATC is at its minimum level and the ATC curve is U-shaped, in order to maximize profits this firm should:
increase output.
A monopolist or an imperfectly competitive firm practices price discrimination primarily to:
increase profits.
Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:
increasing returns to scale.
A monopolist responds to an increase in marginal cost by ________ price and ________ output.
increasing; decreasing
For a monopolist, the market demand curve:
is also the demand for the monopolist's product.
If a monopolist can engage in perfect price discrimination, then:
it produces at the socially efficient level.
In an industry characterized by extensive economies of scale:
large companies are more profitable than small companies.
The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.
less elastic demand
Price-discriminating firms will impose a price structure that offers customers with a ________ demand a ________ price and offers customers with a(n) ________ demand a ________ price.
less elastic; higher; more elastic; lower
A local community college charges lower tuition fees to local town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a ________ for attending the community college than residents.
less price-elastic demand
Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.
less; higher
Suppose a perfectly competitive industry is suddenly transformed into a monopoly industry. We can assume that monopoly output will be ________ than the competitive output and that ________.
lower; deadweight loss will emerge
When firms price-discriminate, people with ________ price elasticity of demand will pay ________ prices relative to those purchasing the same product who have a ________ price elasticity of demand.
lower; higher; higher
A monopolistically competitive industry is made up of:
many firms producing a differentiated product.
The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:
market power.
A firm that is a natural monopoly will:
maximize profit by producing where MR = MC.
In contrast with perfect competition, a monopolist:
may have economic profits in the long run.
Firms in which of the following market structures have the most market power?
monopoly
An industry with a single producer that sells a single product with no substitutes is a:
monopoly.
The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a ________ for bus service than other passengers.
more elastic demand
Amtrak charges lower fares to students than to its other passengers. This pricing strategy increases Amtrak's profits. From this information, we can conclude that students must have a ________ for Amtrak train service than other passengers.
more price-elastic demand
Most electric, gas, and water companies are examples of:
natural monopolies.
Situations in which the more users of a product there are, the more useful the product becomes are:
network effects.
In general, economists are critical of monopoly where ________ exist(s).
no natural monopoly
Suppose that a monopoly firm is required to pay a new annual license fee just for the privilege of doing business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will:
not change its price.
An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.
not change; not change
Marginal revenue for a monopolist is:
not equal to price. less than price.
A firm that has economies of scale:
over the entire range of output demanded is called a natural monopoly.
The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from which of the following?
ownership of scarce inputs
Temporary monopolies via the provision of sole ownership rights to profit from the production, use, or sale of a good are provided by:
patents and copyrights.
To practice effective price discrimination, a monopolist must be able to:
prevent the resale of goods among groups of buyers.
The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is:
price discrimination.
The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is:
price discrimination.
Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:
price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.
If a monopoly is producing at the profit-maximizing level of output, then we can assume that at that level of output, demand is:
price-elastic.
Because business travelers' demand for airline flights is relatively ________, small increases in price will result in relatively ________ in additional business travelers.
price-inelastic; small decreases
A monopolist is likely to ________ and ________ than a comparable perfectly competitive firm.
produce less; charge more
Which of the following statements best characterizes a monopoly? A monopoly:
produces a product with no close substitutes.
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will:
rise.
A monopoly can be temporary because of:
technological change.
Market structures are categorized by the following two criteria:
the number of firms and whether or not products are differentiated
Network externalities exist when a good's value to the consumer rises as:
the number of people who use the good increases.
Public policies toward monopoly in the United States often consist of:
the regulation of natural monopolies.
The demand curve facing a monopolist is always:
the same as the industry's demand curve.
If a monopolist is producing a quantity that generates MC = P, then profit:
can be increased by decreasing production.
If a monopolist is producing a quantity that generates MC > MR, then profit:
can be increased by increasing price.
