Pure Monopoly 1 of 5
A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will: A. Increase total revenue, increase total cost, and decrease profit B. Decrease total revenue, increase total cost, and decrease profit C. Increase total revenue, decrease total cost, and decrease profit D. Decrease total revenue, total cost, and profit
A. Increase total revenue, increase total cost, and decrease profit
Refer to the above graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning: A. Positive profits B. Negative profits C. Zero profits D. Profits that cannot be determined from the given graph
A. Positive profits
The following graph shows a total revenue curve for a monopolist. Refer to the above graph. The profit-maximizing firm will produce in that output level where total revenue is: A. Rising B. Falling C. Rising and falling D. Zero
A. Rising
A monopoly results in productive inefficiency because at the profit-maximizing output level: A. MR is not zero B. ATC is not at its minimum level C. MC is not at its minimum level D. P > AVC
B. ATC is not at its minimum level
The following graph shows a total revenue curve for a monopolist. Refer to the above graph. When total revenue declines as output expands, demand is: A. Elastic B. Inelastic C. Perfectly inelastic D. Perfectly elastic
B. Inelastic
With a natural monopoly, the fair return price: A. Is allocatively efficient; the socially optimal price is allocatively inefficient B. Is allocatively inefficient; the socially optimal price is allocatively efficient C. And the socially optimal price are both allocatively inefficient D. And the socially optimal price are both allocatively efficient
B. Is allocatively inefficient; the socially optimal price is allocatively efficient
Network effects and simultaneous consumption tend to foster the development of: A. Pure competition B. Monopoly power C. Net social benefits D. Allocative efficiency
B. Monopoly power
One major barrier to entry under pure monopoly arises from: A. The availability of close substitutes for a product B. Ownership of essential resources C. The price taking ability of the firm D. Diseconomies of scale
B. Ownership of essential resources
Google gained its monopoly power in the market for internet-search service because it: A. Is a licensed natural monopoly B. Was first to market and gained consumer loyalty C. Took over the market from older firms through creative destruction D. Advertised its services very heavily
B. Was first to market and gained consumer loyalty
The table shows the demand schedule facing Nina, a monopolist selling baskets. Refer to the above table for Nina. What is the change in total revenue if she lowers the price from $20 to $18? A. $10 B. $20 C. $30 D. $40
C. $30
A firm will earn economic profits whenever: A. Marginal revenue exceeds marginal costs B. Marginal revenue exceeds variable costs C. Average revenue exceeds average total costs D. Average revenue exceeds average variable costs
C. Average revenue exceeds average total costs
At the profit-maximizing level of output for a monopolist: A. Price is greater than marginal cost B. Price is greater than average revenue C. Average total cost equals marginal cost D. Total revenue is greater than total cost
C. Average total cost equals marginal cost
Natural monopolies result from: A. Patents and copyrights B. Pricing strategies C. Extensive economies of scale in production D. Control over an essential natural resource
C. Extensive economies of scale in production
When compared with the purely competitive industry with identical costs of production, a monopolist will produce: A. More output and charge the same price B. More output and charge a higher price C. Less output and charge a higher price D. Less output and charge the same price
C. Less output and charge a higher price
The problem with socially-optimal pricing regulation of a natural monopoly is that: A. P < MC B. P < AVC C. P < ATC D. P < MR
C. P < ATC
Allocative inefficiency happens in a monopoly because at the profit-maximizing output level: A. P > ATC B. P > MR C. P > MC D. P > AVC
C. P > MC
Refer to the above graph for a pure monopoly. If the government regulated the monopoly and made the firm set a fair-return price, what price and quantity levels would we observe in the short run? A. P1 and Q1 B. P2 and Q3 C. P3 and Q2 D. P4 and Q1
C. P3 and Q2
Which of the following does not necessarily apply to a pure monopoly? A. The product the firm produces must have no close substitutes B. The firm must be the sole producer of a product C. The firm will charge the highest price possible D. Entry must be blocked
C. The firm will charge the highest price possible
One defining characteristic of pure monopoly is that: A. The monopolist is a price taker B. The monopolist uses advertising C. The monopolist produces a product with no close substitutes D. There is relatively easy entry into the industry, but exit is difficult
C. The monopolist produces a product with no close substitutes
To practice long-run price discrimination, a monopolist must: A. Be a natural monopoly B. Charge one price to all buyers C. Permit the resale of the product by the original buyers D. Be able to separate buyers into different markets with different price elasticities
D. Be able to separate buyers into different markets with different price elasticities
Marginal costs of a producer may be very small due to its product's ability to satisfy a large number of consumers at the same time. This characteristic of a product is called: A. Economies of scale B. Rent-seeking C. Simultaneous consumption D. Consumer sovereignty
D. Consumer sovereignty
Google and Amazon have enjoyed barriers to entry in their respective markets due to the following, except: A. Network effects among users B. Economies of scale in operations C. Loyalty and familiarity of consumers D. Government licensing and regulation
D. Government licensing and regulation
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: A. Marginal cost = average revenue B. Marginal revenue = average cost C. Average total cost = average revenue D. Marginal cost = marginal revenue
D. Marginal cost = marginal revenue
Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would set what price and quantity levels in the short run? A. P1 and Q1 B. P2 and Q3 C. P3 and Q2 D. P4 and Q1
Don't Know
