Multiple Choice Questions
1. A firm is a natural monopoly if it exhibits the following as its output increases:
a. Decreasing marginal revenue
b. Increasing marginal cost
c. Decreasing average revenue
d. Decreasing average total cost
2. For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P, marginal revenue MR, and marginal cost MC?
a. P = MR and MR = MC.
b. P > MR and MR = MC.
c. P = MR and MR > MC.
d. P > MR and MR > MC.
3. If a monopoly's fixed costs increase, its price will _________ and its profit will _________.
a. Increase, decrease
b. Decrease, increase
c. Increase, stay the same
d. Stay the same, decrease
4. Compared to the social optimum, a monopoly firm chooses
a. A quantity that is too low and a price that is too high.
b. A quantity that is too high and a price that is too low.
c. A quantity and a price that are both too high.
d. A quantity and a price that are both too low.
5. The deadweight loss from monopoly arises because
a. The monopoly firm makes higher profits than a competitive firm would.
b. Some potential consumers who forgo buying the good value it more than its marginal cost.
c. Consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus.
d. The monopoly firm chooses a quantity that fails to equate price and average revenue.
6. When a monopolist switches from charging a single price to perfect price discrimination, it reduces
a. The quantity produced.
b. The firm's profit.
c. Consumer surplus.
d. Total surplus.