1. DeBeers Consolidated Mines is a natural monopoly.

Select one:

True

False

2. Which of the following is true of a patent?

Select one:

a.

It reduces a firm's incentive to develop new products.

b.

It is issued in recognition of new works of art or literature.

c.

It gives a firm a permanent exclusive right to produce a new good.

d.

It gives a firm a temporary exclusive right to produce a new good.

e.

It guarantees economic profits to a firm in the long run.

3. Which of these is a key difference between a perfectly competitive firm and a monopolist that does not practice price discrimination?

Select one:

a.

The marginal cost curve is U-shaped for a perfectly competitive firm but not for a monopolist.

b.

Price is equal to average revenue for a perfectly competitive firm in equilibrium but not for a monopolist.

c.

Price is equal to marginal revenue for a perfectly competitive firm in equilibrium but not for a monopolist.

d.

The average revenue curve is the demand curve for a perfectly competitive firm but not for a monopolist.

e.

A monopolist aims to maximize profits, while a perfectly competitive firm tries to maximize total revenue.

4. A price-discriminating monopolist divides its customers into two segments based on price elasticity of demand. If it sells its product for a price of $42 in the market segment where demand is relatively less price elastic, the price in the market segment where demand is more price elastic will be:

Select one:

a.

$42.

b.

greater than $42.

c.

less than $42.

d.

less than the marginal revenue in that market segment.

e.

equal to the marginal revenue in that market segment.

5. Empirical estimates indicate that the annual deadweight loss of monopoly in the United States:

Select one:

a.

ranges from about 1 percent to 5 percent of national income.

b.

ranges from about 10 percent to 20 percent of national income.

c.

is approximately 10 percent of national income.

d.

is approximately $1 billion.

e.

is approximately $1 trillion.

6. For a monopolist producing a level of output at which market demand is inelastic, _____.

Select one:

a.

short-run profit is maximum.

b.

a decrease in price increases total revenue.

c.

a decrease in price decreases total cost.

d.

a decrease in price decreases total revenue.

e.

an increase in output increases short-run economic profit.

7. A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's average revenue is:

Select one:

a.

$500.

b.

more than $10 but less than $500.

c.

$10.

d.

less than $10 but more than zero.

e.

zero.

8. McDonald's makes its unique McRib sandwich "available for a limited time only," usually in the fall. Such a strategy is likely to:

Select one:

a.

increase its marginal value to the consumer.

b.

decrease its average cost of production.

c.

restrict the entry of competitors in the long run.

d.

decrease its demand.

e.

result in a short-run economic loss.

9. Which of the following is true for a monopolist that engages in perfect price discrimination?

Select one:

a.

Perfect price discrimination restricts the total output produced by the monopolist.

b.

Perfect price discrimination allows the monopolist to just break even and transfers the gain to consumers.

c.

Perfect price discrimination results in the maximization of consumer surplus.

d.

Perfect price discrimination creates a deadweight loss.

e.

Perfect price discrimination allows the monopolist to reap the entire gains from production.

10. Perfectly competitive firms and monopolistic firms determine their respective profit-maximizing output levels where:

Select one:

a.

price equals marginal cost.

b.

total revenue is maximized.

c.

average total cost is minimized.

d.

marginal cost equals marginal revenue.

e.

price is at the maximum possible level.

11. Suppose the marginal revenue for a particular level of a monopolist's output is $40. This implies that:

Select one:

a.

total revenue is increasing for this output range.

b.

total revenue is decreasing, but positive, for this output range.

c.

total revenue is zero for this output range.

d.

total revenue remains constant for this output range.

e.

total revenue is negative for this output range.

12. If the government breaks up a monopoly that does not practice discrimination and faces a horizontal marginal cost curve into a perfectly competitive market, _____.

Select one:

a.

output and price will decrease

b.

output will increase and price will decrease

c.

output and price will increase

d.

output will decrease and price will increase

e.

output and price will remain unchanged

13. Patents stimulate investment:

Select one:

a.

by giving inventors an incentive to incur up-front costs of developing new products.

b.

by giving tax breaks to inventors and researchers.

c.

by guaranteeing an economic profit to a firm from the sale of a new product.

d.

by lowering interest rates on loans taken for developing a new product.

e.

by covering the total cost of research and development incurred by a start-up firm.

14. A monopolist practices price discrimination by:

Select one:

a.

charging different buyers different prices for different products.

b.

charging different buyers different prices for the same product.

c.

selling at a price below average total cost.

d.

selling at a price below marginal cost.

e.

selling at a price above marginal revenue.

15. When a price-discriminating monopolist divides its customers into two market segments, the price in each segment is determined by finding the level of output where that market's:

Select one:

a.

average revenue equals average total cost.

b.

average revenue equals average variable cost.

c.

marginal revenue equals average total cost.

d.

marginal revenue equals marginal cost.

e.

marginal cost equals average total cost.

16. Which of the following equations describes the relationship between market price (P), average revenue (AR), and marginal revenue (MR) for a non-discriminating monopolist?

Select one:

a.

P = AR = MR

b.

P > AR = MR

c.

P = AR > MR

d.

P > AR > MR

e.

P = AR < MR

17. As a monopolist increases the quantity of output produced, _____.

Select one:

a.

both price and marginal revenue remain constant

b.

price remains constant, but marginal revenue decreases

c.

price decreases, but marginal revenue remains constant

d.

both price and marginal revenue decrease, but price falls faster than marginal revenue

e.

both price and marginal revenue decrease, but marginal revenue falls faster than price

18. A major fruit juice manufacturer fails in its attempt to engage in price discrimination between students and all other consumers of fruit juice. Which of the following explanations is most likely to account for this failure?

Select one:

a.

The students resold the juice to other consumers.

b.

The market for fruit juice was monopolistically competitive.

c.

The price elasticity of demand for fruit juice was different for each group.

d.

The cost of producing the fruit juice was extremely high.

e.

The students preferred to purchase juice from other small juice manufacturers.

19. Identify a distinguishing feature of monopoly.

Select one:

a.

There are no barriers to entry in a monopolized market.

b.

A monopolist is a price taker.

c.

There are no close substitutes for a monopolist's product.

d.

There are many firms in a monopolized industry.

e.

A monopolist faces a horizontal demand curve.

20. Which of the following is true of the profit earned by a monopolist?

Select one:

a.

Profit is maximized where marginal cost equals marginal revenue.

b.

Normal profit is ensured where price is equal to average total cost.

c.

Normal profit is ensured where marginal cost exceeds average revenue.

d.

Profit is maximized along the inelastic portion of the demand curve.

e.

Economic profit is made where average variable cost equals marginal revenue.

21. Monopolists can earn positive economic profits in the long run because they are more productively efficient than perfectly competitive firms.

Select one:

True

False

30. When compared to firms in perfect competition, monopolists tend to charge:

Select one:

a.

lower prices and offer lower quantities of output.

b.

higher prices and offer lower quantities of output.

c.

lower prices and offer higher quantities of output.

d.

higher prices and offer higher quantities of output.

e.

higher prices but offer the same quantity of output. When compared to firms in perfect competition, monopolists tend to charge:

Select one:

a.

lower prices and offer lower quantities of output.

b.

higher prices and offer lower quantities of output.

c.

lower prices and offer higher quantities of output.

d.

higher prices and offer higher quantities of output.

e.

higher prices but offer the same quantity of output.