Monopoly

MULTIPLE CHOICE 1. Which of the following is an assumption of the theory of monopoly? a. There are extremely high barriers to entry. b. There are many sellers. c. The product has a number of close substitutes. d. The product is of extremely high quality. 2. The theory of monopoly assumes that the monopoly firm a. faces a downward-sloping supply curve that is the same as its marginal revenue curve. b. faces a downward-sloping demand curve. c. produces more than the perfectly competitive firm under identical demand and cost conditions. d. produces a product for which there are many close substitutes. e. none of the above . !irm " is a single seller of good ". There are# however# two substitutes for good ". $iven this# a. !irm " cannot be a monopolist because the theory of monopoly assumes there are no close substitutes for the good the single seller sells. b. !irm " can be a monopolist because we do not %now if the two substitutes are close substitutes& additionally# it may be that !irm " acts as if the assumption of no close substitutes holds. c. !irm " cannot be a monopolist because if substitutes exist for the good it produces# its demand curve is hori'ontal and monopolists face downward-sloping demand curves. d. none of the above (. Which of the following is an example of a legal barrier to entry? a. a public franchise b. a patent c. exclusive ownership of a scarce resource d. a and b e. a# b# and c ). . * natural monopoly exists when a. a monopolist produces a product# the main component of which is a natural resource. b. economies of scale are so large that only one firm can survive and achieve low unit costs. c. a firm is the exclusive owner of a %ey resource necessary to produce the firm+s product. d. there are no close substitutes for a firm,s product. -. Which of the following is the best example of a monopoly? a. a local power utility b. a fast-food restaurant c. a department store d. a wheat farmer

.. * seller that has the ability to control to some degree the price of the product it sells is called a price a. ta%er. b. searcher. c. brea%er. d. twister. /. Which of the following statements is false? a. * price searcher must lower price to sell an additional unit of its product. b. !or a price searcher# price equals marginal revenue for all units except the first. c. !or a price searcher# price is greater than marginal revenue for all units except the first. d. * price searcher# li%e a price ta%er# produces that quantity of output for which marginal revenue equals marginal cost. 0. * price searcher is a. a person who actively see%s out the best price for a product that he or she wishes to buy. b. a firm that see%s out buyers who are willing to pay the price that the seller is as%ing for the product. c. a firm that has the ability to control to some degree the price of the product it sells. d. actually any firm or consumer# because each mar%et 1player1 searches for the best price at which it can sell or buy. 12. Which of the following statements is true? a. * monopolist can charge whatever price it wants and sell the same amount by virtue of its monopoly position. b. * monopolist can always increase its profits by increasing its price. c. * monopolist minimi'es its losses in the short run if it shuts down when price is less than average fixed cost. d. * monopolist is assured of positive economic profits. e. none of the above 11. Which of the following statements is false? a. The monopolist faces a hori'ontal demand curve. b. !or the single-price monopolist# marginal revenue is less than price. c. !or the monopolist# the price that maximi'es revenue is usually not the price that maximi'es profits. d. The monopolist is a price searcher. 12. Which of the following statements is true? a. The monopolist can sell all it can produce at the mar%et price. b. The marginal revenue curve of the single-price monopolist lies above its demand curve. c. The marginal revenue curve of the single-price monopolist is the same as its demand curve. d. The marginal revenue curve of the single-price monopolist lies below its demand curve. 1 . 3n maximi'ing profits# a single-price monopolist will charge a price that is a. less than marginal cost. b. equal to marginal cost. c. greater than marginal cost. d. There is not enough information to answer the question.

1(. * monopolist can sell 12#222 units at a price of 4) per unit. 5owering price by 41 raises the quantity demanded by 2#222 units. What is the change in total revenue resulting from this price change? a. 42#222 b. 4)#222 c. -42#222 d. -41/#222 1). * monopolist can sell 1)#222 units at a price of 4122 per unit. 5owering price by 41 raises the quantity demanded by )22 units. What is the change in total revenue resulting from this price change? a. 4 (#)22 b. 412#)22 c. 4-)#)22 d. -4 )#)22 1-. * monopolist maximi'es profits at the output at which a. total revenue is at its greatest# assuming that the firm has both fixed and variable costs. b. price equals marginal cost. c. price exceeds marginal cost by the greatest amount. d. none of the above 1.. Which of the following is characteristic of the monopoly firm? a. 3t produces the quantity of output at which marginal revenue equals marginal cost# 67 8 69. b. 3t charges a price per unit for its product that is equal to marginal cost. c. 3t always earns a profit# because it is a single seller of a product. d. a and b e. a and c Exhibit 9-1

1/. 7efer to :xhibit 0-1. 3f the product is produced under perfect competition# what quantity will be produced and what price will be charged? a. ;1 units at <1 b. ;2 units at <1 c. ;1 units at <2 d. ;2 units at <2

10. 7efer to :xhibit 0-1. 3f the product is produced under single-price monopoly# what quantity will be produced and what price will be charged? a. ;2 units at <1 b. ;1 units at <1 c. ;1 units at <2 d. ;2 units at <2 22. 7efer to :xhibit 0-1. 3f the product is produced under single-price monopoly# what do profits equal? a. area 2<1=;1 b. area =9* c. area <1<29= d. area <29*<1 e. none of the above 21. 7efer to :xhibit 0-1 The deadweight loss of monopoly is identified by what area? a. area ;1=*;2 b. area =9* c. area <1<29= d. area 2<1=;1 e. none of the above 22. 7efer to :xhibit 0-1. *ccording to economist $ordon Tulloc%# what area is sub>ect to rent-see%ing activity? a. area ;1=*;2 b. area =9* c. area <1<29= d. area 2<1=;1 e. none of the above

2 . 1"-inefficiency1 refers to a. the fact that a monopolist wastes resources searching for the price at which it will sell its product. b. the fact that monopolists don,t have to produce at the lowest possible costs in order to survive. c. the fact that perfectly competitive firms do not earn a profit in the long run and are not a good investment. d. the difference between what consumers would be willing to pay for additional output from a monopolist and the additional cost of providing that output. 2(. 3ndividuals who spend resources to influence public policy in a way that will redistribute income to themselves are a. stabili'ing the economy. b. rent see%ing. c. engaging in collusion. d. minimi'ing explicit costs. 2). 17ent see%ing1 is socially wasteful because a. resources devoted to transferring rents are not used to produce goods. b. wage income is converted into profit income. c. it results in higher prices than would exist without monopoly. d. it discourages innovation and ris% ta%ing.

. Exhibit 9-2

2-. 7efer to :xhibit 0-2. The monopolist is maximi'ing profits at a. ;2 units and charging a price of <2. b. ;2 units and charging a price of <1. c. ;2 units and charging a price of < . d. ;2 units and charging a price of <2. e. none of the above 2.. 7efer to :xhibit 0-2. Total revenue at the profit-maximi'ing quantity of output is the a. area 2;2*<2. b. area 2;2!< . c. distance from ;2 to *. d. distance from ;2 to ?. e. none of the above 2/. 7efer to :xhibit 0-2. The monopolist is operating at a. a 'ero economic profit. b. a positive economic profit. c. an economic loss. d. a normal profit. 20. 7efer to :xhibit 0-2. This monopolist is earning a. an economic loss of area <29!< . b. an economic loss of area <2*9<2. c. an economic profit of area <29!< . d. an economic profit of area <2*9<2.

. Exhibit 9-3
Price Qu ntity !e" n#e# $ixe# Co%t & ri ble Co%t Tot l 'e(enue Tot l Co%t M r)in l 'e(enue M r)in l Co%t

$122 02 /2 .2 -2 )2 (2

2 1 2 ( ) -

4)2 )2 )2 )2 )2 )2 )2

42 2) (2 )2 /2 1 2 102

@*A @=A @9A @?A @:A @!A @$A

@BA @3A @EA @GA @5A @6A @JA

@CA @<A @;A @7A @HA @TA

@DA @FA @WA @"A @IA @KA

2 7efer to :xhibit 0- . The profit-maximi'ing single-price monopolist will produce a. units. b. ( units. c. ) units. d. - units. 1.7efer to :xhibit 0- . The profit-maximi'ing single-price monopolist,s maximum profit is a. 4.2. b. 4/2. c. 4112. d. 41 2. e. 41(2. 2. 7efer to :xhibit 0- . The profit-maximi'ing perfectly price-discriminating monopolist will produce a. units. b. ( units. c. ) units. d. - units. . 7efer to :xhibit 0- . The profit-maximi'ing perfectly price-discriminating monopolist,s maximum profit is a. 4)2. b. 4122. c. 4112. d. 4122. e. 41.2. (. 7efer to :xhibit 0-(. The single-price monopolist charges LLLLLLLLLL price and produces LLLLLLLLLL output as compared to the perfectly price-discriminating monopolist. a. a higher# a smaller b. a lower# a larger c. the same# the same d. the same# a larger e. a lower# the same

). 7efer to :xhibit 0-(. What dollar amounts go in blan%s @*A# @=A# @9A# @?A# and @:A# respectively? a. 4)2# 4.)# 402# 4122# and 41 2 b. 402# 4.2# 4)2# 4 2# and 412 c. 42)# 41)# 412# 4 2# and 4)2 d. 42# 402# 41-2# 4212# and 42(2 -. 7efer to :xhibit 0-(. What dollar amounts go in blan%s @BA# @3A# @EA# @GA# and @5A# respectively? a. 4)2# 4.)# 402# 4122# and 41 2 b. 402# 4.2# 4)2# 4 2# and 412 c. 42)# 41)# 412# 4 2# and 4)2 d. 42# 402# 41-2# 4212# and 42(2 . . 7efer to :xhibit 0-(. What dollar amounts go in blan%s @CA# @<A# @;A# and @7A# respectively? a. 402# 4/2# 4) . # and 4-2 b. 402# 4.2# 4)2# and 4 2 c. 42)# 41)# 412# and 4 2 d. 42# 402# 41-2# and 4212 /. .7efer to :xhibit 0-(. What dollar amounts go in blan%s @DA# @FA# @WA# and @"A# respectively? a. 402# 4/2# 4) . # and 4-2 b. 402# 4.2# 4)2# and 4 2 c. 42)# 41)# 412# and 4 2 d. 4.)# 4()# 4 . # and 4 2.)2 0. 7efer to :xhibit 0-(. What dollar amounts go in blan%s @!A and @$A# respectively? a. 42)2 and 42(2 b. 41/2 and 42(2 c. 4 22 and 4202 d. 42 2 and 42/2 (2. 7efer to :xhibit 0-(. What dollar amounts go in blan%s @6A and @JA# respectively? a. 42)2 and 42(2 b. 41/2 and 42(2 c. 4 22 and 4202 d. 42 2 and 42/2 (1.7efer to :xhibit 0-(. What dollar amounts go in blan%s @HA and @TA# respectively? a. 4)2 and 4(2 b. 412 and 422 c. 4)2 and 4-2 d. 412 and -412

(1. .7efer to :xhibit 0-(. What dollar amounts go in blan%s @IA and @KA# respectively? a. 4)2 and 412 b. 4 - and 4(2 c. 4)2 and 4-2 d. 412 and -412