Chapter 9: Monopoly

Ch09 Monopoly

Multiple Choice Questions

1. The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

A. oligopoly
B. patent
C. monopoly
D. monopolistic competition

Answer: C Reference:

Explanation:

2. Which of the following is most unlikely to present a barrier to entry into a market?

A. market forces
B. patent laws
C. technological advantages
D. deregulation

Answer: D Reference:

Explanation:

3. Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

A. prices that can be charged
B. natural monopoly
C. conditions of entry in a certain industry
D. quantities that can be produced

Answer: B Reference:

Explanation:

4. Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .

A. patent; a limited time
B. trademark; an unlimited time
C. copyright; a limited time
D. trade secret; an unlimited time

Answer: A Reference:

Explanation:

5. The US government has registered ___________________ on behalf of business firms to protect a particularly distinct element each has selected for its ability to aid consumers to easily __________________ .

A. 200,00 patents; license for use
B. 800,000 trademarks; identify the source of goods
C. 1 million copyright licenses; identify the authors of creative works
D. 200,000 trade secrets; create a natural monopoly

Answer: B Reference:

Explanation:

6. The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.

A. patent
B. trademark
C. copyright
D. trade secret

Answer: C Reference:

Explanation:

7. In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

A. patent
B. monopoly
C. trade secret
D. trademark

Answer: C Reference:

Explanation:

8. Intellectual property law is a body of law that includes

A. the right of inventors to produce their inventions
B. the right of inventors to sell their inventions
C. trademark, patent and trade secret legislation
D. copyright legislation, as well as all of the above

Answer: D Reference:

Explanation:

9. A __________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

A. natural monopoly
B. monopoly
C. oligopoly
D. monopolistic competition

Answer: A Reference:

Explanation:

10. The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

A. natural monopoly
B. monopolistic competition
C. predatory pricing
D. oligopolistic competition

Answer: C Reference:

Explanation:

11. Which of the following is most likely to be a monopoly?

A. local fast-food restaurant
B. local electricity distributor
C. local bathroom fixtures shop
D. local television broadcaster

Answer: B Reference:

Explanation:

12. Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

A. whether consumers will purchase its product
B. whether consumers will spend on different products
C. the competitive actions of other business firms
D. barriers to entry and competitors’ patent protection

Answer: C Reference:

Explanation:

13. A firm that holds a monopoly position in the market place is

A. a price maker
B. a price taker
C. monopolistically competitive
D. subject to infinite market forces

Answer: A Reference:

Explanation:

14. Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .

A. barriers to entry; to a few oligopoly firms
B. barriers to entry; to a natural monopoly
C. deregulation; requiring new patent law
D. deregulation; requiring new copyright law

Answer: A Reference:

Explanation:

15. If the North American newsprint paper market has barriers to entry, then

A. abnormally high profits will attract the entry of new firms.
B. the entry of new firms will eventually cause price to decline.
C. surviving firms earn only a normal level of profit in the long run.
D. entry will be blocked even if firms are earning high profits.

Answer: D Reference:

Explanation:
16. A natural monopoly occurs when the quantity demanded is ________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

A. greater than
B. less than
C. equal to
D. a or c above

Answer: B Reference:

Explanation:

17. By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________ .

A. telecommunications sector
B. postal services sector
C. banking sector
D. nuclear power sector

Answer: C Reference:

Explanation:

18. If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

A. they will strive to reach efficiencies only they know how to make.
B. that firm could set up barriers to entry to discourage competition.
C. government will deregulate to ensure the company’s monopoly.
D. the factors of market demand and supply will set the price.

Answer: B Reference:

Explanation:

19. In the United States, a pharmaceutical company’s exclusive patent rights last for

A. 20 years.
B. 25 years.
C. 10 years.
D. 70 years.

Answer: A Reference:

Explanation:

20. The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?

A. contemporary sculptures
B. contemporary paintings
C. pantomimic works
D. ancient Bible texts

Answer: D Reference:

Explanation:

21. Copyright protection legislation provides protection for original works

A. during the author’s life plus 70 years
B. during the author’s life plus 20 years
C. until the author is 70 years of age
D. until the author is 75 years of age

Answer: A Reference:

Explanation:

22. Roughly speaking, patent law covers __________ and __________ law protects an author’s original books.

A. original inventive creations; copyright
B. trade secrets; trademark
C. all inventions; trademark
D. original audiovisual creations; copyright

Answer: A Reference:

Explanation:

23. A monopolist is able to maximize its profits by

A. setting the price at the level that will maximize its per-unit profit.
B. producing output where MR = MC and charging a price along the demand curve.
C. setting output at MR = MC and setting price at the demand curve’s highest point.
D. producing maximum output where price is equal to its marginal cost.

Answer: B Reference:

Explanation:

24. Which one of the following is the most accurate description of a monopolist?

A. a sole producer of a narrowly defined product class, such as brown, Grade A eggs produced in Eagle County, Colorado
B. a firm that is very large relative to all its competitors within a narrow product class
C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry
D. a large, multinational firm that produces a single product in a narrow product class

Answer: C Reference:

Explanation:

25. When a natural monopoly exists in a given industry, the per-unit costs of production will be

A. lowest when there are a large number of producers in the industry.
B. lower for the smaller firms than for larger firms.
C. minimized at the output that maximizes the industry’s profitability.
D. lowest when a single firm generates the entire output of the industry.

Answer: D Reference:

Explanation:

26. Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

A. output will be too small and its price too high.
B. output will be too large and its price too high.
C. output will be too small and its price too low.
D. output will be too large and its price too low.

Answer: A Reference:

Explanation:

27. The slope of the demand curve for a monopoly firm is

A. horizontal, parallel to the x-axis
B. vertical, parallel to the y-axis
C. upward sloping
D. downward sloping

Answer: D Reference:

Explanation:

28. For a monopolistic firm, the demand for its product is

A. unitary elastic
B. completely elastic
C. completely inelastic
D. neither b or c

Answer: C Reference:

Explanation:

29. The marginal revenue curve for a monopolist ____________________ the market demand curve.

A. always rises above
B. always lies beneath
C. always runs parallel
D. always is the same

Answer: B Reference:

Explanation:

30. For a pure monopoly to exist,

A. there is a single seller in a particular industry
B. there is only one seller, therefore no industry
C. there are a few sellers in a given industry
D. there are limited sellers in a particular industry

Answer: A Reference:

Explanation:

31. If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be

A. elimination of barriers to entry
B. irregularly high unsustainable profits.
C. government deregulation.
D. abnormally high sustained profits.

Answer: D Reference:

Explanation:

32. The two primary factors determining monopoly market power are the firm’s

A. revenues and size of its customer base
B. demand curve and its cost structure
C. variable cost curve and its fixed cost structure
D. demand curve and level of wealth within its market

Answer: B Reference:

Explanation:

33. What qualities would ideally suit a monopolistic firm with regard to barriers to entry?

A. a few impediments to limit new firms from operating and expanding within the market
B. sufficient strength to prevent or discourage potential competitors from entering the market
C. government rules on prices, quantities, or conditions of entry in an industry
D. government regulations that provide no barriers to entry, exit, or competition

Answer: B Reference:

Explanation:

34. In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

A. have a patent giving it exclusive legal rights to make, use, and sell for a limited time.
B. raise prices, cut production, and realize positive economic profits.
C. have legal protection to prevent copying its methods of production for commercial use.
D. acquire rights for its investors to produce and sell their product.

Answer: B Reference:

Explanation:

35. When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting

A. the number of inventors.
B. unit production costs.
C. entry into the market.
D. demand for the product.

Answer: C Reference:

Explanation:

36. Once I’MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

A. demand for the product.
B. entry into the market.
C. amount of product advertising.
D. the number of product compliments.

Answer: B Reference:

Explanation:

37. When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale,

A. the firm is a natural monopoly.
B. there are close substitutes for the good the firm produces.
C. firm is a single-price monopoly.
D. firm is well protected from competition by a legal barrier.

Answer: A Reference:

Explanation:

38. When a firm pursues a predatory pricing strategy, it does so

A. to hire more staff to lower unemployment.
B. to increase supply to benefit consumers.
C. to maximize profits in the long run.
D. to discourage short run competition.

Answer: C Reference:

Explanation:

39. Refer to the table below. The information pertains to the demand curve and the average cost curve for a natural monopoly firm. What will the price be in this market?

Price Quantity Demanded LRAC
50 1 $10.00
35 2 $20.00
20 3 $24.00
5 4 $37.50

A. 20
B. 50
C. 35
D. 5

Answer: B Reference:

Explanation:

40. Refer to the table below. This information reflects the demand curve and the average cost curve for a firm that is a natural monopoly. What will this firm’s profits equal?

Price Quantity Demanded LRAC
$13 1 $10.50
$11 2 $9.75
$9 3 $9.50
$7 4 $9.625
$5 5 $10.30

A. $2.50
B. $1.50
C. $1.25
D. $0.50

Answer: A Reference:

Explanation:

41. Refer to the table below. If the information pertains to the demand curve and the long run average cost curve for an electric company that is a natural monopoly, then what quantity will be produced in this market?

Price Quantity Demanded LRAC
$12 100 $6.00
$10 200 $5.50
$8 300 $5.33
$7 400 $5.50
$6 500 $6.00

A. 300
B. 400
C. 100
D. 200

Answer: D Reference:

Explanation:

42. The following table shows a monopolist’s demand curve and cost information for the production of its good. What quantity will it produce?

Quantity Price per Unit Total Cost
10 $10 $20
20 $8 $50
30 $6 $65
40 $4 $90
50 $2 $120

A. 10
B. 20
C. 30
D. 40

Answer: C Reference:

Explanation:

43. The table below shows a monopolist’s demand curve and the cost information for the production of its good. What will their profits equal?

Quantity Price per Unit Total Cost
10 $100 $100
20 $80 $400
30 $60 $800
40 $40 $1,400
50 $20 $2,400

A. $1,200
B. $1,600
C. $1,000
D. $600

Answer: A Reference:

Explanation:

44. The table below shows a monopolist’s demand curve and cost information for the production of its good. What quantity will it produce?

Quantity Price per Unit Total Cost
1,000 $5.00 $1,000
1,100 $4.50 $1,100
1,300 $2.50 $1,150
1,400 $2.00 $1,200

A. 1,400
B. 1,300
C. 1,100
D. 1,000

Answer: D Reference:

Explanation:

45. If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3,90 per unit, it will produce and sell the sixth unit if its marginal cost is

A. $3.90 or less
B. $3.40 or less
C. $3.50 or less
D. $4.00 or less

Answer: B Reference:

Explanation:

46. The following table shows a monopolist’s demand curve and cost information for the production of its good. What price will it charge?

Quantity Price per Unit Total Cost
25 $5 $110
30 $10 $125
35 $14 $130
40 $15 $140

A. $13
B. $15
C. $11
D. $12

Answer: B Reference:

Explanation:

47. The following table shows a monopolist’s demand curve and cost information for the production of its good. What price will it charge?

Quantity Price per Unit Total Cost
1 40 $20
2 30 $25
3 25 $28
4 20 $34

A. $25
B. $30
C. $20
D. $40

Answer: A Reference:

Explanation:

48. If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is

A. $1.75 or less
B. $2.00 or less
C. $0.75 or less
D. $1.00 or less

Answer: C Reference:

Explanation:

49. __________________ law implies ownership over an idea or concept or image

A. Intellectual property
B. Copyright
C. Patent
D. Trademark

Answer: A Reference:

Explanation:

50. The typical pattern of costs for a monopoly can be analyzed by using:

I) total cost
II) fixed cost
III) variable cost
IV) marginal cost
V) average cost
VI) average variable cost

A. I, II, and III
B. I, III and IV
C. I, II, III, IV, and VI
D. all of the above

Answer: D Reference:

Explanation:

51. The typical pattern of costs for a perfectly competitive firm can be analyzed by using:

I) total cost
II) fixed cost
III) variable cost
IV) marginal cost
V) average cost
VI) average variable cost

A. I, II, and III
B. I, III and IV
C. I, II, III, IV, and VI
D. all of the above

Answer: D Reference:

Explanation:

52. Which of the following denotes the typical shape of the monopolist’s total cost curve?

A. total costs decrease and become flatter as output rises
B. total costs rise and grow steeper as output rises
C. higher output levels create the typical downward sloping cost curve
D. total costs are typically constant and are shown by a straight horizontal line

Answer: B Reference:

Explanation:

53. When a monopolist increases sales by one unit,

A. it gains some marginal revenue from selling that extra unit.
B. more low priced sales cause negative marginal revenues.
C. every other unit must now be sold at a lower price.
D. it loses some marginal revenue and all of the above.

Answer: D Reference:

Explanation:

54. If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,

A. marginal revenue is affected by adding one additional unit sold at the new price.
B. all the previous units, which used to sell at a higher price, now sell for more.
C. the marginal revenue of selling a unit is more than the price of the unit.
D. because of higher output the marginal revenue curve is above the demand curve.

Answer: A Reference:

Explanation:

55. _____________ and __________________ refer to the quantity and price at a point in time.

A. Monopoly; productive efficiency
B. Productive; allocative efficiency
C. Monopoly; allocative efficiency
D. Profit; maximization

Answer: B Reference:

Explanation:

56. The demand curve perceived by a perfectly competitive firm

A. shows that such a firm is a price-maker
B. shows economies of scale over a large range of output
C. is horizontal
D. all of the above

Answer: C Reference:

Explanation:

57. The total revenue curve for a monopolist will

A. start high, rise, and then decline.
B. start low, decline, and then rise.
C. start high, decline, and then rise.
D. start low, rise, and then decline.

Answer: D Reference:

Explanation:

58. The figure below shows the demand curve and the long run average cost curve for an electric company.

This market is a natural monopoly because

A. the long run average cost curve is U-shaped
B. when producing large quantities, the long run average cost is greater than demand
C. when producing small quantities, the demand is higher than long run average cost
D. the demand curve intersects the long run average cost curve at a point where the long run average cost curve is downward sloping

Answer: D Reference:

Explanation:

62. The following graph shows the demand curve for a good and the long run average cost curve for a typical firm in this market.

If the government does not intervene in the market, then

A. there will be many firms in this market, all of whom will take the market price as given and produce where price equals marginal cost
B. there will only be 1 firm in this market, and they will produce where marginal revenue equals marginal cost
C. there will only be 1 firm in this market, and they will take the price as given and produce where price equals marginal cost
D. no firms will enter this market

Answer: B Reference:

Explanation:

59. The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.

After maximizing profits, what do the firm’s costs equal?

A. the area of rectangle ABGH
B. the area of rectangle BDEG
C. the area of rectangle ACFH
D. the area of rectangle ADEH

Answer: A Reference:

Explanation:

60. The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.

After maximizing profits, what does the firm’s revenue equal?

A. the area of rectangle ABGH
B. the area of rectangle BDEG
C. the area of rectangle BCFG
D. the area of rectangle ADEH

Answer: D Reference:

Explanation:

61. The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.

After maximizing profits, what do the firm’s profit’s equal?

A. the area of rectangle ABGH
B. the area of rectangle BDEG
C. the area of rectangle BCFG
D. the area of rectangle ADEH

Answer: B Reference:

Explanation:


Essay Questions

1. Briefly explain why monopolists are neither productively nor allocatively efficient and briefly describe what results from these circumstances.

Reference:

Explanation: Monopolists are not productively efficient, because they do not produce at the minimum of the average cost curve. Monopolists are not allocatively efficient, because they do not produce at the quantity where P = MC. As a result, monopolists produce less, at a higher average cost, and charge a higher price than would a combination of firms in a perfectly competitive industry.

2. Briefly discuss the way in which a monopolist can seek out the profit-maximizing quantity of output.

Reference:

Explanation: A monopolist can seek out the profit-maximizing quantity of output in two ways: it can choose the quantity where total revenue exceeds total cost by the highest amount, or it can choose the quantity where marginal revenue is equal to marginal cost.

3. Briefly describe how a monopolist will select the profit-maximizing level of output and price.

Reference:

Explanation: The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve.

4. Briefly discuss what happens in the long run with respect to monopolist’s total revenue.

Total revenue for a monopolist will start low, rise, and then decline. The marginal revenue for a monopolist from selling additional units will decline. Each additional unit sold by a monopolist will push down the overall market price, and as more units are sold, this lower price applies to more and more units.

Reference:

Explanation: Total revenue for a monopolist will start low, rise, and then decline. The marginal revenue for a monopolist from selling additional units will decline. Each additional unit sold by a monopolist will push down the overall market price, and as more units are sold, this lower price applies to more and more units.

5. Briefly explain how a natural monopoly arises.

Reference:

Explanation: A natural monopoly arises when economies of scale persist over a large enough range of output that if one firm supplies the entire market, no second firm can enter without facing a cost disadvantage.

6. Briefly explain what is meant by the term “barriers to entry” and provide example of each.

Reference:

Explanation: Barriers to entry prevent or discourage business competitors from entering the market. These barriers include legal restrictions on competition, control of a physical resource, technological superiority, economies of scale that lead to natural monopoly, and practices to intimidate the competition like predatory pricing.

7. Briefly describe the typical average cost curve and the marginal cost curves most often faced by monopolists.

Reference:

Explanation: Monopolists will often face the U-shaped average cost curve and upward-sloping marginal cost curve.

8. Briefly contrast perfect competition and monopoly to explain a monopoly may or may not display productive efficiency.

Reference:

Explanation: In perfect competition, the process of entry and exit means that eventually the market price is driven down to the price at the minimum of the average cost curve. However, a monopoly does not need to worry about entry, nor does it need to produce at the bottom of the average cost curve. As a result, a monopoly will not display productive efficiency.

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