Question 1:
1. Barriers to entering an industry:
i. result in productive efficiency
ii. result in allocative efficiency
iii. are the basis for monopolies to exist
iv. apply in the United States to only to industries dominated by a single firm
Question 2:
A patent or copyright is a barrier to entry based on:
- ownership of a key input used in the production process
- large economies of scale as output increases
- widespread network externalities
- government action to encourage and protect private research and development efforts
Question 3:
A ?natural? monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. long-run average total costs declining continuously as output increases
iii. long-run total costs declining continuously as output increases
iv. economies of scale existing over a wide range of output
ii and iv
iii and iv
Question 4:
In contrast to firms operating in purely competitive industries, demand curves faced by monopolists are:
- less elastic at all levels of output
- perfectly elastic
- also the monopolists? marginal revenue curves under uniform pricing
- are perfectly inelastic
Question 5: Assuming that the market demand curve does not shift (i.e., there are no changes in the determinants of demand), the monopolist that practices uniform pricing:
Assuming that the market demand curve does not shift (i.e., there are no changes in the determinants of demand), the monopolist that practices uniform pricing:
- can increase price and increase output simultaneously because it dominates the market
- increases its total revenues as it increases output by an amount equal to the price it charges
- should produce in the range of demand where marginal revenue is negative
- must lower price if it wants to sell more units of output versus fewer units of output
Question 6: For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :
For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :
P = AR > MR; P > MR = AR
P = MR = AR; P = AR > MR
P = MR = AR; P = MR > AR
P > MR = AR; P = AR > MR
Question 7: For a monopolist that employs a uniform pricing strategy, marginal revenue is less than price because:
For a monopolist that employs a uniform pricing strategy, marginal revenue is less than price because:
the monopolist?s demand curve is perfectly inelastic
the monopolist?s demand curve is perfectly elastic
if the monopolist charges a lower price versus a higher price, the lower price applies to all units of output sold
the monopolist?s total revenue curve is linear and upward sloping
Question 8:
The notion that a firm should produce that level of output such that MR = MC to maximize profit or minimize operating losses applies:
- in both competitive and monopolistic industries
- only to monopolies
- only if the firm is a "price taker"
- only to firms that can price discriminate
Question 9: Like a perfectly competitive firm, if a monopolist wants to know how much it will save by reducing output, it will evaluate its:
- marginal product function
- average product function
- marginal cost function
- average variable cost function
- average total cost function
Question 10: If a monopolist?s total output increases as the quantity of labor that it employs increases, then the:
marginal product of labor could be increasing or decreasing
average product of labor is also increasing
marginal product of labor is also increasing
marginal product of labor is decreasing
Question 11: If a monopolist is producing a level of output that maximizes total profit, then it will necessarily be:
- minimizing total cost
- maximizing profit per unit of output
- maximizing total revenue
- maximizing the difference between total revenue and total cost
Question 12: Suppose that a monopolist is producing a level of output such that AVC = $6, AFC = $4, P = $8, MR = $10, and MC = $6. Based on this information, the firm is realizing:
Suppose that a monopolist is producing a level of output such that AVC = $6, AFC = $4, P = $8, MR = $10, and MC = $6. Based on this information, the firm is realizing:
a loss which could be reduced by reducing price and increasing output
a profit which could be increased by reducing price and increasing output
a loss which could be reduced by increasing price and reducing output
a profit which could be increased by increasing price and reducing output
Question 13: If the uniform price of a monopolist?s good is $50 per unit and its marginal cost is $25, then:
to maximize profit the firm should increase output
to maximize profit the firm should decrease output
to maximize profit the firm should continue to produce the output it is producing
there is not enough information to determine whether output should be changed or remain constant to maximize profit
Question 14: Under uniform pricing, a profit maximizing monopolist?s price is:
the same as the price that would prevail if the industry were perfectly competitive
less than the price that would prevail if the industry were perfectly competitive
greater than the price that would prevail if the industry were perfectly competitive
none of the above
Question 15: Consider a profit maximizing monopolist that employs a uniform pricing strategy. If it were to produce and price at a point on the inelastic segment of its demand curve, then it could:
raise total revenue by raising price
reduce total costs by raising price
raise profits by raising price
all of the above
Question 16:
Suppose that at 100 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average fixed costs of $4 per unit. On the basis of this information we can conclude that the firm is:
operating at maximum profit by producing the 100 units of output
operating at a loss that could be reduced by shutting down
operating at a profit that could be increased by producing more output
operating at a loss that is less than the loss incurred by shutting down
Question 17: The uniform price that is most profitable for the monopolist to charge for its product is:
the highest price a consumer is willing to pay for a unit of the good
the price at which demand is unit-elastic
a price that maximizes the quantity sold
the price for which marginal revenue equals marginal cost
Question 18
Suppose that a monopolist finds itself to be operating at a break-even point. It follows that its:
i. total revenue is equal to total variable cost
ii. total revenue is equal to total cost
iii. average revenue is equal to average variable cost
iv. average revenue is equal to average total cost
i
ii
iii
i and iii
ii and iv
Question 19 Under which of the following situations would a monopolist increase profits by reducing output and raising price:
if it were producing where MC < MR
if it were producing where MC > MR
if it were producing where MC = MR
none of the above
Question 20
Suppose a firm has monopoly power in the production of a particular good. If it finds that revenue and cost conditions are such that at all levels of output the price it can charge in order to sell all of the units is less than the average variable costs then it is in the firm?s best interest to:
close down because its operating losses will exceed its shut-down losses at all levels of output
maximize profits by producing where MR = MC
close down because its total operating cost will exceed its total revenue
minimize losses by producing where MR = MC
Question 21
Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. Therefore:
demand is elastic at this price
demand is inelastic at this price
the firm is maximizing profits
total revenue is at a maximum
Question 22 If a profit maximizing monopolist is producing such that marginal cost is $10 and its marginal revenue is $4, it will increase its profits by:
reducing price and increasing output
increasing price and reducing output
reducing both price and output
increasing both price and output
raising price while keeping output unchanged
Question 23 A profit-maximizing monopolist that sells all units of its output for a single (uniform) price will set this price:
as far above average total cost (ATC) as possible
along the elastic portion of its demand curve
along the inelastic portion of its demand curve
at the minimum of it average total cost (ATC) curve
where the marginal cost (MC) curve intersects the demand curve
Question 24
If a monopolist is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:
marginal revenue and marginal cost
total revenue and total cost
price and minimum average variable cost
total revenue and total fixed cost
Question 25
Similar to a perfectly competitive firm, a monopolist that is confronted with fixed costs in the short run should produce versus shut down if the total revenue that it can generate is sufficient to cover its:
total fixed costs
marginal costs
total variable costs
total costs
Question 26: Suppose that at 500 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. On the basis of this information we:
can say that the firm should close down in the short run
can say that the firm is maximizing profit in the short run
cannot determine whether the firm should produce or shut down in the short run
can assume the firm is not using the most efficient technology
Question 27:
Suppose that at 200 units of output a monopolist is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $5 per unit and is incurring average variable costs of $3 per unit and average total costs of $4 per unit. On the basis of this information we can conclude that the firm:
is operating at maximum profit by producing the 200 units of output
should increase its use of variables inputs in order to reduce its total variable costs TVC
is operating at a loss that is less than the loss incurred by shutting down
should close down
Question 28:
If a public utilities regulatory agency requires a local electricity provider (a natural monopoly) to set the price of its output equal to marginal cost and this price is below its average total cost then:
i. the firm will realize an economic profit
ii. the firm will break even
iii. there will be no deadweight loss
iv. the firm will suffer a loss
i
ii
iii
iii and iv
Question 29 :
Consider a monopolist whose total cost function is TC = 40 + 4Q + Q2 and whose marginal cost function is MC = 4 + 2Q. The demand function for the firm?s good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:
produce 52 units of output, charge a price of $134, and earn a profit of $4016
produce 52 units of output, charge a price of $134, and earn a profit of $6968
produce 84 units of output, charge a price of $118, and earn a profit of $7824
produce 84 units of output, charge a price of $118, and earn a profit of $9912
Question 30 :
Consider a monopolist whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firm?s good is P = 120 - 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the price elasticity of demand (ED) at the profit maximizing price is equal to:
0.2
0.9
3.6
4.5
5.2
Question 31 :
Consider a monopolist whose total cost function is TC = 40 + 4Q + Q2 and whose marginal cost function is MC = 4 + 2Q. The demand function for the firm?s good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then rounded to the nearest dollar the deadweight loss that results is:
$27
$135
$284
$412
Question 32:
Price discrimination is the practice of:
charging different prices for the same good and the price differences are not due to differences in cost
charging different prices for the same good and the price differences arise because of differences in cost
charging different prices for high quality versus low quality units of a good
charging higher prices for brand named goods and lower prices for generic versions of the goods
Question 33:
Price discrimination is a rational strategy for a profit-maximizing firm to adopt when:
it is possible to engage in arbitrage across market segments
it is not possible to segment consumers into identifiable markets
there is no opportunity for arbitrage across market segments
firms want to increase the amount of consumer surplus received by its customers
Question 34:
The act of purchasing a good at a low price and reselling it at a higher price is referred to as:
odd pricing
arbitrage
two-part pricing
price discrimination
Question 35:
The ability of a firm to increase profits by practicing discriminatory pricing can be undermined by:
i. arbitrage
ii. the market in which it operates being highly competitive
iii. differences in the price elasticity of demand between groups of consumers
iv. the firm having considerable market share
i
ii
iii
i and ii
i and iii
Question 36:
If a monopolist engages in perfect (first-degree) price discrimination, then relative to uniform pricing:
profits will increase and output will fall
both profits and output will increase
both profits and output will decrease
its demand curve will lie below its marginal revenue curve
Question 37:
De Beers, the South African diamond syndicate, has historically had monopoly power in the global diamond market. One source of competition that it confronts comes from individuals who sell diamonds that originated through previous sales by De Beers. Which of the following best explains why these secondary sales might be of concern to De Beers?
previously owned diamonds are a close substitute for newly mined diamonds and therefore secondary sales would reduce its market power
it will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed
the availability of previously owned diamonds would increase the market demand for diamonds and reduce its market power
the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force the firm to lower its price
Question 38:
A perfectly competitive firm is not able to successfully price discriminate because:
it breaks even in the long run and therefore can not afford to engage in yield management
it does not advertise and this prevents it from marketing its product to different segments of the market
consumers in perfectly competitive markets have the same maximum willingness to pay for units of the good
the firm will not be able to sell units to any group of consumers that are confronted with prices above the market price
Question 39:
Children are often charged less than adults for admission to movies, theme parks, and professional sporting events. However, they are charged the same prices as adults at the concession stands.
Which of the following best explains such pricing arrangements:
children have an elastic demand for admission but an inelastic demand for items at the concession stands
children have an inelastic demand for admission but an elastic demand for items at the concession stands
sellers can prevent adults from being admitted with a child?s ticket but cannot prevent children from buying concession items for adults
children can personally use only a single ?ticket? for admission, but can personally consume more than one concession item
Question 40 :
With perfect (first-degree) price discrimination there is:
no deadweight loss
no producer surplus
one single price
an increase in consumer surplus
Question 41:
Consider a monopolist whose total cost function is TC = 40 + 4Q + Q2 and whose marginal cost function is MC = 4 + 2Q. The demand function for the firm?s good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm is able to practice first degree (or perfect) price discrimination then it will:
produce 62.4 units of output and rounded to the nearest dollar it will earn a profit of $3854
produce 62.4 units of output and rounded to the nearest dollar it will earn a profit of $4827
produce 72.8 units of output and rounded to the nearest dollar it will earn a profit of $3367
produce 72.8 units of output and rounded to the nearest dollar it will earn a profit of $8998