1. The marginal revenue of a monopolist:
Is equal to the cost of the last item sold.
Is equal to the price of the last item sold.
Is positive as long as output is increasing.
None of the above.
2. Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions of it today for $100 each. In order to sell 101 prescriptions tomorrow, the monopolist must lower the price to $99 for each prescription. The marginal revenue of the 101st prescription is:
-$1
$99.
$9999.
$10,000.
3. Which of the following is a barrier to entry in a monopoly market?
Economic profits greater than zero for the monopolist.
A rising long-run average total cost curve.
A patent owned by the monopolist on its main product.
All of the above.
4. Any firm that has economies of scale will:
Charge a higher price if it increases the size of its production facilities.
Operate at a lower per unit cost if it increases the size of its production facilities.
Be prosecuted under the Anti-Trust laws.
All of the above.
5. Compared with a monopoly market with the same cost and market-demand circumstances, a competitive market generates:
Higher prices and higher output.
Higher prices and lower output.
Lower prices and higher output.
Lower prices and lower output.
6. Which of the following is an economic argument in support of monopoly power?
The same quantity is produced regardless of price.
It generates economic profit that benefits consumers.
It restricts output and raises prices, contributing to more efficient use of resources.
It contributes to efficient production when there are economies of scale.
7. Which of the following is the unique characteristic of natural monopolies that other monopolies do not share?
Economies of scale over the entire range of market output.
The marginal cost curve is always above the average total cost curve.
It is to a natural monopolist's advantage to produce as much as possible.
Government protection through the patent laws.
8. In a monopolistically competitive market:
The concentration ratio tends to be low.
Firms are interdependent.
Price competition is common.
All of the above.
9. Which of the following is evidence of a contestable market?
No significant entry barriers.
Economies of scale exist.
Downward sloping market demand curve.
Both A and C.
10. The degree of market power exercised by a firm is positively correlated with:
The number and proximity of competing firms.
The absolute value of the price elasticity of demand for the firm's product.
Its ability to influence the market price in its industry.
All of the above.
11. Suppose there are only three firms in a market. The largest firm has sales of $500 million, the second-largest has sales of $300 million, and the smallest has sales of $200 million. The market share of the smallest firm is:
20 percent.
25 percent.
40 percent.
60 percent.
12. The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is:
Monopolistic competition.
Monopoly.
Oligopoly.
Perfect competition.
13. If an oligopolist is going to change its price or output, its initial concern is:
The response of rival firms in its industry.
A rising cost structure as it expands output.
The concentration ratio.
Lobbying the government to reduce entry barriers.
14. Product differentiation occurs when:
A completely new production process is used.
One firm produces many different products.
Buyers perceive differences in similar products from competing companies.
Sellers mark up prices for necessary goods.
15. Which of the following is an example of product differentiation?
Two bars of soap differ only in their label, but consumers pay $0.20 more for the label they recognize.
Sugar can be made from sugar beets or sugar cane and most consumers cannot differentiate the taste.
Consumers purchase minivans in place of cars because minivans accommodate more passengers.
All of the above.
16. A monopolistically competitive firm can raise its price somewhat without fear of a significant decline in sales because:
The demand for its product is typically very price-elastic.
Its demand curve is horizontal.
Product differentiation creates brand loyalty.
They own all of the patents.
17. The demand curve faced by a monopoly firm is:
Perfectly inelastic reflecting the firm's dominance of the market.
Downward sloping.
Equal to its marginal revenue curve.
Below its marginal revenue curve.
18. Brand loyalty usually makes the demand curve for a product:
Less price elastic.
More price elastic.
Flatter.
Less income elastic.
19. Entry into a market characterized by monopolistic competition:
Results from economies of scale.
Is frequent because firms have market power.
Occurs when a firm's demand is everywhere below its long-run average cost curve.
None of the above.
20. If economic profits are earned in a monopolistically competitive market:
Barriers to entry will keep potential competitors out.
The market supply curve will shift to the left.
The market price in the long run will increase as new firms enter the market.
None of the above.
21. If firms exit a monopolistically competitive market, the demand curves for the remaining firms will:
Shift to the right and become more price inelastic.
Shift to the left and there will be no change in price elasticity.
Shift to the right and there will be no change in price elasticity.
Shift to the left and become more price elastic.
22. Which of the following characterizes the difference between oligopoly and monopolistic competition?
Monopolistically competitive firms experience zero long-run economic profit, whereas oligopolists may experience positive long-run economic profit.
Oligopolists are independent of each other, and monopolistically competitive firms are interdependent.
There are many oligopolists and only a few monopolistically competitive firms.
Monopolistically competitive firms face horizontal demand curves, whereas oligopolists face downward-sloping ones.
23. Regulation is appropriate if:
Government failure exists.
There is a lack of consumer information and transparency in a market.
Businesses lay off workers when sales are slow.
An economic profit is being earned.
24. Which of the following is most likely to give consumers more choices and lower prices, ceteris paribus?
Rent control laws.
Laws prohibiting reselling by consumers of NCAA playoff tickets.
Zoning laws that limit drive through lanes for fast food restaurants.
None of the above.
25. Price-discriminating firms charge lower prices to those who:
Have higher incomes.
Have fewer substitutes available to them.
Have higher price elasticity's of demand.
All of the above.
26. If a monopolist is regulated and required to set price equal to ATC, the monopolist will earn:
Economic profit but no accounting profit.
Accounting profit and economic profit.
Neither accounting profit nor economic profit.
None of the above.