Chapter 14 Practice Questions
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) To enter a local cable television market, a firm needs a license from the city government. This is an
example of
A) the government maintaining consistent standards in the broadcast industry.
B) a government-imposed barrier.
C) occupational licensing.
D) a natural monopoly.
1)
2) A monopoly is a seller of a product
A) with many substitutes.
C) without a close substitute.
2)
B) with a perfectly inelastic demand.
D) without a well-defined demand curve.
3) If we use a narrow definition of monopoly, then a monopoly is defined as a firm
A) that has been granted special production rights by the government.
B) that can ignore the actions of all other firms because it produces a superior product compared
to its rivals' products.
C) that has the largest market share in an industry.
D) that can ignore the actions of all other firms because it produces a product for which there are
no close substitutes.
3)
4) A monopoly is characterized by all of the following except
A) there are no close substitutes to the firm's product.
B) the firm has market power.
C) there are only a few sellers each selling a unique product.
D) entry barriers are high.
4)
5) Microsoft thought that the initial Xbox was sufficiently different from PS2 that it could charge a
significantly higher price for the Xbox than Sony could charge for PS2. Which of the following
statements is implied by Microsoft's product positioning?
A) Microsoft believed that the PS2 was a distant substitute for the Xbox and therefore the
demand curve for Xbox would be elastic. Charging a higher price would enable it to increase
its profits.
B) Microsoft recognized that the PS2 was a substitute for the Xbox but it believed that the
Microsoft name would be sufficient to draw customers away from the PS2 and that customers
would be willing to pay a premium for Microsoft's product.
C) Microsoft believed that the PS2 was poor substitute for the Xbox and therefore the demand
curve for Xbox would be inelastic. Charging a higher price would enable it to increase its
profits.
D) Microsoft believed that it had differentiated the Xbox sufficiently to insulate it from
competition and to cater to a unique niche. Consequently, it would be able to charge a higher
price and increase its profits.
5)
6) A firm that has the ability to control to some degree the price of the product it sells
A) is a price maker.
B) faces a demand curve that is inelastic throughout the range of market demand.
C) is also able to dictate the quantity purchased.
D) faces a perfectly inelastic demand curve.
6)
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7) A monopolist faces
A) a horizontal demand curve.
C) a perfectly elastic demand curve.
B) a perfectly inelastic demand curve.
D) a downward-sloping demand curve.
7)
8) Compared to a monopolistic competitor, a monopolist faces
A) a demand curve that has a price elasticity coefficient of zero.
B) a more elastic demand curve at higher prices and a more inelastic demand curve at lower
prices.
C) a more inelastic demand curve.
D) a more elastic demand curve.
8)
9) A patent or copyright is a barrier to entry based on
A) government action to protect a producer.
B) ownership of a key necessary raw material.
C) large economies of scale as output increases.
D) widespread network externalities.
9)
10) A public franchise
A) is a government designation that a private firm is the only legal producer of a good or service.
B) is an unregulated monopoly necessary for the public good.
C) is a corporation that is owned by stockholders.
D) results from ownership of a key raw material.
10)
11) Governments grant patents to encourage
A) firms to form public enterprises.
B) competition.
C) low prices.
D) research and development on new products.
11)
12) Governments grant patents to
A) encourage competition.
B) encourage low prices.
C) compensate firms for research and development costs.
D) encourage firms to reveal secret production techniques.
12)
13) The demand curve for the monopoly's product is
A) more inelastic than the market demand for the product.
B) the market demand for the product.
C) undefined.
D) more elastic than the market demand for the product.
13)
14) A monopolist's profit maximizing price and output correspond to the point on a graph
A) where total costs are the smallest relative to price.
B) where price is as high as possible.
C) where marginal revenue equals marginal cost and charging the price on the market demand
curve for that output.
D) where average total cost is minimized.
14)
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Figure 14-1
Figure 14-1 above shows the demand and cost curves facing a monopolist.
15) Refer to Figure 14-1. To maximize profit, the firm will produce
A) Q1 .
B) Q2 .
C) Q3 .
D) Q4 .
16) Refer to Figure 14-1. The firm's profit-maximizing price is
A) P1.
B) P2.
C) P3.
D) P4.
15)
16)
17) Refer to Figure 14-1. If the firm's average total cost curve is ATC1, the firm will
17)
18) Refer to Figure 14-1. If the firm's average total cost curve is ATC2, the firm will
18)
19) Refer to Figure 14-1. If the firm's average total cost curve is ATC3, the firm will
19)
A) break even.
C) suffer a loss.
B) make a profit.
D) face competition.
A) face competition.
C) break even.
B) suffer a loss.
D) make a profit.
A) make a profit.
C) break even.
B) face competition.
D) suffer a loss.
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Figure 14-3
Figure 14-3 shows the demand and cost curves for a monopolist.
20) Refer to Figure 14-3. What is the profit-maximizing/loss-minimizing output level?
A) 600 units
B) 800 units
C) 940 units
D) 1,160 units
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20)