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Indicate the answer choice that best completes the statement or answers the question.
1. Antitrust laws have economic benefits that outweigh the costs if they
a. prevent mergers that would decrease competition and lower the costs of production.
b. prevent mergers that would decrease competition and raise the costs of production.
c. allow mergers that would decrease competition and raise the costs of production.
d. None of the above is correct because antitrust laws never have economic benefits that
outweigh the costs.
Figure 15-9
2. Refer to Figure 15-9. The monopolist's maximum profit
a. is $1,600.
b. is $2,000.
c. is $2,500.
d. cannot be determined from the diagram.
3. Suppose a monopolist is able to charge each customer a price equal to that customer’s willingness-topay for the product. Then the monopolist is engaging in
a. marginal cost pricing.
b. arbitrage pricing.
c. voodoo economics.
d. perfect price discrimination.
Table 15-11
The following table shows quantity, price, and marginal cost information for a monopoly:
Output
Price
MC
0
$10
-1
$9
$3
2
$8
$4
3
$7
$5
4
$6
$6
5
$5
$7
6
$4
$8
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4. Refer to Table 15-11. What would be the firm’s marginal revenue at the profit-maximizing level of
output?
a. $7
b. $6
c. $5
d. $1
5. Which of the following is not a reason for the existence of a monopoly?
a. sole ownership of a key resource
b. patents
c. copyrights
d. diseconomies of scale
Table 15-19
A monopolist faces the following demand curve:
Quantity
Price
0
$20
1
$18
2
$16
3
$14
4
$12
5
$10
6
$8
7
$6
8
$4
9
$2
10
$0
6. Refer to Table 15-19. If a monopolist faces a constant marginal cost of $1, how much output should
the firm produce in order to equate marginal revenue with marginal cost?
a. 3 units
b. 4 units
c. 5 units
d. 6 units
7. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized,
mutually beneficial trades are
a. less of a concern for a monopoly than competitive market.
b. offset by the higher profits earned by a monopolist.
c. a function of the reduction in the quantity produced by a monopolist in comparison to a
competitive market.
d. All of the above are correct.
8. Which of the following is an example of a barrier to entry?
(i)
A key resource is owned by a single firm.
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The costs of production make a single producer more efficient than a large number of
producers.
The government has given the existing monopolist the exclusive right to produce the
(iii)
good.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) only
d. (i), (ii), and (iii)
(ii)
Figure 15-3
9. Refer to Figure 15-3. Which panel could represent the demand curve facing the soybean industry?
a. Panel A
b. Panel B
c. Panel C
d. Panel D
10. A competitive firm
a. and a monopolist are price takers.
b. and a monopolist are price makers.
c. is a price taker, whereas a monopolist is a price maker.
d. is a price maker, whereas a monopolist is a price taker.
Figure 15-20
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11. Refer to Figure 15-20. The consumer surplus at the monopolist’s profit-maximizing price is
a. $450.
b. $900.
c. $1,350.
d. $2,025.
Table 15-21
Tommy’s Tie Company, a monopolist, has the following cost and revenue information. Assume that
Tommy’s is able to engage in perfect price discrimination.
COSTS
REVENUES
Quantity
Produced
Total Cost
0
1
2
3
4
5
6
7
8
$100
$140
$184
$230
$280
$335
$395
$475
$575
Marginal
Cost
Quantity
Demanded
Price
--
0
1
2
3
4
5
6
7
8
$170
$160
$150
$140
$130
$120
$110
$100
$95
Total
Revenue
Marginal
Revenue
--
12. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is total profit
at the profit-maximizing quantity?
a. $325
b. $435
c. $565
d. $1000
Figure 15-22
The diagram depicts the market situation for a monopoly pastry shop called Bearclaws.
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13. Refer to Figure 15-22. Based upon the information shown, what are total costs for Bearclaws, given
that it maximizes profits?
a. $700.
b. $980.
c. $490.
d. $784.
14. A benefit to society of the patent and copyright laws is that those laws
a. help to keep prices down.
b. help to prevent a single firm from acquiring ownership of a key resource.
c. encourage creative activity.
d. discourage the production of inefficient products.
Figure 15-15
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15. Refer to Figure 15-15. To maximize total surplus, a benevolent social planner would choose which
of the following outcomes?
a. Q = 30 and P = 30
b. Q = 30 and P = 60
c. Q = 45 and P = 45
d. Q = 60 and P = 30
16. A monopolist's profits with price discrimination will be
a. lower than if the firm charged a single, profit-maximizing price
b. the same as if the firm charged a single, profit-maximizing price.
c. higher than if the firm charged just one price because the firm will capture more consumer
surplus.
d. higher than if the firm charged a single price because the costs of selling the good will be
lower.
Table 15-9
Consider the following demand and cost information for a monopoly.
Quantity
Price
Total Cost
0
$32
$6
1
$28
$20
2
$24
$34
3
$20
$48
4
$16
$62
5
$12
$76
17. Refer to Table 15-9. What is the monopolist’s average total cost of production at the profitmaximizing price?
a. $12
b. $14
c. $16
d. $17
18. The key issue in determining the efficiency of public versus private ownership of a monopoly is
a. the tendency for efficient management of publicly owned enterprises.
b. the inability of private monopolies to get rid of managers that are doing a bad job.
c. the propensity of private monopolies to generate excessive profits.
d. how ownership of the firm affects the cost of production.
Figure 15-4
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19. Refer to Figure 15-4. If the monopoly firm wants to maximize its profit, it should operate at a level
of output equal to
a. Q1.
b. Q2.
c. Q3.
d. Q4.
20. A profit-maximizing monopolist will produce the level of output at which
a. average revenue is equal to average total cost.
b. average revenue is equal to marginal cost.
c. marginal revenue is equal to marginal cost.
d. total revenue is equal to opportunity cost.
21. Antitrust laws allow the government to
a. prevent mergers.
b. break up companies.
c. promote competition.
d. All of the above are correct.
22. For a monopoly firm, the shape and position of the demand curve play a role in determining the
(i)
profit-maximizing price.
(ii)
shape and position of the marginal-cost curve.
(iii)
shape and position of the marginal-revenue curve.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
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Scenario 15-6
The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concertgoers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans
who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats
available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the
cost of the band, lighting, security, etc.
23. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each
customer their willingness to pay relative to charging a flat price of $50 per ticket?
a. $25,000
b. $50,000
c. $75,000
d. $100,000
24. Economic welfare is generally measured by
(i)
profit.
(ii)
total surplus.
(iii)
the price consumers pay for the product.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (ii) only
d. (i), (ii), and (iii)
25. What happens to the price and quantity sold of a drug when its patent runs out?
(i)
The price will fall.
(ii)
The quantity sold will fall.
(iii)
The marginal cost of producing the drug will rise.
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
26. When a monopolist maximizes profit, its marginal cost will
a. be less than its average fixed cost.
b. be less than the price per unit of its product.
c. exceed its marginal revenue.
d. equal its average total cost.
27. Price discrimination is a rational strategy for a profit-maximizing monopolist when
a. the monopolist finds itself able to produce only limited quantities of output.
b. consumers are unable to be segmented into identifiable markets.
c. the monopolist wishes to increase the deadweight loss that results from profit-maximizing
behavior.
d. there is no opportunity for arbitrage across market segments.
28. When the market for a good is a natural monopoly, this results in
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a. improved product choice for consumers.
b. many producers charging low prices for the good.
c. dominance by a single producer of the good.
d. increased entry by new producers of the good.
29. In order to sell more of its product, a monopolist must
a. lobby the government for a subsidy.
b. lower its price.
c. advertise.
d. enact barriers to entry in related markets.
Figure 15-6
30. Refer to Figure 15-6. What area measures the monopolist’s profit?
a. (K-C)*W
b. (L-A)*T
c. (K-B)*W
d. 0.5[(K-C)*(Z-T)]
Table 15-4
A monopolist faces the following demand curve:
Price
Quantity
$30
0
$25
2.5
$20
5
$15
7.5
$10
10
$5
12.5
$0
15
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31. Refer to Table 15-4. If the monopolist increases production from 7.5 to 10 units, what is its marginal
revenue?
a. $12.50
b. $5
c. -$5
d. -$12.50
32. Which of the following is not an example of price discrimination?
a. A movie theater charges a lower price for a child’s ticket than for an adult’s ticket.
b. A university rebates part of the cost of tuition in the form of financial aid for needy students.
c. A local pizza chain offers a “buy three get one free” deal.
d. An ice cream parlor charges a higher price for ice cream than for sherbet.
33. The economic inefficiency of a monopolist can be measured by the
a. number of consumers who are unable to purchase the product because of its high price.
b. excess profit generated by monopoly firms.
c. poor quality of service offered by monopoly firms.
d. deadweight loss.
34. The fundamental source of monopoly power is
a. many buyers and sellers.
b. low fixed costs.
c. rising average total costs.
d. barriers to entry.
35. The price effect describes the situation when a monopolist lowers the price of output and, all else
equal, total revenue
a. increases.
b. decreases.
c. is unchanged.
d. is maximized.
36. In reality, perfect price discrimination is
a. used by about 75 percent of all monopolies.
b. used by about 50 percent of all monopolies.
c. seldom used by monopolies because it leads to lower profits.
d. rarely possible.
37. The social cost of a monopoly is equal to its
a. economic profit.
b. fixed cost.
c. deadweight loss.
d. variable cost.
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Scenario 15-7
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its
market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights
to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal
cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to
charge for the PMC service to maximize her profit. Before setting price, she hires an economist to
estimate demand for the PMC service. The economist discovers that there are two types of subscribers
who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as
$150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000
occasional TV viewers who will pay as much as $20 a year for a subscription to PMC.
38. Refer to Scenario 15-7. If Black Box Cable TV is able to price discriminate, what would be the
maximum amount of profit it could generate?
a. $500,000
b. $600,000
c. $850,000
d. $925,000
39. When there are economies of scale over the relevant range of output for a monopoly, the monopoly
a. is a natural monopoly.
b. is a government-granted monopoly.
c. has monopoly power due to the ownership of a patent or copyright.
d. has monopoly power due to the ownership of a key production resource.
40. A patent gives the inventor monopoly control over the patented good. Patents also
a. lead to lower prices for goods.
b. create incentives to develop new products.
c. lead to an increase in the number of producers of the patented good.
d. lead to increased entry into the market for the patented good.
Figure 15-4
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41. Refer to Figure 15-4. Profit will be maximized by charging a price equal to
a. P5.
b. P4.
c. P3.
d. P1.
42. Monopoly firms have
a. downward-sloping demand curves, so they can sell as much output as they desire at the
market price.
b. downward-sloping demand curves, so they can sell only the specific price-quantity
combinations that lie on the demand curve.
c. horizontal demand curves, so they can sell as much output as they desire at the market price.
d. horizontal demand curves, so they can sell only a limited quantity of output at each price.
43. Which of the following statements is not correct?
a. The competitive firm produces where P = MC.
b. The monopolist produces where P = MC.
c. The competitive firm produces where MR = MC.
d. The monopolist produces where MR = MC.
Figure 15-19
44. Refer to Figure 15-19. If there are no fixed costs of production, monopoly profit with perfect price
discrimination equals
a. $1.
b. $1,562.5.
c. $3,125.
d. $6,250.
45. Patent and copyright laws
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a. encourage creative activity.
b. promote competition among firms.
c. discourage creative activity.
d. Both a and b are correct.
46. Because monopoly firms do not have to compete with other firms, the outcome in a market with a
monopoly
a. is often not in the best interest of society.
b. maximizes total economic well-being.
c. is efficient.
d. benefits consumers more so than the producer.
47. When a firm experiences continually declining average total costs, the firm is a
a. government-created monopoly.
b. price taker.
c. natural monopoly.
d. revenue maximizer.
48. Compared to the monopoly outcome with a single price, imperfect price discrimination
(i)
sometimes raises total surplus.
(ii)
sometimes lowers total surplus.
(iii)
always leads to a lower quantity of output.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
Figure 15-17
49. Refer to Figure 15-17. Which of the following areas represents the profit earned by this profitmaximizing monopolist?
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a. BCFE
b. ABE
c. EFG
d. CFIH
50. When a monopolist increases the amount of output that it produces and sells, average revenue
a. increases, and marginal revenue increases.
b. increases, and marginal revenue decreases.
c. decreases, and marginal revenue increases.
d. decreases, and marginal revenue decreases.
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Answer Key
1. b
2. d
3. d
4. c
5. d
6. c
7. c
8. d
9. a
10. c
11. a
12. b
13. a
14. c
15. c
16. c
17. d
18. d
19. c
20. c
21. d
22. c
23. d
24. c
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25. a
26. b
27. d
28. c
29. b
30. c
31. c
32. d
33. d
34. d
35. b
36. d
37. c
38. c
39. a
40. b
41. a
42. b
43. b
44. d
45. a
46. a
47. c
48. a
49. a
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50. d
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