NAME: ________________
CHAPTER 15 QUIZ: MONOPOLY
1.
One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm
produces where
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.
2.
Because monopoly firms do not have to compete with other firms, the outcome in a market with a
monopoly is often
a. not in the best interest of society.
b. one that fails to maximize total economic well-being.
c. inefficient.
d. All of the above are correct.
3.
Which of the following is an example of a barrier to entry?
a. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a
cup.
b. Mark charges a lower price to students than to faculty for his tattoo services.
c. Luke charges a higher hourly price to business students than to liberal arts students for his
economics tutoring.
d. John obtained a copyright for the song he wrote and recorded.
4.
A fundamental source of monopoly market power arises from
a. perfectly elastic demand.
b. perfectly inelastic demand.
c. barriers to entry.
d. availability of "free" natural resources, such as water or air.
Scenario 15-2
Consider a local, privately-owned electrical cooperative named Minny County Megawatts (MCM, LLC).
MCM has just completed a natural-gas-burning electrical power plant in the Midwest. Currently, MCM
can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of
the county. After just a few years of operation, the shareholders of MCM experienced incredible rates of
return on their investment due to the profitability of the corporation.
5.
Refer to Scenario 15-2. Which of the following statements is most likely to be true?
(i)
New entrants to the market know they will have a smaller market share than MCM
currently has.
(ii)
MCM is most likely experiencing rising marginal cost.
(iii)
MCM is most likely experiencing declining average total cost.
(iv)
MCM is a natural monopoly.
a. (i) and (ii) only
b. (i) and (iii) only
c. (i), (iii) and (iv) only
d. (i), (ii), (iii), and (iv)
6.
Refer to Scenario 15-2. Which of the following statements is most likely to be true?
(i)
New entrants to the market know they will have a smaller market share than MCM
currently has.
(ii)
MCM would experience higher profits if it were government-run.
(iii)
MCM is a natural monopoly.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
7.
Refer to Scenario 15-2. MCM will continue to be a monopolist in the electricity industry only if
a. population growth leads to an increased demand for electricity.
b. there are no new entrants to the market.
c. the price of natural gas decreases.
d. All of the above are correct.
8.
The defining characteristic of a natural monopoly is
a. constant marginal cost over the relevant range of output.
b. economies of scale over the relevant range of output.
c. constant returns to scale over the relevant range of output.
d. diseconomies of scale over the relevant range of output.
9.
The market demand curve for a monopolist is typically
a. unit price elastic.
b. downward sloping.
c. horizontal.
d. vertical.
10.
When a monopolist increases the amount of output that it produces and sells, the price of its output
a. stays the same.
b. increases.
c. decreases.
d. may increase or decrease depending on the price elasticity of demand.
11.
A monopoly firm is a price
a. taker and has no supply curve.
b. maker and has no supply curve
c. taker and has an upward-sloping supply curve.
d. maker and has an upward-sloping supply curve.
12.
Monopolies use their market power to
a. charge prices that equal minimum average total cost.
b. increase the quantity sold as they increase price.
c. charge a price that is higher than marginal cost.
d. dump excess supplies of their product on the market.
13.
Monopoly firms have
a. downward-sloping demand curves, and they can sell as much output as they desire at the
market price.
b. downward-sloping demand curves, and they can sell only a limited quantity of output at each
price.
c. horizontal demand curves, and they can sell as much output as they desire at the market
price.
d. horizontal demand curves, and they can sell only a limited quantity of output at each price.
14.
For a monopoly firm, which of the following equalities is always true?
a. price = marginal revenue
b. price = average revenue
c. price = total revenue
d. marginal revenue = marginal cost
15.
Because a monopolist must lower its price in order to sell another unit of output,
a. marginal revenue is less than price.
b. long-term economic profits will be zero.
c. total revenue increases as price increases.
d. average revenue is less than price.
16.
Marginal revenue for a monopolist is computed as
a. average revenue divided by quantity sold.
b. average revenue times quantity divided by price.
c. total revenue divided by quantity sold.
d. change in total revenue per one unit increase in quantity sold.
17.
Marginal revenue can become negative for
a. both competitive and monopoly firms.
b. competitive firms but not for monopoly firms.
c. monopoly firms but not for competitive firms.
d. neither competitive nor monopoly firms.
Figure 15-4
Price
Curve C
Curve D
P5
P4
P3
P2
P1
P0
Curve B
Q1 Q2 Q3 Q4
Curve A
Quantity
18.
a.
b.
c.
d.
Refer to Figure 15-4. A profit-maximizing monopoly will produce an output level of
Q1.
Q2.
Q3.
Q4.
19.
Refer to Figure 15-4. A profit-maximizing monopoly will charge a price of
a. P5.
b. P4.
c. P3.
d. P2.
20.
Refer to Figure 15-4. A profit-maximizing monopoly's total revenue is equal to
a. P4 x Q3.
b. P5 x Q1.
c. P3 x Q4.
d. (P4-P2) x Q3.
21.
Refer to Figure 15-4. A profit-maximizing monopoly's total cost is equal to
a. P4 x Q3.
b. P2 x Q3.
c. P1 x Q3.
d. (P4-P1) x Q3.
22.
Refer to Figure 15-4. A profit-maximizing monopoly's profit is equal to
a. P4 x Q3.
b. (P4-P2) x Q3.
c. (P4-P1) x Q3.
d. (P5-P0) x Q1.
23.
Refer to Figure 15-4. Profit on a typical unit sold for a profit-maximizing monopoly would equal
a. P5-P0.
b. P4-P2.
c. P4-P1.
d. P4-P3.
24.
Refer to Figure 15-4. At the profit-maximizing level of output,
a. marginal revenue is equal to P3.
b. marginal cost is equal to P3.
c. average revenue is equal to P4.
d. average total cost is equal to P0.
Table 15-1
Quantity
1
2
3
4
5
6
7
8
9
10
Price
$35
Total
Revenue
$35
$64
Average
Revenue
Marginal
Revenue
$32
$29
$29
$17
$11
$23
$120
$17
$99
$80
$11
$8
$-1
$-7
$-13
25. Refer to Table 15-1. If the monopolist sells 8 units of its product, how much total revenue will it receive
from the sale?
a. $14
b. $40
c. $112
d. $164
26.
Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product
should it sell?
a. 4
b. 5
c. 6
d. 8
27.
Refer to Table 15-1. When 4 units of output are produced and sold, what is average revenue?
a. $17
b. $21
c. $23
d. $26
28.
Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold?
a. $3
b. $5
c. $11
d. $17
29.
Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of
output (Q) will it produce and what price (P) will it charge?
a. Q = 4, P = $29
b. Q = 4, P = $26
c. Q = 5, P = $23
d. Q = 7, P = $17
30.
Deadweight loss
a. measures monopoly inefficiency.
b. exceeds monopoly profits.
c. equals monopoly profits.
d. equals monopoly revenues minus profits.
Figure 15-10
10
Price
MC
9
8
A
B
7
6
C
D
J
5
4
I
H
3
4
F
3
2
1
MR
1
2
5
6
Demand
7
8
9
10
11
12
Quantity
31.
Refer to Figure 15-10. Which area represents the deadweight loss from monopoly?
a. J
b. H
c. A+B+C+D+F+I+J+H
d. J+H
32.
The practice of selling the same goods to different customers at different prices, but with the same
marginal cost, is known as
a. price segregation.
b. price discrimination.
c. arbitrage.
d. monopoly pricing.
Scenario 15-5
An airline knows that there are two types of travelers: business travelers and vacationers. For a
particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50
vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost
to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants,
fuel, etc.
33.
Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600?
a. -$5,000
b. $15,000
c. $40,000
d. $60,000
34.
Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300?
a. -$15,000
b. -$5,000
c. $25,000
d. $45,000
35.
Refer to Scenario 15-5. How much profit will the airline earn if it engages in price discrimination?
a. -$5,000
b. $40,000
c. $55,000
d. $75,000
36.
Refer to Scenario 15-5. How much additional profit can the airline earn by charging each customer
their willingness to pay relative to charging a flat price of $600 per ticket?
a. $15,000
b. $25,000
c. $40,000
d. $70,000
Figure 15-17
Price
100
90
80
MC
70
60
50
40
30
20
10
Demand
MR
10
20
30
40
50
60
70
80
Quantity
37.
Refer to Figure 15-17. The consumer surplus at the monopolist’s profit-maximizing price is
a. $450.
b. $900.
c. $1,350.
d. $2,025.
38.
Refer to Figure 15-17. The deadweight loss caused by a profit-maximizing monopoly amounts to
a. $225.
b. $450.
c. $900.
d. $1,350.
39.
Which of the following can defeat the profit-maximizing strategy of price discrimination?
a. consumer surplus
b. deadweight loss
c. market power
d. arbitrage
40.
The process of buying a good in one market at a low price and selling the good in another market for a
higher price in order to profit from the price difference is known as
a. sabotage.
b. conspiracy.
c. arbitrage.
d. collusion.