Quiz
Monopoly
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1. The theory of monopoly is built on the following assumptions:

a. The industry contains a single seller who sells a product for which no close substitutes exist.
b. Barriers to entry into the industry are extremely high.
c. The industry is an increasing-cost industry; therefore, the industry's long-run supply curve is upward-sloping.
d. The monopoly firm holds exclusive ownership to a key resource.
e. Only (a) and (b).

2. Common barriers to market entry that help create monopoly include

a. the exclusive ownership of key resources.
b. public franchising by which government permits one firm to produce a particular good or service, while legally excluding all others from doing the same.
c. economies of scale that allow a single firm to obtain low unit costs through large-scale production, which subsequently makes it impossible for small-scale competitors to enter the market successfully.
d. all of the above.
e. both (a) and (b), but not (c).

Table 22.1
Price
(dollars/unit)


Quantity
Demanded
(units per week)
Total
Revenue
(dollars per week)
Marginal
Revenue
(dollars per unit)
60 --
5 50 
4 80 
3 150 
280  
1100  
0150  

3. Consider Table 22.1. It provides selected information about a monopoly. Which of the following statements about this firm is correct?

a. The missing entries in the second column are 10, 20, and 50.
b. The missing entries in the third column are 0, 160, 100, and 0.
c. The missing entries in the last column are +50, +30, +70, +10, -60, and -100.
d. Only (a) and (b).
e. All of the above statements are correct.

4. Consider Figure 22.1. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. The monopolist maximizes profit by charging the highest possible price.
b. The monopolist maximizes profit by producing a quantity, such as 0I, that corresponds to the intersection, here at H, of the demand and marginal cost curves.
c. The monopolist maximizes profit by producing a quantity, such as 0G, that corresponds to the intersection, here at F, of the marginal revenue and marginal cost curves.
d. The monopolist maximizes total revenue by producing a quantity, such as 0I, that corresponds to the intersection, here at H of the demand and marginal cost curves.
e. The monopolist maximizes total revenue by producing a quantity, such as 0G, that corresponds to the intersection, here at F, of the marginal revenue and marginal cost curves.

5. Consider Figure 22.1. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. The maximum profit that this monopoly can earn equals BEFD.
b. The maximum profit that this monopoly can earn equals 0DFG.
c. The maximum profit that this monopoly can earn equals 0CHI.
d. The maximum profit that this monopoly can earn equals EHF.
e. The maximum profit that this monopoly can earn cannot be determined from the information contained in this graph.

6. Consider Figure 22.1. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. If this firm maximizes profit, its total revenue will be 0BEG.
b. If this firm maximizes profit, the price elasticity of demand for its product will have an absolute value >1.
c. If this firm maximizes profit, its total cost will be 0DFG.
d. If this firm maximizes profit, its total profit will be DBEF.
e. Only (a) and (b).

7. Consider Figure 22.2. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. When maximizing its profit, this firm produces output quantity 0G.
b. When maximizing its profit, this firm charges price 0B = GE.
c. When maximizing its profit, this firm incurs total cost of 0BEG.
d. The size of this firm's maximum profit equals zero.
e. All of the above statements are correct.

8. Consider Figure 22.2. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. When maximizing its profit, this firm's total cost equals 0DFG.
b. When maximizing its profit, this firm's total variable cost equals 0DFG.
c. When maximizing its profit, this firm's total fixed cost equals DBEF.
d. This graph contains insufficient information to allow us to break down total cost into its variable and fixed components.
e. When maximizing its profit, this firm's total revenue equals 0AJ.

9. Consider Figure 22.3. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. When producing the profit-maximizing output quantity, this firm is earning a positive economic profit of CB = FE per unit.
b. When producing the profit-maximizing output quantity, this firm is incurring a total fixed cost of 0D = HG.
c. When producing the profit-maximizing output quantity, this firm is incurring a total variable cost of DC = GF.
d. When producing the profit-maximizing output quantity, this firm is incurring a total cost of 0C = HF.
e. All of the above statements are correct.

10. Consider Figure 22.3. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. As this graph clearly shows, a monopoly firm is guaranteed positive economic profit, such as area BEFC here.
b. As this graph clearly shows, a monopoly firm rips off its customers by charging the highest possible price.
c. As this graph clearly shows, a monopoly firm rips off its customers by selling them less than they want.
d. As this graph clearly shows, a monopoly firm's price exceeds its marginal cost.
e. None of the above.

11. Consider Figure 22.4. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. The firm's supply curve is the rising arm of its marginal cost curve, reaching from minimum average variable cost to J, M, and beyond.
b. The ever-decreasing distance between ATC and AVC as output rises reflects the continual decline of average fixed cost as output rises.
c. This firm would maximize its economic profit if it produced output 0N and thereby minimized ATC.
d. At its profit maximum, this firm's average total cost is MN.
e. Both (c) and (d).

12. Consider Figure 22.4. It contains relevant data for a monopoly firm. Which of the following statements about this firm is correct?

a. In the short run, this firm is incurring a loss equal to AEFB.
b. If this firm shut down at once, to escape the loss noted in (a), its loss would be even larger (and equal to AEGC).
c. Both (a) and (b).
d. By pure accident, this firm's marginal cost curve intersects its ATC curve at its minimum M.
e. When it produces its profit-maximizing output quantity, this firm incurs a total variable cost of AEGC.

13. Major differences between the profit-maximizing situations under perfect competition and monopoly include:

a. For the perfectly competitive firm, P = MR; for the monopoly firm, P > MR.
b. For the perfectly competitive firm, P = MR; for the monopoly firm, P < MR.
c. For the perfectly competitive firm, MR = MC; for the monopoly firm, MR > MC.
d. For the perfectly competitive firm, MR = MC; for the monopoly firm, MR < MC.
e. None of the above.

14. Consider Figure 22.3. It pictures the situation of a profit-maximizing monopoly, but we can use it to make some observations about both perfect competition and monopoly. Which of the following statements is correct?

a. By maximizing economic profit, this monopoly firm manages to receive a monopoly rent of BEFC, which could continue forever. A perfectly competitive firm cannot collect such a permanent rent.
b. While this monopoly produces output quantity 0H, a perfectly competitive industry would produce 0J, a quantity that can be sold at its marginal cost.
c. Both (a) and (b).
d. The so-called welfare cost of monopoly is here measured by area EFI.
e. The so-called welfare cost of monopoly is here measured by distance EG.

15. Empirical research shows that the welfare cost of monopoly (which society must pay so that monopolists can get their monopoly rents) equals about

a.    % of total output.
b.   1 % of total output.
c.   3 % of total output.
d.   8 % of total output.
e. 10 % of total output.

16. The existence of positive economic profit has which of the following consequences?

a. Under perfect competition, it leads to the entry of new firms into the industry, an increase in supply, and lower price.
b. Under monopoly, it leads to competition for the monopoly rent, and after a lag, to higher output with unchanged price.
c. Under monopoly, it leads to competition for the monopoly rent, and after a lag, to higher output with higher price.
d. Under monopoly, it leads to competition for the monopoly rent, and after a lag, to lower output with unchanged price.
e. Under monopoly, it leads to competition for the monopoly rent, and after a lag, to lower output with higher price.

17. The increase in costs and organizational slack in a monopoly firm (that results from a a lack of competitive pressure to push costs down to their lowest possible level) is called

a. the welfare cost of monopoly.
b. X-inefficiency.
c. socially wasteful rent-seeking.
d. the capitalization of monopoly profits.
e. monopoly price discrimination.

18. Which of the following statements about price discrimination is correct?

a. It is a practice according to which a seller charges a given buyer or different buyers different prices for different units of an identical good, even though such price differences cannot be justified by differences in the cost of serving these buyers.
b. A practice according to which a seller charges each buyer for each unit bought the maximum price the buyer is willing to pay for that unit is called third-degree price discrimination.
c. A practice according to which a seller partitions market demand into fairly large, but not necessarily equal-sized blocks of output units and charges buyers different prices for each block, but uniform prices for units within blocks, is called perfect or first-degree price discrimination.
d. A practice according to which a seller charges different prices in different markets, or charges a different price to different segments of the buying population, is called second-degree price discrimination.
e. All of the above statements are correct.

19. Consider Figure 22.3. It pictures a monopolist producing output quantity 0H, charging price 0B, and earning an economic profit of BEFC. If this monopoly firm could engage in perfect price discrimination,

a. it would earn total revenue of 0AEH.
b. it would earn total revenue of 0AIJ.
c. it would incur total costs of 0CFH.
d. it would earn a larger economic profit of AEFC.
e. all of the above would occur, except (b).

20. Which of the following statements about monopoly is correct?

a. A monopolist cannot price-discriminate, unless buyers are able to engage in arbitrage by "buying low and selling high."
b. Perfectly price-discriminating monopolists produce "too little" output because they produce less than would be produced under perfect competition.
c. Perfectly price-discriminating monopolists exhibit resource allocative efficiency.
d. All of the above statements are correct.
e. None of the above statements is correct.





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