Chapter: Monopoly
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1. In order for a natural monopoly to develop,
a. it is important that the firm be a very large firm.
b. it is important that the firm prices its product below cost.
c. it is not the absolute size of the firm but its size relative to the total market demand that is important.
d. it must be in the presence of government intervention.
2. In the figure below, increasing output from 10 to 11 units reduces a monopolist's TR if ______.
a. D -A < 0
b. D < 0
c. D - C < 0
d. D - B < 0
3. A profit-maximizing monopolist sets
a. her product's price where MC = MR.
b. her output where MC = MR.
c. Both a and b are correct.
d. Neither a nor b is correct.
4. Since the Red Cross supplies 95 percent of the blood in the United States, it can be considered a monopolist. Assume that it, in fact, operates like a monopolist. The Red Cross currently charges hospitals and other users $21 for a pint of blood. In order to increase the supply of blood, the government offers the Red Cross a $10 million, lump-sum subsidy. How much more blood supply will the subsidy generate?
a. about 500,000 pints
b. somewhere between 100,000 and 500,000, depending on demand elasticity
c. somewhere between 100,000 and 500,000, depending on the elasticity of supply
d. zero
5. In the long run, profit-maximizing monopolists facing a downward-sloping demand curve
a. may earn profit greater than their opportunity cost of capital.
b. do not produce every possible unit of output for which marginal utility is greater than or equal to marginal cost.
c. may or may not have lower costs than would perfectly competitive firms in the same industry.
d. All of the above are correct.
6. What is true for monopoly that is not true for perfect competition?
a. The industry demand curve is downward sloping.
b. Profit is maximized where MR = MC.
c. The firm and the industry are exactly the same entity.
d. Positive economic profits may be earned in the short run.
7. The monopoly producer
a. sets MU equal to P.
b. sets MR = MC.
c. has MC > MU.
d. sets MR = P.
8. Advertising by the monopolist
a. is not done because the monopolist has the only supply of the product and doesn't need to advertise.
b. would have the effect of shifting its demand curve to the left.
c. may lead to expanded production by the monopolist.
d. makes no sense because there are no substitute commodities available to consumers.
9. Price discrimination
a. may lead to greater output
b. always leads to a reduction of output.
c. leads to lower profits for the firm.
d. causes firms to operate at a higher cost.
10. An example of a
barrier to entry
in a market is:
a. a lack of profitable opportunities.
b. increasing costs in production.
c. a government licensing requirement.
d. inelastic market demand.
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