CHAPTER 24Pure Monopoly Topic Question numbers ___________________________________________________________________________________________________ 1. 2. 3. 4. 5. 6. 7. Monopoly concept; definition Barriers to entry 8-13 Monopoly demand curve 14-73 Profit maximization Economic implications Price discrimination Regulated monopolies Consider This Last Word True-False 180-181 182-184 185-208 74-116 117-145 146-164 165-179 1-7 ___________________________________________________________________________________________________ Multiple Choice Questions Monopoly concept; definition Type: D Topic: 1 E: 438 MI: 194 1. A) B) C) D) Answer: C Pure monopoly means: any market in which the demand curve to the firm is downsloping. a standardized product being produced by many firms. a single firm producing a product for which there are no close substitutes. a large number of firms producing a differentiated product. Type: D Topic: 1 E: 438 MI: 194 2. A) B) C) D) Answer: C Which of the following is correct? Both purely competitive and monopolistic firms are "price takers." Both purely competitive and monopolistic firms are "price makers." A purely competitive firm is a "price taker," while a monopolist is a "price maker." A purely competitive firm is a "price maker," while a monopolist is a "price taker." Type: A Topic: 1 E: 438-439 MI: 194-195 3. A) B) C) D) Answer: D A purely monopolistic industry: has no entry barriers. has a downward sloping demand curve. produces a product or service for which there are many close substitutes. earns only a normal profit in the long run. Type: D Topic: 1 E: 438 MI: 194 4. A) B) C) D) Answer: D A pure monopolist is: any firm realizing all existing economies of scale. any firm whose demand curve is downsloping. any firm which can engage in price discrimination. a one-firm industry. Type: A Topic: 1 E: 439 MI: 195 5. A) B) costs. Answer: C Pure monopolists may obtain economic profits in the long run because: of advertising. C) of barriers to entry. D) of rising average fixed marginal revenue is constant as sales increase. Type: F Topic: 1 E: 439 MI: 195 6. Which of the following approximates a pure monopoly? A) B) Answer: C the foreign exchange market the Kansas City wheat market C) D) the diamond market the soft drink market Type: A Topic: 1 E: 439 MI: 195 7. Which of the following is a characteristic of pure monopoly? B) barriers to entry C) the absence of market power D) A) close substitute products "price taking" Answer: B Barriers to entry Type: A Topic: 2 E: 439-441 MI: 195-197 8. A) resources Answer: B Which of the following is not a barrier to entry? patents B) X-inefficiency C) economies of scale D) ownership of essential Type: A Topic: 2 E: 439 MI: 195 9. A) B) C) D) Barriers to entering an industry: are justified because they result in allocative efficiency. are justified because they result in productive efficiency. are the basis for monopoly. apply only to purely monopolistic industries. Answer: C . long-run average costs rise continuously as output is increased. are also called trademarks. D) shared monopoly. Answer: A Large minimum efficient scale of plant combined with limited market demand may lead Type: A Topic: 2 E: 439-441 MI: 195-197 13. A) B) C) D) Answer: A A natural monopoly occurs when: long-run average costs decline continuously through the range of demand. in common? What do economies of scale. discourage research and innovation. the ownership of essential raw materials. A) B) C) D) Answer: D Patents: give firms the exclusive right to produce or control a product for 100 years. are a source of monopoly. Type: A Topic: 2 E: 440 MI: 196 12. economies of scale are obtained at relatively low levels of output. and patents have .Type: A Topic: 2 E: 440 MI: 196 10. a firm owns or controls some resource essential to production. Type: A Topic: 2 E: 440 MI: 196 11. B) patent monopoly C) government franchise monopoly. to: A) natural monopoly. is perfectly elastic. A) B) C) D) Answer: D The nondiscriminating pure monopolist's demand curve: is the industry demand curve. shows a direct or positive relationship between price and quantity demanded. coincides with its marginal revenue curve. is identical to its marginal revenue curve. Monopoly demand curve Type: A Topic: 3 E: 441 MI: 197 14. A) B) C) D) Answer: A The nondiscriminating monopolist's demand curve: is less elastic than a purely competitive firm's demand curve. tends to be inelastic at high prices and elastic at low prices. They all help explain why a monopolist's demand and marginal revenue curves coincide. They all help explain why the long-run average cost curve is U-shaped. is perfectly inelastic. . Type: A Topic: 3 E: 441-442 MI: 197-198 15.A) B) C) D) Answer: B They must all be present before price discrimination can be practiced. They are all barriers to entry. D) lies below its marginal revenue coincides with its marginal revenue curve. Answer: C A nondiscriminating pure monopolist's demand curve: is perfectly inelastic. D) the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold. upsloping line because a firm's sales are independent of product price. will be greater than $35. C) the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. A) B) curve. Type: A Topic: 3 E: 441-442 MI: 197-198 18. C) lies above its marginal revenue curve. Answer: C Type: A Topic: 3 E: 442-443 MI: 198-199 . B) the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. its marginal revenue: A) B) Answer: C may be either greater or less than $35. For an imperfectly competitive firm: A) total revenue is a straight. Type: A Topic: 3 E: 441-442 MI: 197-198 17. If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35.Type: A Topic: 3 E: 441-442 MI: 197-198 16. will also be $35. D) C) will be less than $35. A) B) C) D) Answer: C When a firm is on the inelastic segment of its demand curve. the demand and marginal revenue curves coincide. the demand curve intersects the horizontal axis where total revenue is at a maximum. A) B) C) D) Answer: D For a nondiscriminating imperfectly competitive firm: the marginal revenue curve lies above the demand curve. Type: A Topic: 3 E: 443-444 MI: 199-200 20. marginal revenue will become zero at that output where total revenue is at a maximum. decrease total costs by decreasing price. it can: increase total revenue by reducing price.19. increase profits by increasing price. increase total revenue by more than the increase in total cost by increasing price. . marginal revenue is less than price. C) D) decrease by A minus C. . C) monopoly price. If price is reduced from P1 to P2. decrease by C minus A. Refer to the above diagram. A) B) C) D) Answer: D The above diagram implies that whenever a firm's demand curve is downsloping: price discrimination is not possible. Type: G Topic: 3 E: 443-444 MI: 199-200 22. total revenue will: increase by A minus C. D) a welfare or Type: G Topic: 3 E: 442-443 MI: 198-199 23. A) B) Answer: B Refer to the above diagram. the demand and marginal revenue curves will coincide. efficiency loss. The quantity difference between areas A and C for the indicated price reduction measures: A) marginal cost. monopolists will be more efficient than competitors. increase by C minus A. Answer: B B) marginal revenue.Use the following to answer questions 21-23: Type: G Topic: 3 E: 443-444 MI: 199-200 21. Use the following to answer questions 24-25: Answer the next question(s) on the basis of the demand schedule shown below: Type: T Topic: 3 E: 442 MI: 198 24. C) $3. The marginal revenue obtained from selling the third unit of $6. . output is: A) Answer: C Refer to the above data. B) $1. D) $5. 000 each. D) is greater than unity (one). Refer to the above data. C) $10. C) is less than unity (one). a pure monopolist. The marginal revenue of the tenth unit of sales per week is: A) Answer: D -$1. but if it restricts its output to 9 per week it can sell these at $11. D) C) an oligopolist.000. A) B) Answer: B Refer to the above two diagrams for individual firms. Figure 1 pertains to: an imperfectly competitive firm. a purely competitive firm. Type: G Topic: 3 E: 416 MI: 172 .000 each. the coefficient of price elasticity of demand: A) B) Answer: D cannot be estimated.000. suggests that the market is purely competitive. At the point where 3 units are being sold. Use the following to answer questions 27-31: Type: G Topic: 3 E: 416 MI: 172 27. B) $9. D) $1. A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10.000. Type: A Topic: 3 E: 442 MI: 198 26.Type: T Topic: 3 E: 443 MI: 199 25.000. Refer to the above two diagrams for individual firms. . In Figure 1. firm's: A) B) Answer: D demand and marginal revenue curves. Type: G Topic: 3 E: 416 MI: 172 29. In Figure 1 line B represents the demand and marginal revenue curves. firm's: A) B) Answer: A Refer to the above two diagrams for individual firms. D) C) marginal revenue curve only. demand curve only. D) C) marginal revenue curve only. average revenue curve only. line A represents the total revenue curve only. demand curve only.28. The pure monopolist's demand curve is: . either an imperfectly competitive or a purely competitive seller. Figure 2 pertains to: a market characterized by government regulation of price and output. In Figure 2 the firm's demand and marginal revenue curves are represented by: A) B) Answer: A lines B and C respectively. Refer to the above two diagrams for individual firms. Type: A Topic: 3 E: 441 MI: 197 33. A) B) C) D) Answer: B With respect to the pure monopolist's demand curve it can be said that: the stronger the barriers to entry. the more elastic is the monopolist's demand curve. an imperfectly competitive seller. price exceeds marginal revenue at all outputs greater than 1. line B. marginal revenue equals price at all outputs. A) B) C) D) Answer: D Refer to the above two diagrams for individual firms. a purely competitive seller. C) D) lines A and B respectively. Type: A Topic: 3 E: 441-442 MI: 197-198 32. lines A and C respectively. Type: G Topic: 3 E: 441-442 MI: 197-198 31. demand is perfectly inelastic.Type: G Topic: 3 E: 441 MI: 197 30. A) B) Answer: A identical with the industry demand curve. perfectly elastic. . D) C) perfectly inelastic. of unit elasticity throughout. Demand is relatively elastic: in the P2P1 price range. B) at any price below P2. B) C) D) Answer: B Refer to the above diagram. Type: G Topic: 3 E: 442-443 MI: 198-199 35. D) in the P2P3 A) at price P3. A) B) Answer: C Refer to the above diagram. C) D) in the P2P4 price range. a market in which demand is elastic at all prices. only at price P2. price range. in the 0P1 price range. Type: G Topic: 3 E: 442-443 MI: 198-199 36. a purely competitive market. This firm is selling in: a market in which there are an extremely large number of other firms producing the same an imperfectly competitive market. A) product. Demand is relatively inelastic: C) in the P2P4 price range. Refer to the above diagram.Use the following to answer questions 34-37: Type: G Topic: 3 E: 441-442 MI: 197-198 34. Answer: B . producing Q2 units and charging a price of P2. B) C) D) Answer: D selling the product at the highest possible price at which a positive quantity will be producing Q1 units and charging a price of P1. the total cost of any level of output was zero).Type: G Topic: 3 E: 444 MI: 200 37. producing Q3 units and charging a price of P3. the firm would maximize profits by: A) demanded. . If this somehow was a costless product (that is. Refer to the above diagram. Type: G Topic: 3 E: 442 MI: 198 . upward sloping curve. is less elastic than that faced by a single purely competitive firm. has the same elasticity as that faced by a single purely competitive firm. A) B) C) D) Answer: C The marginal revenue curve for a monopolist: is a straight. A) B) C) D) Answer: B Price exceeds marginal revenue for the pure monopolist because the: law of diminishing returns is inapplicable. parallel to the horizontal axis. rises at first. A) B) C) D) Answer: B The demand curve faced by a pure monopolist: may be either more or less elastic than that faced by a single purely competitive firm. is more elastic than that faced by a single purely competitive firm.Type: A Topic: 3 E: 441-442 MI: 197-198 38. reaches a maximum. Type: A Topic: 3 E: 442-443 MI: 198-199 39. monopolist produces a smaller output than would a purely competitive firm. is a straight line. becomes negative when output increases beyond some particular level. demand curve lies below the marginal revenue curve. Type: A Topic: 3 E: 443 MI: 199 40. and then declines. demand curve is downsloping. D) average revenue. If the firm in the above diagram lowers price from P1 to P2. . C) marginal revenue.41. it will: A) lose P1P 2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales. measures: A) Answer: C The quantitative difference between areas Q1bcQ 2 and P1P2ba in the above diagram marginal cost. B) lose P1P 2ca in revenue from the price cut but increase revenue by Q1acQ2 from the increase in sales. C) incur a decline in total revenue because it is operating on the elastic segment of the demand curve. B) total revenue. Answer: A Type: G Topic: 3 E: 442 MI: 198 42. D) incur an increase in total revenue because it is operating on the inelastic segment of the demand curve. A) B) C) D) Answer: D Which of the following is characteristic of a pure monopolist's demand curve? Average revenue is less than price. in the price range where marginal revenue is positive. Price and marginal revenue are equal at all levels of output. Type: A Topic: 3 E: 441 MI: 197 44. its supply curve will also be downsloping. It is the same as the market demand curve. A) B) C) D) Answer: D The pure monopolist's demand curve is relatively elastic: in the price range where total revenue is declining. Type: A Topic: 3 E: 443 MI: 199 45. the elasticity coefficient will increase as price is lowered. price must be lowered to sell more output.Type: A Topic: 3 E: 441 MI: 197 43. Type: A Topic: 3 E: 443 MI: 199 . A) B) C) D) Answer: B Because the monopolist's demand curve is downsloping: MR will equal price. in the price range where marginal revenue is negative. at all points where the demand curve lies above the horizontal axis. Its elasticity coefficient is 1 at all levels of output. the demand curve is relatively inelastic. marginal revenue is positive. Answer: B .46. depending on the level of production costs. will never produce in the output range where demand is elastic. A) Answer: D When the pure monopolist's demand curve is elastic. A) B) C) A nondiscriminating monopolist: will never produce in the output range where marginal revenue is positive. marginal revenue is negative. D) may produce where demand is either elastic or inelastic. Type: A Topic: 3 E: 443 MI: 199 47. will never produce in the output range where demand is inelastic. A) B) C) D) Answer: C When total revenue is increasing: marginal revenue may be either positive or negative. marginal revenue: may be either positive or negative. C) is negative. B) is zero. D) is positive. Type: A Topic: 3 E: 443-444 MI: 199-200 48. the monopolist's demand curve is perfectly inelastic. A) B) C) sold. but total revenue becomes negative when marginal revenue is decreasing. D) Answer: C For a pure monopolist marginal revenue is less than price because: the monopolist's demand curve is perfectly elastic. the lower price applies to all units the monopolist's total revenue curve is linear and slopes upward to the right. Answer: A Type: A Topic: 3 E: 441-442 MI: 197-198 51. Use the following to answer questions 52-54: . C) marginal revenue is positive when total revenue is increasing. but marginal revenue becomes negative when total revenue is decreasing. C) parallel to the vertical axis. such that: A) For a pure monopolist the relationship between total revenue and marginal revenue is marginal revenue is positive when total revenue is at a maximum.Type: A Topic: 3 E: 443 MI: 199 49. horizontal axis. D) Answer: C marginal revenue is positive so long as total revenue is positive. Type: A Topic: 3 E: 441 MI: 197 50. B) total revenue is positive when marginal revenue is increasing. when a monopolist lowers price to sell more output. D) parallel to the A) downsloping. A pure monopolist's demand curve is: B) upsloping. D) q1. Type: G Topic: 3 E: 442 MI: 198 53. . for all levels of output less than q2.Type: G Topic: 3 E: 443 MI: 199 52. C) only for outputs greater than q4. Marginal revenue will be q4. C) q2. D) for all levels of output greater than q2. zero at output: A) Answer: C Refer to the above diagram for a nondiscriminating monopolist. B) q3. Demand is elastic: in the q1q 3 output range. A) B) Answer: C Refer to the above diagram for a nondiscriminating monopolist. If the monopolist is seeking maximum profits.Type: G Topic: 3 E: 444 MI: 200 54. C) inelastic segment of its demand curve because it can always increase total revenue by more than it increases total cost by reducing price. Type: A Topic: 3 E: 444 MI: 200 56. The profit-seeking monopolist will: A) B) Answer: C always produce at output q2. Type: A Topic: 3 E: 444 MI: 200 55. A pure monopolist should never produce in the: A) elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price. a pure monopolist: . Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. Refer to the above diagram for a nondiscriminating monopolist. increase both price and quantity sold. always produce more than q2. D) Answer: B segment of its demand curve where the price elasticity coefficient is greater than one. B) inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price. charge a lower price. it should: A) B) Answer: C retain its current price-quantity combination. D) C) charge a higher price. C) D) never produce an output larger than q2. never produce an output larger than q1. Assuming no change in product demand. Type: A Topic: 3 E: 441 MI: 197 57. C) marginal revenue will be positive marginal revenue will be positive but declining. B) Answer: D If a monopolist were to produce in the inelastic segment of its demand curve: total revenue would be at a maximum. Type: A Topic: 3 E: 443-444 MI: 199-200 58. C) the firm would be maximizing marginal revenue would be negative.A) B) C) D) Answer: D can increase price and increase sales simultaneously because it dominates the market. A) profits. D) it would necessarily incur a loss. Type: A Topic: 3 E: 443 MI: 199 59. Answer: B If a pure monopolist is operating in a range of output where demand is elastic: it cannot possibly be maximizing profits. should produce in the range where marginal revenue is negative. A) and rising. D) total revenue will be . adds an amount to total revenue which is equal to the price of incremental sales. B) declining. must lower price to increase sales. If the marginal revenue of the seventh unit is $5. The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures: A) B) Answer: B the quantity demanded. firm's demand curve is perfectly elastic. Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. total revenue is at a maximum. D) Type: G Topic: 3 E: 442 MI: 198 63. A pure monopolist is selling 6 units at a price of $12. total revenue is increasing.Type: A Topic: 3 E: 442-443 MI: 198-199 60. C) total revenue. Type: A Topic: 3 E: 442-443 MI: 198-199 61. Type: A Topic: 3 E: 442 MI: 198 62. We thus know that: A) B) Answer: B demand is inelastic at this price. The above diagram indicates that the marginal revenue of the sixth unit of output is: . product price and average revenue. C) D) the firm is maximizing profits. price of the seventh unit is $11. product price and marginal revenue. C) D) price of the seventh unit is greater than $12. then: A) B) Answer: B price of the seventh unit is $10. B) -$1.A) Answer: B $1. Type: A Topic: 3 E: 427 MI: 183 64. . their total revenue increases by less than the new price. when they reduce price. can alter their output by changing price. find that. D) $24. do not compete with one another. A) B) C) D) Answer: B Which of the following is incorrect? Imperfectly competitive producers: face downsloping demand curves. C) $4. Use the following to answer question 65: Answer the next question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist: Type: T Topic: 3 E: 443 MI: 199 65. A) B) Answer: B The monopolist will select its profit-maximizing level of output somewhere within the: 3-5 unit range of output. 1-3 unit range of output. C) D) 1-4 unit range of output. 2-4 unit range of output. Type: A Topic: 3 E: 442-443 MI: 198-199 66. A nondiscriminating pure monopolist finds that it can sell its fiftieth unit of output for $50. We can surmise that the marginal: A) cost of the fiftieth unit is also $50. C) revenue of the fiftieth unit is less than $50. D) revenue of the fiftieth unit is B) revenue of the fiftieth unit is also $50. greater than $50. Answer: C Type: A Topic: 3 E: 442 MI: 198 67. If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be: A) B) of output. equal to its price. the price at which that unit is sold less the price reductions which apply to all other units C) of output. D) Answer: B the price at which that unit is sold plus the price increases which apply to all other units indeterminate unless marginal cost data are known. Type: A Topic: 3 E: 443 MI: 199 68. A) Answer: C Assuming a pure monopolist's demand curve is downsloping, its total revenue: is rising. B) is falling. C) may be either rising or falling. D) must be negative. Use the following to answer questions 69-71: Type: G Topic: 3 E: 443 MI: 199 69. Which of the above diagrams correctly portray a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves? A) Answer: B A B) B C) C D) D Type: G Topic: 3 E: 454 MI: 210 70. Which of the above diagrams correctly portray the demand ( D) and marginal revenue (MR) curves of a pure monopolist that is practicing perfect price discrimination? A) Answer: A A B) B C) C D) D Type: G Topic: 3 E: 415-416 MI: 171-172 71. Which of the above diagrams correctly portray the demand ( D) and marginal revenue (MR) curves of a purely competitive seller? A) Answer: C A B) B C) C D) D Type: A Topic: 3 E: 442 MI: 198 Status: New 72. Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the twenty-first unit of output is: A) Answer: C $9.75. B) $204.75. C) $4.75. D) $.25. Type: A Topic: 3 E: 442 MI: 198 Status: New 73. Suppose that a pure monopolist can sell 10 units of output at $5 per unit and 11 units at $4.90 per unit. The marginal revenue of the eleventh unit is: A) Answer: A $3.90. B) $.10. C) $53.90. D) $4.90. Profit maximization Type: A Topic: 4 E: 444-445 MI: 200-201 74. C) average variable cost. Type: A Topic: 4 E: 444-445 MI: 200-201 75. A) Answer: C An unregulated pure monopolist will maximize profits by producing that output at which: P = MC.90 per unit. In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: A) Answer: B average total cost. Type: A Topic: 4 E: 444-445 MI: 200-201 76. applies both to pure monopoly and pure competition. D) MC = AC. A) B) C) D) Answer: D The MR = MC rule: applies only to pure competition. C) MR = MC. Type: C Topic: 4 E: 444-445 MI: 200-201 Status: New 77. B) marginal revenue. does not apply to pure monopoly because price exceeds marginal revenue. Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3. B) P = ATC. The monopolist will produce and sell the sixth unit if its marginal cost is: . D) average cost. applies only to pure monopoly. The monopolist will produce and sell the fifth unit if its marginal cost is: A) Answer: B $1 or less.75 or less. .75 or less..50 or less.90 or less.40 or less. B) $3.A) Answer: D $4 or less. C) $1. Type: C Topic: 4 E: 444-445 MI: 200-201 Status: New 78. Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1. B) $. D) $3.75 per unit. D) $2 or less. C) $3. Use the following to answer questions 79-84: Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 79. $10. B) 4 units. Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 82. B) $10.33. Answer: C Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 81. At its profit-maximizing output. C) $24. Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output.33. At its profit-maximizing output. this firm's price will exceed its marginal cost by ____ and its average total cost by ____. Refer to the above data for a nondiscriminating monopolist. $27. Refer to the above data for a nondiscriminating monopolist. $27. $20. D) inelastic portion of its B) perfectly inelastic portion of its demand curve. this firm will be operating in the: A) perfectly elastic portion of its demand curve. this firm's total costs will be: . C) 5 units. demand curve. C) elastic portion of its demand curve. D) 6 units.50. Refer to the above data for a nondiscriminating monopolist. Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 80.40. This firm will maximize its profit by producing: A) Answer: B 3 units. D) $30. A) Answer: D $20. At its profit-maximizing output. B) $248. this firm's total revenue will be: $300. B) $198. . C) $198.A) Answer: C $300. A) Answer: D Refer to the above data. D) $280. C) $180. Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 83. D) $126. an economic profit that could be increased by producing more output. its profits by: If a monopolist's marginal revenue is $3. Type: A Topic: 4 E: 444-445 MI: 200-201 85. A monopolistic firm produces a product having no close substitutes. a loss that could be reduced by producing less output.00 and its marginal cost is $4. Type: A Topic: 4 E: 444-445 MI: 200-201 87. and MR = $3.Type: G Topic: 4 E: 444-445 MI: 200-201 Status: New 84. A pure monopolist is producing an output such that ATC = $4. A pure monopolist's demand curve is the industry demand curve. C) $54. this firm's total profit will be: A) Answer: A $82. The monopolist's marginal revenue is less than price for any given output greater than 1. A) B) C) D) Answer: A Which of the following statements is incorrect? A monopolist's 100 percent market share ensures economic profits.50. At its profit-maximizing output. Refer to the above data for a nondiscriminating monopolist. D) $27. This firm is realizing: A) B) C) D) Answer: C a loss that could be reduced by producing more output. P = $5. it will increase . an economic profit that could be increased by producing less output. B) zero. Type: A Topic: 4 E: 446 MI: 202 86. MC = $2. Equilibrium price for the monopolist will be: $5. . unchanged. C) D) increasing both price and output. raising price while keeping output B) reducing both output and price.50.A) reducing output and raising price. A) Answer: D Refer to the above data. D) $4. C) $3.90.00 B) $2. Answer: A Use the following to answer questions 88-90: Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist: Type: T Topic: 4 E: 444-445 MI: 200-201 88.35. C) 0EGC. D) 5 units. D) 0EHB. To maximize profits or minimize losses this firm should Type: G Topic: 4 E: 445 MI: 201 92. Type: T Topic: 4 E: 444-445 MI: 200-201 90. E units and charge price A. C) profit of $16. B) 0AJE.50. A) Answer: D Refer to the above data. C) 6 units. B) 7 units. . A) Refer to the above diagram. B) profit of $7. produce: A) B) Answer: B E units and charge price C. The equilibrium level of output will be: 4 units. In equilibrium total revenue will be: NM times 0M. Use the following to answer questions 91-94: Type: G Topic: 4 E: 445 MI: 201 91. L units and charge price LK. D) loss of $14. Refer to the above diagram. C) D) M units and charge price N.Type: T Topic: 4 E: 444-445 MI: 200-201 89.50. The monopolist will realize a: profit of $8. A) Answer: C Refer to the above data. A) Answer: D Refer to the above diagram. D) 0BHE. In equilibrium total cost will be: NM times 0M. B) 0AJE. . C) 0CGC.Answer: B Type: G Topic: 4 E: 445 MI: 201 93. an economic profit of ACGJ. . A) B) C) If a pure monopolist is producing at that output where P = ATC. C) D) a loss of GH per unit. Type: A Topic: 4 E: 444 MI: 200 95. will realize an economic profit if ATC exceeds MR at the equilibrium output. it will be realizing losses. Type: A Topic: 4 E: 444-445 MI: 200-201 97. In equilibrium the firm will realize: an economic profit of ABHJ. a loss of JH per unit. A) B) Answer: A Refer to the above diagram. always realizes an economic profit. A) B) C) D) Answer: A A pure monopolist: will realize an economic profit if price exceeds ATC at the equilibrium output. then: its economic profits will be zero.Type: G Topic: 4 E: 445 MI: 201 94. will realize an economic loss if MC intersects the downsloping portion of MR. it will be producing less than the profit-maximizing level of output. In equilibrium which of the following conditions are common to both unregulated monopoly and to pure competition? A) Answer: C MC = P B) MC = ATC C) MR = MC D) P = MR Type: A Topic: 4 E: 444-445 MI: 200-201 96. A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that Type: A Topic: 4 E: 444 MI: 200 99. D) MC = ATC. . D) always exceeds ATC. price: A) B) Answer: B equals marginal revenue.D) Answer: A it will be realizing an economic profit. will always equal ATC. C) may be greater or less than ATC. Type: A Topic: 4 E: 444 MI: 200 98. C) MR = MC. B) P = MC. The short-run profit maximizing position of an unregulated pure monopolist is characterized by: A) Answer: C P = minimum ATC. B) c. D) f . will be ae per unit. In the short run a pure monopolist's profit: . will be bc per unit. D) a. C) g. will be ac per unit. A) B) C) D) Answer: A Refer to the above diagram for a pure monopolist. A) Answer: D Refer to the above diagram for a pure monopolist. Monopoly output will be: between f and g. Type: A Topic: 4 E: 446 MI: 202 103. Monopoly profit: cannot be determined from the information given. A) Answer: B Refer to the above diagram for a pure monopolist. Monopoly price will be: e. Type: G Topic: 4 E: 445 MI: 201 102. B) h. Type: G Topic: 4 E: 445 MI: 201 101.Use the following to answer questions 100-102: Type: G Topic: 4 E: 445 MI: 201 100. C) b. may be positive. C) D) both are price makers. or negative. Answer: D . will be zero. zero. A) Purely competitive firms and pure monopolists are similar in that: the demand curves of both are perfectly elastic. are always positive. both maximize profit B) significant entry barriers are common to both.A) B) C) D) Answer: B will be maximized where price equals average total cost. where MR = MC. Type: A Topic: 4 E: 444 MI: 200 104. Type: A Topic: 4 E: 446 MI: 202 105. Under which of the following situations would a monopolist increase profits by lowering price (and increasing output): A) B) C) D) Answer: C if it discovered that it was producing where MC = MR if it discovered that it was producing where its MC curve intersects its demand curve if it discovered that it was producing where MC < MR under none of the above circumstances because a monopolist would never lower price . Type: A Topic: 4 E: 443-444 MI: 199-200 106. Type: A Topic: 4 E: 444 MI: 200 107. A) B) C) D) Answer: D In the short run. are usually negative because of government price regulation. may be positive or negative depending on market demand and cost. as close as possible to the minimum point of ATC. along the elastic portion of its demand curve. a monopolist's economic profits: are always positive because the monopolist is a price-maker. A) B) C) D) Answer: B A profit-maximizing monopolist will set its price: as far above ATC as possible. where the marginal cost curve intersects the demand curve. are always zero because consumers prefer to buy from competitive sellers. Use the following to answer questions 108-109: Type: G Topic: 4 E: 445 MI: 201 108. P1 and Q1. P2 and Q2. Refer to the above diagram. . the profit-maximizing price and quantity will be: A) B) C) D) Answer: C P3 and Q3. If this industry is purely competitive. indeterminate on the basis of the information given. Refer to the above diagram. B) P1 and Q1. Assume a pure monopolist is charging price P and selling output Q as shown on the above diagram. the firm would be maximizing its profits. Use the following to answer question 111: Type: G Topic: 4 E: 443 MI: 199 111. Answer: A Type: A Topic: 4 E: 446 MI: 202 110.Type: G Topic: 4 E: 445 MI: 201 109. D) equal MC. C) D) Answer: A the firm is producing where the price elasticity coefficient is less than one. C) equal MR. B) equal neither MC nor MR. If this industry is comprised of only one seller. D) indeterminate on the basis of the information given." . the profitmaximizing price and quantity will be: A) P3 and Q3. price will: be less than MR. A) Answer: B When a pure monopolist is producing its profit -maximizing output. the firm is a "price taker. B) if marginal costs were positive the firm would increase profits by reducing price and selling more output. On the basis of this information we can say that: A) if marginal costs were somehow zero. C) P2 and Q2. A) B) C) D) Answer: D The supply curve for a monopolist is: perfectly elastic. is the same as that of a purely competitive industry.Type: A Topic: 4 E: 445-446 MI: 201-202 112. A) B) C) D) Answer: D The supply curve of a pure monopolist: is that portion of its marginal cost curve which lies above average variable cost. nonexistent. upsloping. . Type: A Topic: 4 E: 445-446 MI: 201-202 113. is its average variable cost curve. does not exist because prices are not "given" to a monopolist. that portion of the marginal cost curve lying above minimum average variable cost. A) B) C) D) Answer: D In the short run a pure monopolist: always earns an economic profit. always realizes a loss. may realize an economic profit. Economic implications . B) price. maximize the difference between total revenue and total cost. produce where average total cost is at a minimum. A) B) C) D) Answer: C To maximize profit a pure monopolist must: maximize its total revenue. D) raise both output and Type: A Topic: 4 E: 446-447 MI: 202-203 115. the firm should: produce more output and charge a higher price. a normal profit. always earns a normal profit. maximize the difference between marginal revenue and marginal cost.Type: A Topic: 4 E: 445 MI: 201 114. A) price. C) reduce both output and produce more output and charge a lower price. Type: A Topic: 4 E: 446 MI: 202 116. or a loss. Answer: B If the variable costs of a profit-maximizing pure monopolist decline. 443 MI: 172. pure competitor.Use the following to answer questions 117-121: Type: G Topic: 5 E: 416. as is Firm B. Firm A is a: pure competitor and Firm B is a pure monopoly. 199 117. as is Firm B. pure monopoly and Firm B is a pure competitor. A) B) C) D) Answer: A Refer to the above diagrams. . pure monopoly. perfectly inelastic over all ranges of output. A) Answer: B Firm A's average revenue is: zero. B) $1. inelastic for prices above $4 and inelastic for prices below $4. elastic for prices above $1 and inelastic for prices below $1. A) Answer: D If $4 is Firm B's profit-maximizing price. Type: G Topic: 5 E: 443 MI: 199 119. its: ATC must be $4. D) more than $1. C) less than $1. elastic for prices above $4 and inelastic for prices below $4. perfectly inelastic over all ranges of output. C) MR must be $4. D) MC must be zero. Type: G Topic: 5 E: 443 MI: 199 120. Type: G Topic: 5 E: 416 MI: 172 121. inelastic for prices above $1 and inelastic for prices below $1. . B) MC must be $4. A) B) C) D) Answer: A Refer to the above diagrams. A) B) C) D) Answer: C Refer to the above diagrams.Type: G Topic: 5 E: 416 MI: 172 118. The demand for Firm A's product is: perfectly elastic over all ranges of output. The demand for Firm B's product is: perfectly elastic over all ranges of output. Type: A Topic: 5 E: 448 MI: 204 123. . A) B) C) D) Answer: B Economic profit in the long run is: possible for both a pure monopoly and a pure competitor. impossible for both a pure monopolist and a pure competitor. D) Answer: B Purely monopolistic sellers earn only normal profits in the long run. only possible when barriers to entry are nonexistent. but not for a pure competitor. possible for a pure monopoly.Type: A Topic: 5 E: 442-443 MI: 198-199 122. B) In seeking the profit-maximizing output the pure monopolist underallocates resources to its production. C) The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest. Which of the following statements is correct? A) The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero. underallocated because price exceeds marginal cost. overallocated because marginal cost exceeds price. a monopolistic producer will charge: the same price and produce the same output as a competitive firm. output: A) marginal revenue exceeds product price at all profitable levels of production. at the profit maximizing B) monopolists always price their products on the basis of the ability of consumers to pay rather than on costs of production. a higher price and produce a smaller output than a competitive firm. Type: A Topic: 5 E: 448 MI: 204 125. Type: A Topic: 5 E: 448 MI: 204 126. underallocated because marginal cost exceeds price. An important economic problem associated with pure monopoly is that. resources are: A) B) C) D) Answer: C overallocated because price exceeds marginal cost. Answer: D . C) MC > P.Type: A Topic: 5 E: 448 MI: 204 124. a lower price and produce a smaller output than a competitive firm. at the profit maximizing outputs. D) society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce. A single-price monopoly is economically undesirable because. A) B) C) D) Answer: C Confronted with the same unit cost data. a higher price and produce a larger output than a competitive firm. a pure nondiscriminating monopolist achieves: neither productive efficiency nor allocative efficiency.Type: C Topic: 5 E: 445. . Type: A Topic: 5 E: 448 MI: 204 128. or may not. be maximizing profits. productive efficiency but not allocative efficiency. allocative efficiency but not productive efficiency. C) D) marginal cost exceeds price. 447-448 MI: 201. but not necessarily of society. it will be in the interest of the firm and society to reduce output. equilibrium: A) B) Answer: D The profit-maximizing output of a pure monopoly is economically inefficient because in price equals minimum average total cost. price exceeds marginal cost. marginal revenue equals marginal cost. 203-204 127. A) B) C) D) Answer: B If a pure monopolist is producing more output than the MR = MC output: the firm may. A) B) C) D) Answer: A At its profit-maximizing output. it will be in the interest of the firm and society to increase output. Type: A Topic: 5 E: 448 MI: 204 129. it will be in the interest of the firm. both productive efficiency and allocative efficiency. to reduce output. output. A) Refer to the above diagrams. because it produces short of minimum average cost and price is greater than marginal Type: A Topic: 5 E: 448 MI: 204 131. output. and average total cost would all be higher. Diagram (A) represents: equilibrium price and quantity in a purely competitive industry. and average total cost would all be lower. Comparing a pure monopoly and a purely competitive firm with identical costs. price and output would be lower. . we would find in long-run equilibrium that the pure monopolist's: A) B) C) D) Answer: B price. Answer: C because it produces beyond minimum average total cost and marginal cost is greater than A single-price pure monopoly is economically inefficient: only because it produces beyond the point of minimum average total cost. only because it produces short of the point of minimum average total cost. price and average total cost would be higher. but output would be lower. price.Type: A Topic: 5 E: 448 MI: 204 130. Use the following to answer questions 132-137: Type: G Topic: 5 E: 447 MI: 203 132. but average total cost would be higher. A) B) C) cost. D) price. a single firm operating in a purely competitive industry. A) B) C) D) Answer: C Refer to the above diagrams. an industry in which there is allocative efficiency but not productive efficiency. .B) C) D) Answer: A the pure monopoly model. the pure monopoly model. Diagram (B) represents: the pure competition model. Type: G Topic: 5 E: 447 MI: 203 133. an industry in which there is productive efficiency but not allocative efficiency. a long-run constant-cost industry. same as in diagram (A). resulting in allocative efficiency. while in (B) an economic profit can (A) price exceeds marginal cost. Refer to the above diagrams. Answer: C D) (B) output will be the Type: G Topic: 5 E: 447-448 MI: 203-204 . Answer: D h and the profit-maximizing price is e. Type: G Topic: 5 E: 447-448 MI: 203-204 136. (B) price equals marginal cost. diagram (A). A) persist. B) is d. In diagram (B) the profit-maximizing quantity is: g and the profit-maximizing price is e. D) g and the profit-maximizing price Refer to the above diagrams. With the industry structure represented by diagram: (A) there will be only a normal profit in the long run. (B) equilibrium price and quantity will be e and h. respectively. B) C) D) Answer: A Refer to the above diagrams. C) g and the profit-maximizing price Type: G Topic: 5 E: 447-448 MI: 203-204 135. With the industry structure represented by diagram: C) (B) output will be less than in A) (A) there will be allocative inefficiency. B) (A) economic profit can persist in the long run.Type: G Topic: 5 E: 447-448 MI: 203-204 134. resulting in allocative inefficiency. A) is f. Type: A Topic: 5 E: 450 MI: 206 139. lower. Type: D Topic: 5 E: 449-450 MI: 205-206 138. D) lower. A) B) C) D) There is some evidence to suggest that X-inefficiency is: absent whenever two or more producers are competing with one another. lower. simultaneous consumption. Refer to the above diagrams. rent-seeking behavior. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one reprsented in (A). encounters diseconomies of scale. fails to realize all existing economies of scale. B) higher. more likely to occur in competitive firms than in monopolistic firms. higher. fails to achieve the minimum average total costs attainable at each level of output. not encountered in either competitive or monopolistic firms. A) B) C) D) Answer: D X-inefficiency refers to a situation in which a firm: is not as technologically progressive as it might be. C) D) greater use of specialized inputs. more likely to occur in monopolistic firms than in competitive firms. A) Answer: B higher. C) lower. A) B) Answer: D Which of the following is not a possible source of natural monopoly? large-scale network effects. Type: F Topic: 5 E: 450 MI: 206 140.137. higher. . Answer: C . If the firm produces output Q2 at an average cost of ATC 2.Use the following to answer questions 141-143: Type: G Topic: 5 E: 449-450 MI: 205-206 141. Refer to the above long-run cost diagram for a firm. If the firm produces output Q1 at an average total cost of ATC1. Answer: C Type: G Topic: 5 E: 449-450 MI: 205-206 142. D) producing that output with the most efficient combination of inputs and is realizing all economies of scale. producing the potentially profit-maximizing output. Refer to the above long-run cost diagram for a firm. then the firm is: A) costs. then the firm is: A) costs. but is failing to minimize production B) incurring X-inefficiency. D) producing that output with the most efficient combination of inputs and is realizing all existing economies of scale. Answer: B . but is failing to minimize production incurring X-inefficiency. C) incurring X-inefficiency and is failing to produce the output at which all economies of scale might be realized. but is producing that output at which all existing economies of scale might be realized. B) C) producing the potentially profit-maximizing output. but is realizing all existing economies of scale. incurring X-inefficiency and is failing to realize all existing economies of scale. Answer: D . Refer to the above long-run cost diagram for a firm. but is realizing all existing economies of scale. incurring X-inefficiency and is failing to realize all existing economies of scale. then the firm is: A) costs. B) C) producing the potentially profit-maximizing output. If the firm produces output Q2 at an average cost of ATC3. but is failing to minimize production incurring X-inefficiency. D) producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.Type: G Topic: 5 E: 449-450 MI: 205-206 143. Answer: C Type: A Topic: 6 E: 452-453 MI: 208-209 147. If a monopolist engages in price discrimination. greatest? A) Answer: D pure competition B) oligopoly C) monopolistic competition D) pure monopoly In which one of the following market models is X-inefficiency most likely to be the Type: A Topic: 5 E: 450 MI: 206 145.Type: A Topic: 5 E: 450 MI: 206 144. A) Answer: A In which one of the following market models is X-inefficiency least likely to be present? pure competition B) oligopoly C) monopolistic competition D) pure monopoly Price discrimination Type: D Topic: 6 E: 451 MI: 207 146. any price above that which is equal to a minimum average total cost. D) the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. we can expect: . the selling of a given product at different prices that do not reflect cost differences. A) B) C) Price discrimination refers to: selling a given product for different prices at two different points in time. both profits and output to increase. most monopolists sell differentiated products. to distinguish buyers with different elasticities of demand. C) The seller must be able to segment the market. . that is. monopolists have considerable ability to control output and price. D) Answer: A The seller must possess some degree of monopoly power. monopolists usually realize economies of scale. A) B) Which of the following is not a precondition for price discrimination? The commodity involved must be a durable good. Type: A Topic: 6 E: 451-452 MI: 207-208 148. Type: A Topic: 6 E: 452 MI: 208 149. The good or service cannot be resold by original buyers. A) B) C) D) Answer: B The practice of price discrimination is associated with pure monopoly because: it can be practiced whenever a firm's demand curve is downsloping. both profits and output to decrease. the demand curve to lie below the marginal revenue curve.A) B) C) D) Answer: B profits to increase and output to fall. the maximum price each would be willing to pay. greatest? A) B) C) D) Answer: A an unregulated monopolist which is able to engage in price discrimination an unregulated monopolist a regulated monopolist charging a price equal to average total cost a regulated monopolist charging a price equal to marginal cost Other things equal. the marginal revenue curve will now shift to a position above the demand curve.Type: A Topic: 6 E: 453 MI: 209 150. in which of the following cases would economic profit be the Type: A Topic: 6 E: 453 MI: 209 152. that price which equals the buyer's marginal cost. D) marginal revenue will become less at each level of output than it would be without price discrimination. A) B) C) If a pure monopolist can engage in perfect price discrimination: the marginal revenue curve and the total revenue curve will now coincide. the marginal revenue curve will now coincide with the demand curve. the same price if per unit cost is constant for each unit of the product. Type: A Topic: 6 E: 453 MI: 209 151. Answer: C . A) B) C) D) Answer: D A perfectly discriminating pure monopolist will charge each buyer: different prices to compensate for differences in the characteristics of the product. average revenue and average total cost. A) If a monopolist engages in perfect price discrimination. Type: A Topic: 6 E: 453 MI: 209 154. it will: realize a smaller profit.Type: A Topic: 6 E: 453 MI: 209 153. D) C) product price and marginal revenue. . B) charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic. charge a competitive price to all its customers. C) D) Answer: B produce a smaller output than when it did not discriminate. The vertical distance between the horizontal axis and any point on a perfectly discriminating monopolist's demand curve measures: A) B) Answer: C the quantity demanded. total revenue. A) Answer: C The above monopolist should set its price at: $300. A) B) Answer: B At its profit-maximizing output. earns an economic profit of $250. it would: . Type: T Topic: 6 E: 445-446 MI: 201-202 157. C) earns a normal profit of $250. D) $15. C) $200. If the above monopolist could engage in perfect price discrimination. D) Type: T Topic: 6 E: 453 MI: 209 158. B) $250. earns an economic profit of $150. A) Answer: C How many units would the above profit-maximizing monopolist produce? 1 B) 2 C) 3 D) 4 Type: T Topic: 6 E: 445-446 MI: 201-202 156.Use the following to answer questions 155-160: Answer the next question(s) on the basis of the following information for a pure monopolist: Type: T Topic: 6 E: 445-446 MI: 201-202 155. the above monopolist: incurs a loss. D) $740. B) $920. would be: A) Answer: B If the above monopolist could engage in perfect price discrimination. increase output by 2 units. C) $800. C) $1000. its economic profit $650. . Type: T Topic: 6 E: 453 MI: 209 159. D) $1400. D) C) decrease output by 1 unit. increase output by 1 unit. Type: T Topic: 6 E: 453 MI: 209 160. B) $1250. would be: A) Answer: D If the above monopolist could engage in perfect price discrimination. its total revenue $600.A) B) Answer: B not alter its level of output. to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. B) will be j.Use the following to answer questions 161-163: Type: G Topic: 6 E: 452-453 MI: 208-209 161. to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. will be bdfh. that is. B) 0dfk. C) 0cgl. Answer: C will be l. Assume the above figure applies to a perfectly discriminating pure monopolist. cannot be determined from the information given. The total economic profit for this monopolist: A) B) C) D) will be cdfg. . that is. will be befh. Total revenue will be: A) Answer: A 0efk. D) 0bhk. to a monopolist who is able to extract from each buyer the maximum price that buyer is willing to pay. C) will be k. that is. E) 0aij. The profit-maximizing output: A) given. Assume the above figure applies to a perfectly discriminating pure monopolist. D) cannot be determined from the information Type: G Topic: 6 E: 452-453 MI: 208-209 162. Assume the above figure applies to a perfectly discriminating pure monopolist. Type: G Topic: 6 E: 452-453 MI: 208-209 163. produce a smaller output than a nondiscriminating monopolist. a perfectly discriminating monopolist will: realize a smaller economic profit than a nondiscriminating monopolist. A) B) C) D) Answer: B Other things equal. produce a larger output than a nondiscriminating monopolist. produce the same output as a nondiscriminating monopolist. .Answer: C Type: A Topic: 6 E: 452-453 MI: 208-209 164. price P1 and producing output Q1. price P2 and producing output Q2.Regulated monopolies Type: A Topic: 7 E: 454 MI: 210 165. it will maximize profits by charging: A) B) C) D) Answer: B a price above P3 and selling a quantity less than Q3. If the monopolist is unregulated. the industry will be a natural monopoly. the industry will be purely competitive. the industry will be monopolistically competitive. Use the following to answer questions 166-169: Type: A Topic: 7 E: 454 MI: 210 166. we can expect: A) B) C) D) Answer: D an overallocation of resources. . price P3 and producing output Q3. Refer to the above diagram for a pure monopolist. If the long-run average total cost curve of an industry is declining at the point where it intersects the industry demand curve. Suppose a regulatory commission is created to determine a legal price for the monopoly.Type: G Topic: 7 E: 455 MI: 211 167. D) P4. Refer to the above diagram for a pure monopolist. . If a regulatory commission seeks to achieve the most efficient allocation of resources to this line of production. If the commission seeks to provide the monopolist with a "fair return. B) P3. D) P4." it will set price at: A) Answer: A P1. C) P2. it will set a price of: A) Answer: C P1. Refer to the above diagram for a pure monopolist. Type: G Topic: 7 E: 454-455 MI: 210-211 168. C) P2. B) P3. subsidize the monopolist P1P4 per unit to allow the monopolist to break even. C) D) Answer: D regulated pricing always conflicts with the "due process" provision of the Constitution. D) marginal .Type: A Topic: 7 E: 454-455 MI: 210-211 169. B) the regulated price which results in a "fair return" restricts output by more than would unregulated monopoly. The dilemma of regulation refers to the idea that: A) the regulated price which achieves allocative efficiency is also likely to result in persistent economic profits. B) C) D) profit. it will have to: A) profit. C) marginal cost. the regulated price which achieves allocative efficiency is also likely to result in losses. Answer: B minimum average fixed cost. it should establish a price that is equal to: A) revenue. Refer to the above diagram for a pure monopolist. B) average total cost. Type: A Topic: 7 E: 455 MI: 211 171. tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic Type: D Topic: 7 E: 455 MI: 211 170. Answer: B tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic subsidize the monopolist or the monopolist will go bankrupt in the long run. If a regulatory commission sets price to achieve the most efficient allocation of resources. If a regulatory commission wants to provide a natural monopoly with a fair return. but not allocative efficiency. productive efficiency is being achieved. allocative efficiency is being achieved. at which the average total cost curve intersects the demand curve. but not productive efficiency. neither productive nor allocative efficiency is being achieved. . at which marginal revenue is zero. If a regulatory commission wants to establish a socially optimal price for a natural monopoly. This means that: A) B) C) D) Answer: B both productive and allocative efficiency are being achieved.Type: A Topic: 7 E: 454-455 MI: 210-211 172. Type: A Topic: 7 E: 455 MI: 211 173. which corresponds with the equality of marginal cost and marginal revenue. it should select a price: A) B) C) D) Answer: A at which the marginal cost curve intersects the demand curve. Suppose for a regulated monopoly that price equals minimum ATC but price exceeds MC. marginal cost: A) B) profit. D) the firm will earn only a normal resource allocation will be worsened. Answer: B output will decrease. C) resource allocation will worsen. allocative efficiency will be worsened. C) output will decrease. D) Use the following to answer questions 177-179: . Type: A Topic: 7 E: 454-455 MI: 210-211 176. Answer: A If a regulatory commission forces a natural monopoly to charge a price equal to its the monopoly may incur a loss. If a regulatory commission forces a natural monopoly to charge a price equal to its average total cost: A) B) profit. If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output. Type: A Topic: 7 E: 454-455 MI: 210-211 175. then: A) B) C) D) Answer: D the firm will realize an economic profit.Type: A Topic: 7 E: 455 MI: 211 174. the firm will earn an economic the monopolist will realize a normal profit. the firm must be subsidized or it will go bankrupt. the firm will earn only a normal profit. Type: G Topic: 7 E: 454 MI: 210 177. increase output beyond the profit-maximizing level. . If a regulatory commission were to set a maximum price of P3. Refer to the above diagram for a natural monopolist. the monopolist would: A) B) C) D) Answer: A maximize profits. be unable to make a normal profit. reduce output below the profit-maximizing level. Consider This Questions Type: A E: 452 MI: 208 Status: New 180. This pricing system occurs because: A) items. produce output Q3 and realize an economic profit. If a regulatory commission set a maximum price of P1. Q4 and realize a loss. children have an elastic demand for game ticket but an inelastic demand for concession children have an inelastic demand for game tickets but an elastic demand for concession . Q4 and realize a normal profit. Type: G Topic: 7 E: 454-455 MI: 210-211 179. Refer to the above diagram for a natural monopolist. the monopolist would produce output: A) B) Answer: D Q2 and realize a normal profit. the monopolist would: A) B) C) D) Answer: D produce output Q1 and realize an economic profit. Refer to the above diagram for a natural monopolist. C) D) Q3 and realize an economic profit. produce output Q3 and realize a normal profit. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. If a regulatory commission set a maximum price of P2. close down in the short run. B) items.Type: G Topic: 7 E: 454-455 MI: 210-211 178. B) C) The seller must have some monopoly power. Answer: D Last Word Questions Type: F E: 456 MI: 212 182. Answer: C Type: A E: 452 MI: 208 Status: New 181. D) children can personally "consume" only a single game ticket. rough-cut diamonds. Answer: A D) 33 percent of the world's . (Last Word) DeBeers Consolidated Mines markets about: C) 50 percent of the world's A) 65 percent of the world's rough-cut diamonds.C) the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults. B) 80 percent of the world's rough-cut diamonds. it must be able to set the product The seller must be able to identify buyers by group characteristics such as age or income. D) The items cannot be bought by people in the low-price group and transferred to members of the high-price group. Groups must have different elasticities of demand for the product. Which of the following conditions of price discrimination explain why this occurs? A) price. that is. but can personally consume more than one concession item. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. rough-cut diamonds. was regulated by the South African government and thus had to limit prices to average Type: F E: 456 MI: 212 184. antimonopoly laws and therefore could not control diamond prices. DeBeers has decided to: sell off its entire inventory of diamonds. D) Answer: D abandon its 66-year policy of trying to monopolize the sale of rough-cut diamonds. at a minimum.Type: F E: 456 MI: 212 183. A) B) C) D) total cost. was subject to U. operated substantially in accord with the predictions of the unregulated monopoly model. Answer: B (Last Word) Over a recently ended 66-year period.S. A) B) (Last Word) In a recent policy change. True/False Questions Type: A E: 445 MI: 201 185. C) purchase the entire output of other mines and withhold diamonds from the market to bolster diamond prices. DeBeers: earned only a normal profit because of its high mining and marketing costs. Answer: False In the long run a pure monopolist must produce at that output where average total cost is . abandon its policy of profit maximization. its product. the marginal revenue of the fifth unit is $5. Answer: False Pure monopolists always earn economic profits. In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum. Type: A E: 442 MI: 198 190. A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal. If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit. Answer: False Type: A E: 446 MI: 202 188.Type: A E: 445 MI: 201 186. Answer: True . Answer: False In the short run a pure monopolist will charge the highest price the market will bear for Type: A E: 446-447 MI: 202-203 189. Answer: False Type: A E: 445 MI: 201 187. Refer to the above diagram for a nondiscriminating monopolist. Because of their large-scale level of production. Refer to the above diagram for a nondiscriminating monopolist.Type: A E: 447 MI: 203 191. Because of the ability to influence price. Answer: True Type: G E: 445 MI: 201 194. The profit-maximizing output for this firm is M . Answer: True . Answer: False Use the following to answer questions 193-200: Type: A E: 444-445 MI: 200-201 193. pure monopolists overallocate resources to their industry by producing beyond the P = MC output. At the profit-maximizing output the firm's economic profit will be BAFG. a pure monopolist can increase price and increase volume of sales simultaneously. Answer: False Type: A E: 442-443 MI: 198-199 192. Type: G E: 445 MI: 201 195. At output R economic profits will be zero. Refer to the above diagram for a nondiscriminating monopolist. Answer: False . Refer to the above diagram for a nondiscriminating monopolist. At output Q production will be unprofitable. Answer: True Type: G E: 445 MI: 201 196. Answer: False Type: G E: 447-448 MI: 203-204 199. Answer: False Type: G E: 445 MI: 201 198. Refer to the above diagram for a nondiscriminating monopolist.Type: G E: 445 MI: 201 197. From society's point of view it would be desirable to have the monopolist produce a larger output than M . The profit-maximizing price for this firm is J . At output Q average variable cost is QJ . Answer: True Type: G E: 447-448 MI: 203-204 200. Refer to the above diagram for a nondiscriminating monopolist. Refer to the above diagram for a nondiscriminating monopolist. Answer: False Use the following to answer questions 201-206: . Refer to the above diagram for a nondiscriminating monopolist. At output M total variable cost will be 0CHM . Answer: True Refer to the above diagrams. markets. Type: G E: 443 MI: 199 203. The demand for Firm B's product is elastic at all prices in . The demand for Firm A's product is perfectly elastic. Both firms are selling their products in purely competitive Type: G E: 416 MI: 172 202. Answer: False Refer to the above diagrams. excess of $4. Answer: True Refer to the above diagrams.Type: G E: 443 MI: 199 201. Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common. Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers. revenue curve. The demand for Firm B's product is inelastic at all prices Type: G E: 441-442 MI: 197-198 206. Answer: True . Answer: False Refer to the above diagrams. Answer: True Refer to the above diagrams. Firm A's average revenue curve would lie below its demand curve. Answer: False Type: F E: 449 MI: 205 207. If drawn.Type: G E: 442-443 MI: 198-199 204. Firm B's average revenue curve coincides with its marginal Type: G E: 443 MI: 199 205. Answer: True Type: F E: 449 MI: 205 208. standard product that everyone else is using. below $4. Refer to the above diagrams.