ECONOMICS

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. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.

(ii) The firm’s product does not have close substitutes.

(iii) The firm generates a large economic profit.

(iv) The firm is located in a small geographic market.

a. (i) and (ii) only

b. (i) and (iii) only

c. (i), (ii), and (iii) only

d. (i), (ii), (iii), and (iv)

3. Which of the following is an example of a barrier to entry?

(i) A key resource is owned by a single firm.

(ii) The costs of production make a single producer more efficient than a large number

of producers.

(iii) The government has given the existing monopolist the exclusive right to produce the

good.

a. (i) and (ii) only

b. (ii) and (iii) only

c. (i) only

d. (i), (ii), and (iii)

4. Which of the following is a characteristic of a natural monopoly?

a. Marginal cost declines over large regions of output.

b. Average total cost declines over large regions of output.

c. The product sold is a natural resource such as diamonds or water.

d. All of the above are correct.

2

Figure 15-1

5. Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier

to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the

figure?

a. ownership of a key resource by a single firm

b. natural monopoly

c. government-created monopoly

d. a patent or copyright monopoly

6. Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost

curve for this firm

a. must lie entirely above the average total cost curve.

b. must lie entirely below the average total cost curve.

c. must be upward sloping.

d. does not exist.

3

Figure 15-2

7. Refer to Figure 15-2. Which of the following statements is correct?

a. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B

represents the typical demand curve for a monopoly.

b. Panel B represents the typical demand curve for a perfectly competitive firm, and Panel C

represents the typical demand curve for a monopoly.

c. Panel A represents the typical demand curve for a perfectly competitive firm, and Panel B

represents the typical demand curve for a monopoly.

d. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel D

represents the typical demand curve for a monopoly.

8. Refer to Figure 15-2. Which of the following statements is correct?

a. Panel C represents the typical demand curve for a perfectly competitive industry.

b. Panel B represents the typical demand curve for a monopoly.

c. Panel B represents the typical demand curve for a perfectly competitive firm.

d. All of the above are correct.

9. A monopoly is an inefficient way to produce a product because

a. it can earn both short-run and long-run profits.

b. it faces a downward-sloping demand curve.

c. the cost to the monopolist of producing one more unit exceeds the value of that unit to

potential buyers.

d. it produces a smaller level of output than would be produced in a competitive market.

4

Figure 15-6

10. Refer to Figure 15-6. A benevolent social planner would have the monopoly operate at an output level

a. less than Q0.

b. greater than Q0.

c. equal to Q0.

d. equal to zero.

11. To maximize total surplus with a monopoly firm, a benevolent social planner would

a. choose the level of output where MR = MC.

b. choose the level of output where MR intersects the demand curve.

c. choose the level of output where MC intersects the demand curve.

d. allow the free market system to determine the level of output.

12. Antitrust laws allow the government to

a. prevent mergers.

b. break up companies.

c. promote competition.

d. All of the above are correct.

5

Figure 15-11

13. Refer to Figure 15-11. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts

to

a. $0.

b. $500.

c. $1,000.

d. $2,000.

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