FINANCE

onopoly producers are faced with
A. many competitors producing the same product.
B. only a few competitors producing the same product.
C. at least one competitive producer of the same product.
D. no competitive producers of the same product.

In a monopoly market structure, the firm (the monopolist)
A. is the whole industry.
B. sells faulty products.
C. gets unconscionably rich.
D. gouges the consumer.

A monopolist is defined as
A. a producer of a good or service that is expensive to produce, requiring large amounts of capital equipment.
B. a large firm, making substantial profits, that is able to make other firms do what it wants.
C. a single supplier of a good or service for which there is no close substitute.
D. a firm with annual sales over $10 million.

A firm can be the sole supplier of a good and still not be considered a monopoly if
A. the firm is making normal profits.
B. the good produced is not important to the economy.
C. the firm is not large.
D. there are very close substitutes for the good.

Which of the following is not a barrier to entry into a market?
A. Diseconomies of scale.
B. Difficulty in raising adequate capital necessary to enter an industry.
C. Ownership of an important resource where there is no good substitute.
D. Governmental restrictions such as tariffs.

As opposed to other types of monopoly, a natural monopoly typically owes its monopoly position to
A. ownership of a resource without close substitutes.
B. tariffs.
C. economies of scale.
D. patents.

A natural monopoly
A. has decreasing long-run average total costs over a very large range of output.
B. has decreasing long-run marginal costs over a very large range of output.
C. has economies of scale over a very large range of output.
D. All of the above.

Given the cost curves in the diagram, what market situation would you expect to occur?
A. Price discrimination.
B. Price differentiation.
C. A natural monopoly.
D. A cartel.

 

 

The demand curve of the monopolist
A. is the same as the industry demand curve.
B. is the same as a price-taking firm.
C. is perfectly inelastic.
D. is perfectly elastic.

Marginal revenue for a monopolist is
A. horizontal, just like for the perfectly competitive firm.
B. downward sloping and always equal to price.
C. downward sloping and always greater than price.
D. downward sloping and always less than price.

The marginal revenue curve for a perfectly competitive firm is _________ while the marginal revenue curve of the monopolist is _________.
A. downward sloping, horizontal
B. horizontal, upward sloping
C. horizontal, downward sloping
D. downward sloping, upward sloping

For a monopoly,
A. price equals average revenue only.
B. price differs from both average revenue and marginal revenue.
C. price equals both average revenue and marginal revenue.
D. price equals marginal revenue only.

You observe that the revenue of a monopolist vary directly with changes in price.

This firm is not maximizing its economic profits because
A. when demand is inelastic, as the price rises, the quantity falls and revenues rise.
B. when demand is elastic, as the price rises, the quantity falls and revenues fall.
C. when demand is elastic, as the price falls, the quantity rises and revenues rise.
D. when demand is inelastic, as the price falls, the quantity rises and revenues fall.
E. All of the above are true.

The demand curve faced by the monopolist
A. is always inelastic where MR = MC and profits are maximized.
B. has lower price elasticity of demand as close substitutes for the monopoly product are developed.
C. has greater price elasticity of demand as close substitutes for the monopoly product are developed.
D. None of the above.

As the number of imperfect substitutes for a monopoly firm’s product increases, the price elasticity of demand
A. decreases.
B. approaches zero.
C. cannot be determined.
D. increases.

The better the substitutes for a monopoly firm’s product, the
A. greater the price elasticity of demand.
B. faster the price elasticity of demand approaches zero.
C. effect on the price elasticity of demand is indeterminate.
D. smaller the price elasticity of demand.

Evaluate the following statement. A profit maximizing monopolist will never operate in a price range in which price elasticity of demand is inelastic.
True                                                                   False
The table below depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town. Compute the revenues at each output level and fill in the blanks
(Enter dollars and cents and include minus signs where necessary.)
Output
(Suits Cleaned) Price per Suit ($) Total Costs ($) Total Revenue ($)
0 $10.00 $3.00 $0
1 $9.50 $6.00 $9.50
2 $9.00 $8.50 $18.00
3 $8.50 $10.50 $25.50
4 $8.00 $11.50 $32.00
5 $7.50 $13.50 $37.50
6 $7.00 $18.00 $42.00
7 $6.50 $24.00 $45.50
8 $6.00 $26.00 $48.00

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