Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A monopoly is the only seller of a product 1)

A) with a perfectly inelastic demand. B) without a close substitute.
C) with many substitutes. D) without a well-defined demand curve.

2) A firm that has the ability to control to some degree the price of the product it sells 2)
A) faces a demand curve that is inelastic throughout the entire range of market demand.
B) is a price maker.
C) is also able to dictate the quantity purchased.
D) faces a perfectly inelastic demand curve.

3) Compared to a monopolistic competitor, a monopolist faces 3)

A) a more elastic demand curve at higher prices and a more inelastic demand curve at lower
prices.
B) a demand curve that has a price elasticity coefficient of zero.
C) a more inelastic demand curve.
D) a more elastic demand curve.

4) Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? 4)
A) Each sets a price for its product that will maximize its revenue.
B) Each maximizes profits by producing a quantity for which marginal revenue equals marginal
cost.
C) Each must lower its price to sell more output.
D) Each maximizes profits by producing a quantity for which price equals marginal cost.

5) To maintain a monopoly, a firm must have 5)

A) marginal revenue equal to demand. B) few competitors.
C) a perfectly inelastic demand. D) a huge barrier to entry.

6) A patent or copyright is a barrier to entry based on 6)

A) large economies of scale as output increases.
B) widespread network externalities.
C) government action to protect a producer.
D) ownership of a key necessary raw material.

7) Governments grant patents to encourage 7)

A) firms to form public enterprises.
B) research and development on new products.
C) competition.
D) low prices.

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 8) For a natural monopoly to exist 8)
A) a firm's long-run average cost curve must exhibit economies of scale throughout the relevant
range of market demand.
B) a firm's long-run average cost curve must exhibit diseconomies of scale beyond the
economically efficient output level.
C) a firm must have a government-imposed barrier.
D) a firm must continually buy up its rivals.

Figure 15-1

9) Refer to Figure 15-1. Which of the following statements about the firm depicted in the diagram is 9)
true?
A) The fact that this firm is a natural monopoly is shown by the long-run average total cost
curve still falling when it crosses the demand curve.
B) The fact that this firm is a natural monopoly is shown by the continually declining marginal
revenue curve as output rises.
C) The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below
the long-run average total cost where the firm maximizes its profits.
D) The fact that this firm is a natural monopoly is shown by the continually declining market
demand curve as output rises.

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Figure 15-2

Figure 15-2 above shows the demand and cost curves facing a monopolist.

10) Refer to Figure 15-2. To maximize profit, the firm will produce at output level 10)
A) Q1 . B) Q2 . C) Q3 . D) Q4 .

11) Refer to Figure 15-2. The firm's profit-maximizing price is 11)

A) P1 . B) P2 . C) P3 . D) P4 .

12) Refer to Figure 15-2. If the firm's average total cost curve is ATC1 , the firm will 12)
A) suffer a loss. B) break even.
C) make a profit. D) face competition.

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Figure 15-3

Figure 15-3 above shows the demand and cost curves facing a monopolist.

13) Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive 13)
output. What is the profit/loss per unit?
A) profit of $30 per unit B) profit of $14 per unit
C) loss of $7 per unit D) loss of $21 per unit

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Figure 15-4

Figure 15-4 shows the demand and cost curves for a monopolist.

14) Refer to Figure 15-4. What is the profit-maximizing/loss-minimizing output level? 14)
A) 600 units B) 800 units C) 940 units D) 1,160 units

15) Refer to Figure 15-4. What is the price charged for the profit-maximizing output level? 15)
A) $13 B) $21 C) $27 D) $34

16) Refer to Figure 15-4. What is the amount of the monopoly's total revenue? 16)
A) $21,600 B) $20,400 C) $19,740 D) $7,800

17) Refer to Figure 15-4. What is the amount of the monopoly's total cost of production? 17)
A) $21,600 B) $17,700 C) $9,340 D) $7,800

18) Refer to Figure 15-4. What is the amount of the monopoly's profit? 18)
A) $2,700 B) $4,200 C) $10,400 D) $12,600

19) Which of the following is true for a monopolist? 19)

A) Being the only seller in the market, the monopolist faces the market demand curve.
B) Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve.
C) Being the only seller in the market, the monopolist faces a downward-sloping demand curve
that lies below the marginal revenue curve.
D) Being the only seller in the market, the monopolist faces a perfectly elastic demand curve.

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Table 15-2

Quantity per
Price per Case Total Cost
Day (cases)
1 $16 $7.00
2 15 9.50
3 14 11.00
4 13 12.00
5 12 14.50
6 11 17.50
7 10 21.00
8 9 25.00
9 8 30.00
10 7 35.50

The government of a small developing country has granted exclusive rights to Linden Enterprises for the production of
plastic syringes. Table 15-2 shows the cost and demand data for this government-protected monopolist.

20) Refer to Table 15-2. What is the profit-maximizing quantity and price for the monopolist? 20)
A) Quantity = 9 cases, Price = $8 B) Quantity = 8 cases, Price = $9
C) Quantity = 10 cases, Price = $7 D) Quantity = 7 cases, Price = $10

21) A profit maximizing monopoly's price is 21)

A) less than the price that would prevail if the industry was perfectly competitive.
B) the same as the price that would prevail if the industry was perfectly competitive.
C) greater than the price that would prevail if the industry was perfectly competitive.
D) not consistently related to price that would prevail if the market was perfectly competitive.

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Figure 15-9

Figure 15-9 shows the demand and cost curves for a monopolist.

22) Refer to Figure 15-9. What is the difference between the monopoly output and the perfectly 22)
competitive output?
A) 140 units B) 240 units C) 340 units D) 560 units

23) Compared to perfect competition, the consumer surplus in a monopoly 23)

A) is unchanged because price and output are the same.
B) is higher because price is higher and output is the same.
C) is lower because price is higher and output is lower.
D) is eliminated.

24) Why does a monopoly cause a deadweight loss? 24)

A) because it does not produce some output for which demand exceeds supply
B) because it increases producer surplus at the expense of consumer surplus
C) because it appropriates a portion of consumer surplus for itself
D) because it stops producing output at a point where price is above marginal cost

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Figure 15-12

Figure 15-12 shows the cost and demand curves for a monopolist.

25) Refer to Figure 15-12. What is the amount of consumer surplus if, instead of monopoly, the 25)
industry was organized as a perfectly competitive industry?
A) $21 B) $124 C) $186 D) $332

26) Refer to Figure 15-12. If the firm maximizes its profits, the deadweight loss to society due to this 26)
monopoly is equal to the area
A) ABEG. B) ACE. C) EFG. D) ABF.

27) Whenever a firm can charge a price greater than marginal cost 27)
A) the firm will earn economic profits.
B) the firm must be a monopolist.
C) consumers have the ability to choose a close substitute.
D) there is some loss of economic efficiency.

28) The only firms that do not have market power are 28)
A) firms in industries with low barriers to entry.
B) firms that sell identical products.
C) firms that do not advertise their products.
D) firms in perfectly competitive markets.

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Marginal Revenue
29) The graph shows the demand curve for movie tickets at Reels & Meals Movie Theatre, which 29)
operates in a monopolistically competitive market.

Assume that P1=$13.75, P2=$18.50, Q1=120, and Q2=210. When the firm cuts price from $18.50 to
$13.75, revenue ________ (increases/decreases) by ________ due to the output effect and revenue
________ (increases/decreases) by ________ due to the price effect.
Please round your final answer to two decimal places.
A) decreases, $2887.50, decreases, $2220.00 B) increases, $1237.50, decreases, $570.00
C) decreases, $1237.50 increases, $570.00 D) increases, $2887.50, increases, $2220.00

30) The table shows details about demand for a plate lunch at Rudy's Ribs. 30)

Number of Meals (Q), Price (P)

in hundreds
69.8 10
69.84 8
69.88 6
69.92 4
69.96 2

If Rudy sets the price of a plate lunch to $4, what is the total revenue? The average revenue? What
is the marginal revenue if they raise the price to $6?
Please round your answers to two decimal places.
A) $279.68, -$3490.00, $4 B) -$3490.00, $279.68, $4
C) $279.68, $4, -$3490.00 D) -$3490.00, $4, $279.68

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Dealing with Natural Monopolies
31) The graph shows the demand curve (D), marginal cost curve (MC), marginal revenue curve (MR), 31)
and average total cost curve (ATC) for a natural monopoly.

Assume that P1=$7, P2=$12.50, P3=$12.75, P4=$25, Q1=30, Q2=103, and Q3=139. If regulators use
the marginal cost rule to set price, what is the monopoly's loss? If the regulators use the average
cost rule to set price, what is the monopoly's profit?
Please round your final answer to two decimal places.
A) $764.50, $0 B) $25.75, $764.50 C) $25.75, $0 D) $764.50, $25.75

32) The table shows the total costs for a monopoly. 32)

Quantity Total Cost

30 $7500
40 $7400
50 $6000
60 $3300

Does this firm have a natural monopoly?

A) yes, because average total cost is increasing as quantity increases
B) no, because average total cost is decreasing as quantity increases
C) yes, because average total cost is decreasing as quantity increases
D) no, because average total cost is increasing as quantity increases

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Answer Key
Testname: MONOPOLY QUIZ 1

1) B
2) B
3) C
4) B
5) D
6) C
7) B
8) A
9) A
10) B
11) C
12) C
13) C
14) A
15) D
16) B
17) B
18) A
19) A
20) D
21) C
22) C
23) C
24) D
25) D
26) B
27) D
28) D
29) B
30) C
31) A
32) C

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