Econ Exam 3 (Monopolies)

question

Market structures are categorized by:
A) the number and size of the firms.
B) whether products are differentiated and the extent of advertising.
C) the number of firms and whether products are differentiated.
D) the size of the firms and the extent of advertising.

answer

C) the number of firms and whether products are differentiated

question

Which of the following statements about the differences between monopoly and perfect
competition is INCORRECT?
A) A monopolist has market power, while a perfect competitor does not.
B) Unlike a perfectly competitive firm, a monopoly can make positive economic
profits in the long run.
C) A monopoly will charge a higher price and produce a smaller quantity than a
competitive market with the same demand and cost structure.
D) Monopoly profits can continue in the long run because the monopoly produces
more and charges a higher price than a comparable perfectly competitive industry.

answer

question

A monopoly:
A) produces a product with no close substitutes.
B) is composed of a single buyer and several sellers.
C) is composed of a large number of small firms.
D) is composed of a small number of large firms.

answer

question

Which of the following statements concerning monopoly is TRUE?
A) Monopoly firms are always larger than perfectly competitive firms.
B) A monopoly has no rivals.
C) Barriers to entry do not prevent other firms from entering a monopolized industry.
D) Monopolists produce more output than a competitive market with the same demand
and cost structure.

answer

question

De Beers became a monopoly by:
A) establishing control over diamond mines.
B) use of economies of scale.
C) use of technological superiority.
D) ownership of a patent.

answer

question

A monopolist is likely to produce _____ and charge _____ than a comparable perfectly
competitive firm.
A) more; more
B) less; more
C) more; less
D) less; less

answer

question

If you had a license for the exclusive right to sell breakfast bagels in your community,
your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.

answer

question

The ability of a monopolist to raise the price of a product above the competitive level by
reducing the output is known as:
A) product differentiation.
B) barrier to entry.
C) market power.
D) patents and copyrights.

answer

question

Suppose that you build a high-speed, magnetically powered transportation system from
New York to Los Angeles, and you are the only firm providing this service. High fixed
costs resulting from the enormous quantity of capital used in this system enable
decreasing average cost for any conceivable level of demand. Your monopoly would
result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.

answer

C)increasing returns to scale

question

Most electric, gas, and water companies are examples of:
A) unregulated monopolies.
B) natural monopolies.
C) restricted-input monopolies.
D) sunk-cost monopolies.

answer

question

In contrast with perfect competition, a monopolist:
A) produces more at a lower price.
B) produces where MR > MC, and a perfectly competitively firm produces where P =
MC.
C) may have economic profits in the long run.
D) earns zero economic profits in the long run.

answer

C) may have economic profits in the long run

question

You own a lemonade stand in a competitive market, and as such, you are a price-taking
firm. Which of the following events would most likely increase your market power?
A) The government abolishes the system of patents and copyrights.
B) A booming economy increases the demand for lemonade and attracts entry into the
market.
C) The average total cost curve for firms in the industry is horizontal.
D) You own exclusive rights to harvest lemons from all domestic citrus orchards.

answer

D) YOu exclusive rights to harvest lemons from all domestic citrus orchards

question

Conditions that keep new firms out of a monopoly market are:
A) barriers to entry.
B) terms of sale.
C) labor market stipulations.
D) production controls

answer

question

A natural monopoly exists whenever a single firm:
A) is owned and operated by the government.
B) is investor owned but has been granted the exclusive right by the government to
operate in a market.
C) has economies of scale over the entire range of production that is relevant to its
market.
D) has gained control over a strategic input of an important production process.

answer

C) has economies of scale over the entire range of production that is relevant to its market

question

Suppose that you build a new jumbo jet that can carry five times more passengers than
any other competitor. You have high fixed costs due to the quantity of capital used to
build the jets, and average cost is decreasing for all levels of demand. In this case, your
monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.

answer

C) economies of scale

question

Natural monopolies are likely to include all of the following EXCEPT:
A) a diamond mining company.
B) a gas company.
C) an electricity company.
D) railways.

answer

A) a diamond mining company

question

Which of the following is (are) barrier(s) to entry?
A) control of scarce resources
B) economies of scale
C) patents and copyrights
D) control of scarce resources, economies of scale, and patents and copyrights

answer

question

The large barriers to entry are a reason a monopoly:
A) earns an economic profit in the long run.
B) produces at the minimum average total cost in the long run.
C) produces with no fixed costs in the long run.
D) maximizes its profits by producing where P = MC.

answer

A) earns an economic profit in the long run

question

Which of the following is TRUE?
A) A monopoly firm is a price taker.
B) MR > P if the demand curve is downward-sloping.
C) MR = MC is a profit-maximizing rule for any firm.
D) In monopoly P = MC when profits are maximized.

answer

C) MR=MC is a profit-maximizing rule for any firm

question

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity
effect of selling the sixth motor home is:
A) $20,000.
B) $10,000.
C) $15,000.
D) $21,000.

answer

question

What is the quantity effect?

answer

second quantity minus first quantity times the second price

question

what is the price effect?

answer

first price minus second price times the first quantity

question

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can only charge $20,000 each. The price
effect of selling the sixth motor home is:
A) $20,000.
B) -$15,000.
C) -$5,000.
D) $25,000.

answer

question

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11
bottles per week if he lowers the price to $45 per bottle. The quantity and the price
effects on total revenue would be, respectively, an increase of _____ and a decrease of
_____.
A) $450; $500
B) $495; $550
C) $45; $5
D) $45; $50

answer

D)$45; $50

question

One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a _____ demand curve, while the purely competitive firm has a
_____ demand curve.
A) downward-sloping; perfectly elastic
B) perfectly inelastic; perfectly elastic
C) downward-sloping; perfectly inelastic
D) perfectly elastic; downward-sloping

answer

A) downward-sloping; perfectly elastic

question

The demand curve facing a monopolist is:
A) downward-sloping.
B) vertical.
C) horizontal.
D) upward-sloping.

answer

question

A monopolist responds to an increase in demand by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing

answer

B) increasing price and output

question

A monopolist responds to an increase in marginal cost by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing

answer

question

Which of the following statements about monopoly equilibrium and perfectly
competitive equilibrium is INCORRECT?
A) Price is greater than marginal cost in monopoly, and price equals marginal cost in
perfect competition.
B) When a monopoly exists, the consumer surplus is less than if the market were
perfectly competitive.
C) Monopoly output will be less than the output of a comparable perfectly competitive
industry.
D) In the long run, economic profits are driven to zero in both a monopoly and a
perfectly competitive market.

answer

question

(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and
Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government
wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be
eliminated in the short run, it would impose a price ceiling of:
A) $40.
B) $46.
C) $50.
D) $65.

answer

A) $40

question

Which of the following is TRUE?
A) Monopolies produce too much and charge too much from the standpoint of
efficiency.
B) Monopolies usually are economically efficient because they have economic profits
with which to work.
C) Monopolies produce too little and charge too much from the standpoint of
efficiency.
D) Monopolies cause an efficiency problem but are not associated with a deadweight
loss.

answer

question

A monopolist or an imperfectly competitive firm practices price discrimination
primarily to:
A) increase profits.
B) expand plant size.
C) lower total costs.
D) reduce marginal costs.

answer

question

One government policy for dealing with natural monopoly is to:
A) impose a price floor to eliminate the deadweight loss.
B) impose a price ceiling to reduce economic profit.
C) break it up into smaller firms.
D) impose fines on the monopolist.

answer

B) impose a price ceiling to reduce economic profit

question

Price discrimination leads to a _____ price for consumers with a _____ demand.
A) higher; less elastic
B) higher; more elastic
C) higher; perfectly elastic
D) lower; less elastic

answer

question

Because business travelers' demand for airline flights is relatively _____, small
increases in price will result in relatively _____ decreases in additional business
travelers.
A) price-inelastic; small
B) price-elastic; large
C) price-inelastic; large
D) price-elastic; small

answer

question

If the government allowed only one airline to serve the entire U.S. market, there would
be a _____ loss associated with _____ efficiency in the airline industry.
A) marginal; reduced
B) deadweight; reduced
C) total; increased
D) deadweight; increased

answer

question

Which of the following is NOT an example of price discrimination?
A) a Fourth of July sale
B) a coupon in the newspaper offering a 10% discount on a product
C) a higher price for front row seats at a concert than for seats at the back
D) a lower price charged to the grandfather who bought his airline ticket to Chicago
three weeks in advance and will stay over a Saturday night than to the
businesswoman who bought her ticket the day of the flight and will not stay over
Saturday night

answer

question

The municipal swimming pool charges lower entrance fees to local residents than to
nonresidents. Assuming that this pricing strategy increases the profits of the pool, we
can conclude that nonresidents must have a _____ demand for swimming at the pool
than residents.
A) greater
B) lower
C) more elastic
D) less elastic

answer

question

A community college charges lower tuition fees to town residents than to nonresidents.
This pricing strategy increases the profits of the community college. Using this
information, we can conclude that nonresidents must have a _____ demand for
attending the community college than residents.
A) less price-elastic
B) greater
C) lower
D) more price-elastic

answer

question

A Japanese steel firm sells steel in the United States and in Japan. Since the United
States buys steel from a number of sources, the U.S. demand for Japanese steel is more
price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm
wishes to maximize its profits, it should:
A) charge the same price in both countries (after adjusting for transportation costs).
B) charge a higher price in the United States and a lower price in Japan; otherwise it
would be accused of unfair trade practices.
C) charge a lower price in the United States and a higher price in Japan.
D) figure out which market is more profitable and sell only in that market.

answer

question

Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
lower prices to _____ because their demand is _____.
A) men; elastic
B) men; inelastic
C) women; elastic
D) women; inelastic

answer

question

How to calculate MR

answer

change in total revenue divided by change in quantity

question

when does MR=P

answer

in a competitive market

question

How Many tubes will Neem sell in middle fall and at what price?

answer

Q=4, P=$5

question

How many tubes will Neem sell in West Fall and at what price?

answer

Q=4, P=$3.50

question

Neem can effectively price discriminate charging a higher price to ________( Middle/West Fall) who have the more (elastic/inelastic) demand for this product

answer

Middle Fall, inelastic

question

Shut down or stay open class activity
FC VC Revenue Profit
Shut down $100 $0 $0 $-100
Stay Open $100 $50 $75 $-75
b. you should stay open for now in SR as you could cover variable costs

c. You should exit the market if you observe current loss persists more than a year. By ding that, you will be able to avoid any fixed costs in LR

answer

question

Neem Products sells is Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in table. Current table shows aggregated demand. The average cost of production is constant at $2 (what does this imply).
a. how many tubes of toothpaste will Neem sell in Middle fall and at what single price.

answer

implies MC=AC=2

4 tubes at a single price of $4.50

1 of 48

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answer

C) the number of firms and whether products are differentiated

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answer

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question

De Beers became a monopoly by:
A) establishing control over diamond mines.
B) use of economies of scale.
C) use of technological superiority.
D) ownership of a patent.

answer

question

A monopolist is likely to produce _____ and charge _____ than a comparable perfectly
competitive firm.
A) more; more
B) less; more
C) more; less
D) less; less

answer

question

answer

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answer

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answer

C)increasing returns to scale

question

Most electric, gas, and water companies are examples of:
A) unregulated monopolies.
B) natural monopolies.
C) restricted-input monopolies.
D) sunk-cost monopolies.

answer

question

answer

C) may have economic profits in the long run

question

answer

D) YOu exclusive rights to harvest lemons from all domestic citrus orchards

question

Conditions that keep new firms out of a monopoly market are:
A) barriers to entry.
B) terms of sale.
C) labor market stipulations.
D) production controls

answer

question

answer

C) has economies of scale over the entire range of production that is relevant to its market

question

answer

C) economies of scale

question

Natural monopolies are likely to include all of the following EXCEPT:
A) a diamond mining company.
B) a gas company.
C) an electricity company.
D) railways.

answer

A) a diamond mining company

question

answer

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answer

A) earns an economic profit in the long run

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answer

C) MR=MC is a profit-maximizing rule for any firm

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answer

question

What is the quantity effect?

answer

second quantity minus first quantity times the second price

question

what is the price effect?

answer

first price minus second price times the first quantity

question

answer

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answer

D)$45; $50

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answer

A) downward-sloping; perfectly elastic

question

The demand curve facing a monopolist is:
A) downward-sloping.
B) vertical.
C) horizontal.
D) upward-sloping.

answer

question

A monopolist responds to an increase in demand by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing

answer

B) increasing price and output

question

A monopolist responds to an increase in marginal cost by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing

answer

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answer

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answer

A) $40

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answer

question

A monopolist or an imperfectly competitive firm practices price discrimination
primarily to:
A) increase profits.
B) expand plant size.
C) lower total costs.
D) reduce marginal costs.

answer

question

answer

B) impose a price ceiling to reduce economic profit

question

Price discrimination leads to a _____ price for consumers with a _____ demand.
A) higher; less elastic
B) higher; more elastic
C) higher; perfectly elastic
D) lower; less elastic

answer

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answer

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answer

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answer

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answer

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answer

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answer

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answer

question

How to calculate MR

answer

change in total revenue divided by change in quantity

question

when does MR=P

answer

in a competitive market

question

How Many tubes will Neem sell in middle fall and at what price?

answer

Q=4, P=$5

question

How many tubes will Neem sell in West Fall and at what price?

answer

Q=4, P=$3.50

question

Neem can effectively price discriminate charging a higher price to ________( Middle/West Fall) who have the more (elastic/inelastic) demand for this product

answer

Middle Fall, inelastic

question

answer

question

answer

implies MC=AC=2

4 tubes at a single price of $4.50

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Econ Exam 3 (Monopolies)

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