Chapter 14/Traditional Models of Imperfect Competition 3
Chapter 13: Quiz
Monopoly
1. Which of the following is critical to a monopoly?
a. inelastic demand.
b. barriers to entry.
c. increasing marginal cost.
d. increasing marginal revenue.
2. A natural monopoly is one in which
a. there are economies of scale over the entire market’s range of production.
b. one firm can supply the entire market more cheaply than several firms can.
c. average cost for one firm is still decreasing at the full market quantity.
d. there are extremely large fixed costs.
e. all of the above
3. A profit-maximizing monopoly will produce that output for which
a. marginal revenue equals price.
b. average cost is minimized.
c. marginal cost is minimized.
d. marginal revenue is maximized.
e. marginal revenue equals marginal cost.
4. A monopoly’s profits are represented by
a. (price minus marginal cost) times number of units sold.
b. (price minus average cost) times number of units sold.
c. (marginal revenue minus price) times number of units sold.
d. (marginal cost minus price) times number of units sold.
5. The principal difference between economic profits for a monopolist and for a competitive firm is that
a. monopoly profits create major problems of equity whereas competitive profits do not.
b. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
c. monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
d. monopoly profits are usually larger than competitive profits.
6. If a monopoly with a marginal cost of zero is maximizing profits,
a. it will choose a quantity where marginal revenue is positive.
b. it will choose a quantity where the price will be zero.
c. it will choose a quantity that maximizes total revenue.
d. it will choose a quantity where demand is inelastic.
e. both c and d.
7. For the practice of price discrimination to be successful, the monopoly must
a. be able to prevent resale of its product.
b. be able to identify different types of customers.
c. have the power to raise and lower prices.
d. all of the above.
8. Perfect (first degree) price discrimination
a. is a common occurrence in situations with many buyers.
b. occurs fairly often in situations with only a few buyers.
c. is only observed in competitive markets.
d. rarely occurs because firms do not have sufficient power to differentiate among specific buyers.
9. All of the following might explain a firm offering quantity discounts except:
a. lower costs of handling large orders.
b. an inelastic demand for the good.
c. monopoly power in this market.
d. adoption of a sales maximization strategy.
10. Relative to single price policy third-degree price discrimination
a. always reduces profits.
b. always increases consumer surplus.
c. will increase welfare if total output falls.
d. may increase welfare if total output rises.
11. If the government requires a natural monopoly to price at marginal cost,
a. monopoly firms will earn zero economic profits because P = MC = AC.
b. monopoly firms will operate at a loss because P < AC.
c. more firms will choose to enter because P>AC.
d. producer surplus will increase because P>MC.
12. One possible benefit of a monopoly is
a. a more efficient allocation of resources; only one firm is needed to supply quantity demanded.
b. the government is better able to ensure that it follows laws and guidelines because there is only one firm to monitor.
c. goods and services are provided at a lower price than under perfect competition because of a monopoly’s decreasing average cost curve.
d. none of these is a possible benefit.