Market power arises from:

the entry of new firms in an industry in which the firms are earning large producer surplus.

barriers to entry.

diseconomies of scale.

diminishing marginal returns.

3 points

QUESTION 2

Figure 9.10

Reference: Ref 9-11

(Figure 9.10) If the government regulates the price of this natural monopolist to achieve a
perfectly competitive output level, the regulated price will be:

$8.15.

$14.

$10.

$6.30.
3 points

QUESTION 3

Many years ago the Aluminum Company of America owned almost all sources of the special ore
(bauxite) needed to produce aluminum. This is an example of market power arising from:

extreme economies of scale.

control of a key input.

switching costs.
network effects.
3 points

QUESTION 4

Bubba Golf, a manufacturer of golf clubs, can sell 3 drivers at $600 each. To sell 4 drivers, Bubba
Golf must lower the price to $580 each. The marginal revenue of the fourth club is:

$20.

$60.

$580.

$520.
3 points

QUESTION 5

Figure 9.3

Reference: Ref 9-4

(Figure 9.3) The profit-maximizing quantity and price are ______ and ______, respectively.

6 units; $6

10 units; $8

14 units; $4

6 units; $12
3 points
QUESTION 6

In Louisiana, it was a crime to sell funeral caskets without a funeral director's license. This law
was a source of ______ for licensed funeral directors and an example of ______.

market power; government-created barriers to entry

market power; a natural monopoly

product differentiation; scale economies

scale economies; a natural monopoly

3 points

QUESTION 7

Antitrust laws:

encourage firms to work together on setting prices, market share, and output levels.

cannot be used to prevent the merger of two firms.

restrict firms from engaging in behaviors that make markets less competitive.

ensure that firms with market power are not penalized for colluding.
3 points

QUESTION 8

As Southwest Airlines began operating at different airports around the country:

prices at those airports decreased and the number of passengers flying increased dramatically.

market power became more concentrated, leading to higher fares and fewer flights.

consumer surplus and the deadweight loss increased.

consumer surplus decreased and the deadweight loss increased.

3 points

QUESTION 9

For a monopoly, marginal revenue equals:

the gain from selling an additional unit at the market price less the loss in revenue from
lowering the price on the previous units.

ΔP/ΔQ + P

P + (ΔQ/ΔP)Q

Q + (ΔP/ΔQ)P
3 points

QUESTION 10

A firm with the ability to affect the price of its product:

faces a downward-sloping demand curve.

has no demand curve (i.e., the relationship between price and quantity demanded breaks
down).

has a perfectly elastic demand curve.

can sell whatever quantity it produces without changing its price.