1.

(Points: 1)  
Suppose we know that a monopolist is maximising its profits. Which of the following is a correct inference?
The monopolist has

a. maximised its total revenue.

b. set price equal to its average cost.

 

c. produced at some point on the inelastic part of its demand curve.

d. maximised the difference between marginal revenue and marginal cost.

e. equated marginal revenue and marginal cost.

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2.
(Points: 1)  
From society's point of view, a monopolist produces too little because

a. price is less than marginal cost.

  b. price exceeds marginal cost.

c. price exceeds average cost.

d. price is less than average cost.

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3.
(Points: 1)  
  Which type of barrier to entry would allow an electricity distribution company to maintain a monopoly over
the local supply of electricity?

a. legal controls

b. ownership of a scarce factor of production

c. diseconomies of scale

d. a patent
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4.
(Points: 1)  
A pure monopoly is an industry with a single firm that produces a product for which there are

a. no close substitutes and in which no significant barriers to entry exist.

  b. many close substitutes and in which there are significant barriers to entry.

c. no close substitutes and in which there are significant barriers to entry.

d. many close substitutes and in which significant barriers to entry exist.

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5.
(Points: 1)  
North West Water has a monopoly over local water supply. If North West Water is producing where marginal
revenue is less than marginal cost,

a. the firm must be earning a zero profit.

 
b. the firm could increase profits by reducing output.

c. the firm is maximising profits.

d. the firm could increase profits by increasing output.

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6.
(Points: 1)  
  A perfectly elastic demand curve implies that ceteris paribus

a. if a firm raises its price even a bit above the market price, it will sell nothing.

b. the price a firm charges is irrelevant since it will sell the same amount regardless of the price
charged.

c. a firm can raise its price and not lose all its customers.
 d. a firm can sell more by lowering its price.

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7.
(Points: 1)  
Dickens Light, an unregulated monopolist, determines the price it will charge by

a. finding the point on the marginal revenue curve that corresponds to the level of output.

  b. finding the point on the average total cost curve that corresponds to the level of output.

c. finding the point on the demand curve that corresponds to the level of output.

d. finding the point on the marginal cost curve that corresponds to the level of output.

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8.
(Points: 1)  
When a monopolist sells two units of output its total revenue is £150. When a monopolist sells three units of
output its total revenue, is £210. When the monopolist sells three units of output, the price per unit is

a. £72.

 
b. £20.

c. £60.

d. £70.

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9.
(Points: 1)  
  If a natural monopoly is broken up into smaller competing firms, the price of the product

a. will increase because the smaller competing firms will face higher average costs of production than
the natural monopolist will.

b. will decrease because smaller firms are price takers.

 c. will increase because the monopolist no longer has to worry about keeping rivals from entering the
industry.

d. will decrease because competition has increased.

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10.
(Points: 1)  
When ________ substitutes exist, a monopolist has ________ power to raise price.

a. fewer, less

 
b. no, infinite

c. more, less

d. more, more