Chap 15

Chapter 15
Monopoly
MULTIPLE CHOICE
1
. Which of the following statements about a firm’s market pricing of its product is true?
a. A competitive firm is a price taker and a monopoly is a price maker.
b. A competitive firm is a price maker and a monopoly is a price taker.
c. Both competitive firms and monopolies are price makers.
d. Both competitive firms and monopolies are price takers.
ANSWER: a. A competitive firm is a price taker and a monopoly is a price maker.
TYPE: M KEY1:D SECTION:1 OBJECTIVE: 1 RANDOM:Y
2
. Assuming that Jerry’s Bicycle Shop operates in a competitive market for bicycles, which of the
following statements is(are) true?
(i) He can maximize profit by raising his price.
(ii) He can maximize profit by altering the quantity of bicycles that he supplies.
(iii) He will be able to earn a profit only if he differentiates his bicycles from the rest of the market.
a. (i) only
b. (i) and (ii)
c. (ii) only
d. (ii) and (iii) only
ANSWER: c. (ii) only
~ANSWER:
a. A competitive firm is a price taker and a monopoly is a price maker.
~ANSWER:
c. (ii) only
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 1
2 Chapter 15/Monopoly
3
. Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants
in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that
sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the
following statements is true?
a. Meatball prices will exceed marginal cost.
b. Meatball prices will equal marginal cost.
c. Meatball prices will be less than marginal cost.
d. Meatball prices will be a function of supply and demand and will therefore oscillate around
marginal costs.
ANSWER: a. Meatball prices will exceed marginal cost.
4
. A monopoly’s marginal cost will likely
a. exceed its marginal revenue.
b. equal average total cost.
c. be less than average fixed cost.
d. be less than the market price of its goods.
ANSWER: d. be less than the market price of its goods.
~ANSWER:
a. Meatball prices will exceed marginal cost.
~ANSWER:
d. be less than the market price of its goods.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Chapter 15/Monopoly 3
5
. Which of the following statements is (are) true of monopolies?
(i) They cannot make unlimited profits.
(ii) They have the ability to set prices at whatever level they desire.
(iii) They do not have to worry about their revenue falling if they increase the prices.
a. (i) and (ii)
b. (ii) only
c. (ii) and (iii)
d. all of the above
ANSWER: a. (i) and (ii)
6
. Young Johnny inherited the only local cable company in town after his father passed away. The
company is completely unregulated by the government and is therefore free to operate as it wishes.
Assuming that Johnny understands the true power of his new monopoly, he is probably most
excited about which of the following statements?
(i) The customers will be forced into purchasing cable at whatever price he wants to set.
(ii) He will be able to achieve any profit level that he desires.
(iii) He will be able to control the price of cable.
a. (i) and (ii)
b. (ii) and (iii)
c. (iii) only
d. all of the above
ANSWER: c. (iii) only
7
. Which of the following qualify as barriers to entering a monopoly market?
(i) A key resource’s ownership is not defined.
(ii) The government has given the existing monopoly the exclusive right to produce the good.
(iii) The costs of production make a single producer more efficient than a large number of
producers.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) only
d. all of the above
ANSWER: b. (ii) and (iii)
8
. Characteristics of a Monopoly include:
(i) sole seller of its product.
(ii) product does not have close substitutes.
(iii) generates large economic profits.
(iv) is located in a small geographic market.
a. (i), (iii), and (iv)
b. both (i) and (iii)
c. both (i) and (ii)
d. all of the above
ANSWER: c. both (i) and (ii)
9
. A fundamental source of monopoly market power arises from
a. barriers to entry.
b. perfectly elastic demand.
c. perfectly inelastic demand.
d. availability of "free" natural resources, such as water or air.
ANSWER: a. barriers to entry.
10
.
A monopoly that arises from exclusive ownership of a key resource results in
a. too much of the resource being used (resource exploitation).
b. a price that exceeds marginal cost of production.
c. a price that is unrelated to costs.
d. a price that reflects the best interests of society.
ANSWER: b. a price that exceeds marginal cost of production.
11
.
When a firm operates under conditions of a monopoly, its price is
a. constrained by marginal cost.
b. constrained by demand.
c. constrained only by its social agenda.
d. not constrained.
ANSWER: b. constrained by demand.
12
.
A natural monopoly occurs when
a. the monopolist product is sold in its natural state (such as water or diamonds).
b. firms are characterized by rising marginal cost curves.
c. a monopoly firm requires the use of free natural resources (such as water or air) to produce its
product.
d. average total cost of production decreases as more output is produced.
ANSWER: d. average total cost of production decreases as more output is produced.
13
.
An industry is a natural monopoly when
(i) a single firm will supply a good or service at a socially optimal quantity.
(ii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or
more firms.
(iii) a single firm can produce additional units at a smaller marginal cost.
a. (i) and (ii)
b. (ii) only
c. (ii) and (iii)
d. (iii) only
ANSWER: b. (ii) only
14
. When a natural monopoly exists, it is
a. always more cost effective for two or more private firms to produce the product.
b. never more cost effective for two or more private firms to produce the product.
c. always more cost effective for government owned firms to produce the product.
d. never more cost effective for one firm to produce the product.
ANSWER: b. never more cost effective for two or more private firms to produce the product.
15
. The defining characteristic of a natural monopoly is
a. constant returns to scale over the relevant range of output.
b. economies of scale over the relevant range of output.
c. diseconomies of scale over the relevant range of output.
d. marginal cost is constant over the relevant range of output.
ANSWER: b. economies of scale occur over the relevant range of output.
16
. Natural monopolies differ from other forms of monopoly because
a. they are generally not worried about competition eroding their monopoly position in the
market.
b. they are not subject to barriers to entry.
c. they are not regulated by government.
d. they generally don't make a profit.
ANSWER: a. they are generally not worried about competition eroding their monopoly position in the
market.
17
. Patent and copyright laws are major sources of
a. resource monopolies.
b. natural monopolies.
c. government-created monopolies.
d. none of the above
ANSWER: c. government-created monopolies.
18
. Encouraging firms to invest in research and development and individuals to engage in creative
endeavors such as writing novels is one justification for
a. government-created monopolies.
b. resource monopolies.
c. natural monopolies.
d. monopolistic competition.
ANSWER: a. government-created monopolies.
19
. When a firm's average-total-cost curve continually declines, the firm is a
a. government-created monopoly.
b. resource monopoly.
c. natural monopoly.
d. all of the above
ANSWER: c. natural monopoly.
20
. The key difference between a competitive firm and a monopoly firm is the ability to select
a. the price of its output.
b. the level of competition in the market.
c. the level of production.
d. inputs in the production process.
ANSWER: a. the price of its output.
21
. The market demand curve for a monopolist is typically
a. downward sloping.
b. horizontal.
c. unitary elastic.
d. perfectly elastic at market price.
ANSWER: a. downward sloping.
22
. In order to sell more of its product, a monopolist must
a. sell to the government.
b. sell in international markets.
c. use its market power to force up the price of complementary products.
d. lower its price.
ANSWER: d. lower its price.
23
. A natural monopolist's ability to price its product is
a. constrained by market supply.
b. enhanced by regulatory control of the government.
c. constrained by the market demand curve.
d. not affected by market demand.
ANSWER: c. constrained by the market demand curve.
24
. Economists assume that monopolists behave as
a. profit maximizers.
b. price maximizers.
c. market share maximizers.
d. cost minimizers.
ANSWER: a. profit maximizers.
25
. A monopolist's average revenue is always
a. greater than the price of its product.
b. equal to the price of its product.
c. less than the price of its product.
d. equal to marginal revenue.
ANSWER: b. equal to the price of its product.
26
. If a monopolist faces a downward sloping market demand curve, its
a. average revenue is always less than marginal revenue.
b. marginal revenue is greater than the price of the units it sells.
c. average revenue is less than the price of its product.
d. marginal revenue is always less than the price of the units it sells.
ANSWER: d. marginal revenue is always less than the price of the units it sells.
27
. When a monopolist increases the number of units it sells, there are two effects on revenue, the
a. competitive effect and the monopoly effect.
b. output effect and the price effect.
c. demand effect and the supply effect.
d. competition effect and the cost effect.
ANSWER: b. output effect and the price effect.
28
. Which of the following statements is true of monopolies?
a. Monopolies can charge any price they want.
b. Unlike competitive firms, monopolies are not constrained by market demand.
c. Monopolies will always increase their revenue by selling more of their goods.
d. all of the above
ANSWER: a. Monopolies can charge any price they want.
29
. For a monopolist, marginal revenue is
a. negative when the output effect is greater than the price effect.
b. negative when the price effect is greater than the output effect.
c. positive when the demand effect is greater than the supply effect.
d. positive when the monopoly effect is greater than the competitive effect.
ANSWER: b. negative when the price effect is greater than the output effect.
30
. A profit maximizing monopolist will produce the level of output at which
a. marginal revenue is equal to marginal cost.
b. average revenue is equal to average total cost.
c. average revenue is equal to marginal cost.
d. total economic revenue is equal to opportunity cost.
ANSWER: a. marginal revenue is equal to marginal cost.
31
. For a profit maximizing monopolist
a. P = MR = MC.
b. P > MR > MC.
c. P > MR = MC.
d. P > MR < MC.
ANSWER: c. P > MR = MC.
32
. In a market characterized by monopoly, the market demand curve is
b. horizontal.
c. upward sloping.
d. vertical.
ANSWER: a. downward sloping.
33
. As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for
the good
a. decreases.
b. increases.
c. is unaffected.
d. not enough information given
ANSWER: a. decreases.
34
. Competitive firms differ from monopolies in which of the following ways?
(i) Competitive firms do not have to worry about the price effect lowering their total revenue.
(ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly
is greater than the price it is able to charge.
(iii) Monopolies must lower their price in order to sell more of their product, while competitive
firms do not.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
ANSWER: c. (i) and (iii)
35
. The monopolist's profit-maximizing quantity of output is determined by the intersection of which
of the following two curves?
a. marginal cost and demand
b. average cost and demand
c. marginal cost and marginal revenue
d. average cost and marginal revenue
ANSWER: c. marginal cost and marginal revenue
36
. A monopolist is a
a. price setter, and therefore has no supply curve.
b. price setter, and therefore has no variable cost curve.
c. price taker, and therefore has no supply curve.
d. price setter, and therefore has no demand curve.
ANSWER: a. price setter, and therefore has no supply curve.
37
. For a monopolist, profit is determined by which of the following equations?
a. Profit = Total Revenue - Total Cost
b. Profit = (TR/Q - TC/Q) x Q
c. Profit = (Price - Average Total Cost) x Quantity
d. all of the above
ANSWER: d. all of the above
38
. What is the monopolist's profit under the following conditions? The profit-maximizing price
charged for goods produced is $16. The intersection of the marginal revenue and marginal cost
curves occurs where output is 10 units and marginal cost is $8. Average cost for 10 units of output
is $6.
a. $80
b. $100
c. $160
d. $10.
ANSWER: b. $100
39
curves occurs where output is 15 units and marginal cost is $6.
a. $90
b. $100
c. $180
d. Not enough information is given.
ANSWER: d. Not enough information is given.
40
. A monopolist will choose to increase output when
a. market prices rise.
b. marginal revenue exceeds marginal cost.
c. there is an expansionary shift in the market supply curve.
d. all of the above
ANSWER: b. marginal revenue exceeds marginal cost.
41
. For a monopolist, when does marginal revenue exceed demand?
a. When output is less than profit maximizing output.
b. When output is greater than profit maximizing output.
c. When price is subject to the Law of Demand.
d. Never.
ANSWER: d. Never.
42
. A monopoly market
a. generally fails to maximize total economic well-being.
b. always maximizes total economic well-being.
c. always minimizes consumer surplus.
d. generally fails to maximize producer surplus.
ANSWER: a. generally fails to maximize total economic well-being.
43
. For a profit-maximizing monopolist, output should be increased to enhance economic well-being as
long as
a. marginal revenue exceeds marginal cost.
b. marginal revenue exceeds average total cost.
c. average revenue exceeds average total cost.
d. average revenue exceeds marginal cost.
ANSWER: d. average revenue exceeds marginal cost.
44
. The economic inefficiency of a monopolist can be measured by
a. the number of consumers who are unable to purchase the product because of its high price.
b. the deadweight loss.
c. the excess profit generated by monopoly firms.
d. the poor quality of service offered by monopoly firms.
ANSWER: b. the deadweight loss.
45
. The problem with monopolies is their ability
(i) to profiteer at the expense of consumers.
(ii) to price their product at a level that forces consumers to pay more than they are willing or able.
(iii) to restrict output below the socially efficient level of production.
a. (i) and (iii)
b. (ii) and (iii)
c. (iii) only
d. all of the above
ANSWER: c. (iii) only
46
. The socially efficient level of production occurs where the marginal cost curve intersects which of
the following curves?
a. demand
b. marginal revenue
c. supply
d. average cost
ANSWER: a. demand
47
. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized
mutually beneficial trades are
a. a deadweight loss to society.
b. a sunk cost to society.
c. of little concern to society.
d. not considered a cost.
ANSWER: a. a deadweight loss to society.
48
. The difference in total surplus between a socially efficient level of production and a monopolist's
level of production is
a. offset by regulatory revenues.
b. usually small and insignificant.
c. a deadweight loss.
d. all of the above.
ANSWER: c. a deadweight loss.
49
. If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is
the monopolist's profit?
a. $800
b. $200
c. $600
ANSWER: b. $200
50
. Consider a profit-maximizing monopoly pricing under the following conditions: The profit-
maximizing price charged for goods produced is $16.The intersection of the marginal revenue and
marginal cost curves occurs where output is 10 units and marginal cost is $8. The socially efficient
level of production is 12 units. The demand curve and marginal cost curves are linear. What is the
deadweight loss?
a. $8
b. $16
c. $48
ANSWER: a. $8
51
curves occurs where output is 10 units and marginal cost is $8.
a. Not enough information is given.
b. $4
c. $8
d. $16
ANSWER: a. Not enough information is given.
52
. Governments have typically responded to monopoly inefficiency by
(i) regulating the behavior of monopolies.
(ii) trying to make monopolized industries more competitive.
(iii) doing nothing at all.
(iv) forcing monopolists to go out of business.
a. (i) and (iv) only
b. (i), (ii) and (iii)
c. (ii) and (iii) only
d. all of the above
ANSWER: b. (i), (ii) and (iii)
53
. One method used to control the ability of firms to capture monopoly profit in the United States is
through
a. regulation of firms in highly competitive markets.
b. government purchase of products produced by monopolists.
c. government distribution of a monopolist's excess production.
d. enforcement of antitrust laws.
ANSWER: d. enforcement of antitrust laws.
54
. Antitrust laws may
a. restrict the ability of firms to merge.
b. restrict the ability of firms to operate at the socially efficient level of production.
c. enhance the ability of firms to capture profits from concentration of market power.
d. enhance the ability of firms to reduce economic losses.
ANSWER: a. restrict the ability of firms to merge.
55
. One problem with government regulation of monopolies is that
a. a benevolent government is likely to be interested in generating profits for political gain.
b. the government typically has little incentive to reduce costs.
c. regulated industries typically have rising average costs.
d. a government regulated outcome will increase the profitability of the monopoly.
ANSWER: b. the government typically has little incentive to reduce costs.
56
. For a typical natural monopoly, average total cost is
a. falling and marginal cost is above average total cost.
b. rising and marginal cost is below average total cost.
c. falling and marginal cost is below average total cost.
d. rising and marginal cost is above average total cost.
ANSWER: c. falling and marginal cost is below average total cost.
57
. One problem with regulating a monopolist on the basis of cost is that
a. a monopolist is still able to generate excessive economic profits.
b. regulators are unable to effectively control prices and/or production.
c. a monopolist's costs, by definition, are higher than costs of perfectly competitive firms.
d. it does not provide an incentive for the monopolist to reduce its cost.
ANSWER: d. it does not provide an incentive for the monopolist to reduce its cost.
58
. When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated
monopoly
a. has no incentive to exit the industry.
b. will experience a price below average total cost.
c. may rely on a government subsidy to remain in business.
d. both b and c
ANSWER: d. both b and c
59
. The key issue in determining the efficiency of public versus private ownership of a monopoly is
a. the inability of private monopolies to get rid of managers that are doing a bad job.
b. the propensity of private monopolies to generate excessive profits.
c. the tendency for efficient management of publicly owned enterprises.
d. how ownership of the firm affects the cost of production.
ANSWER: d. how ownership of the firm affects the cost of production.
60
. The collection of statutes aimed at curbing monopoly power is called
a. the Clayton Act.
b. the Sherman Act.
c. antitrust law.
d. the 14th amendment.
ANSWER: c. antitrust law.
61
. The legislation passed by Congress in 1890 to reduce the market power of large and powerful
"trusts" is called
a. the Sherman Act.
b. the Clayton Act.
c. the 14th Amendment.
ANSWER: a. the Sherman Act.
62
. Antitrust laws allow the government to
a. prevent mergers.
b. break up companies.
c. promote competition.
d. all of the above
63
. When companies merge in order to lower costs, they are attempting to capture
a. regulatory surplus.
b. synergies.
c. oligopoly compensation.
d. benefits from collusion.
ANSWER: b. synergies.
64
. Since natural monopolies have a declining average cost curve, regulating natural monopolies by
setting price equal to marginal cost would
a. result in a less than optimal total surplus.
b. maximize producer surplus.
c. cause the monopolist to operate at a loss.
d. all of the above
ANSWER: c. cause the monopolist to operate at a loss.
65
. When the price of a good increases, what happens to the quantity sold for a monopoly firm?
(i) customers are forced to buy at the higher price.
(ii) quantity sold will stay the same.
(iii) revenue will necessarily increase
(iv) quantity sold will fall
a. (i) and (iii)
b. (i), (ii), and (iii)
c. (iii) and (iv)
d. (iv) only
ANSWER: d. (iv) only
66
. Because monopoly firms do not have to compete with other firms, the outcome in a market with a
monopoly is often
a. not in the best interest of society.
b. exploited due to the unlimited profit potential of the monopolist.
c. efficient, but not equitable.
ANSWER: a. not in the best interest of society.
67
. Which of the following scenarios best represents a monopoly situation?
a. Bill and Tom work separately from one another but both sell a very rare form of the same
diamond. They are the only sellers of this type of diamond in town.
b. Bill owns the only grocery store in a small community that lies 200 miles from the nearest city.
c. Tom owns a fishing tackle shop in Miami, Florida, in which he sells all the top-of-the-line
fishing equipment.
d. None of the above adequately represent a monopoly.
ANSWER: b. Bill owns the only grocery store in a small community that lies 200 miles from the nearest
city.
68
. The simplest way for a monopoly to arise is for a single firm to
a. own a key resource.
b. inflate its prices.
c. cut production to increase demand for a product.
d. collude with the other producers in town.
ANSWER: a. own a key resource.
Use the following information to answer question 69 through 71.
Consider the market for water in a small town in the Old West. Assume that the only source of water is
the underground aquifer that lies directly below the town. Wells are used to supply water to the entire
town.
69
. If dozens of residents have their own wells, which of the following statements most adequately
describes the behavior of sellers of water?
a. Sellers will be able to charge a premium for the water.
b. The price of a gallon of water will be driven to equal its marginal cost.
c. The price of a gallon of water will exceed its marginal cost.
d. Since water is a necessity of life, there will be no decline in the quantity of water consumed,
regardless of how high the price is raised.
ANSWER: b. The price of a gallon of water will be driven to equal its marginal cost.
TYPE: M KEY1:D SECTION:1 OBJECTIVE: 1 RANDOM:N
70
. Suppose only one resident owns all the wells in town. Which of the following statements is most
likely going to be true of the market for water?
a. The seller will be able to earn unlimited profit.
d. Since water is a necessity of life, there will be no decline in the quantity of water consumed,
regardless of how high the price is raised.
ANSWER: c. The price of a gallon of water will exceed its marginal cost.
71
. Assume that Jack is the sole owner of all the wells in town. He decides to move to a more suitable
climate and sells the wells to a couple of dozen different town residents.
a. The price of water is likely to fall.
b. The individual water sellers will not have as much pricing power as Jack had.
c. The town residents will likely be better off.
d. all of the above
72
. In practice, monopolies rarely arise from exclusive ownership of a resource because
a. actual economies are quite large.
b. the natural scope of many such markets is often worldwide.
c. few firms own a resource for which there are no close substitutes.
d. all of the above
73
. A government created monopoly arises when
a. government spending in a certain industry gives rise to monopoly power.
b. the government gives a firm the exclusive right to sell some good or service.
c. the government exercises its market control by encouraging competition among sellers.
d. All of the above could qualify as government created monopolies.
ANSWER: b. the government gives a firm the exclusive right to sell some good or service.
74
. The debate concerning the tradeoffs between "market failure" and "political failure" in the American
economy provides support for which of the following solutions to the problems of monopolies?
a. doing nothing at all
b. public ownership of monopolies
c. government regulation of monopolies
d. government incentives to promote competition in monopolized industries
ANSWER: a. doing nothing at all
75
. A perfectly price-discriminating monopolist is able to
a. maximize profit, but not produce a level of output consistent with optimal social well-being.
b. produce a level of output consistent with optimal social well-being, but not maximize profit.
c. exercise illegal preferences over the gender of its employees.
d. maximize profit and produce a level of output more consistent with optimal social well-being.
ANSWER: d. maximize profit and produce a level of output more consistent with optimal social well-
being.
76
. When a monopolist is able to sell its product at different prices, it is engaging in
a. quality adjusted pricing.
b. distribution pricing.
c. price discrimination.
d. price differentiation.
ANSWER: c. price discrimination.
Use the following information to answer questions 77 through 79.
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its
market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to
PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost
of PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC
service to maximize her profit. Before setting price, she hires an economist to estimate demand for the
PMC service. The economist discovers that there are two types of subscribers who value premium movie
channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC
premium channel. Second, the PMC channel will appeal to about 20,000 occasional TV viewers who will
pay as much as $20 a year for a subscription to PMC.
77
. If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit
and what is the amount of the profit?
a. price = $20; profit = $400,000
b. price = $150; profit = $600,000
c. price = $150; profit = $450,000
d. price = $20; profit = $550,000
ANSWER: c. price = $150; profit = $450,000
78
. If Black Box Cable TV is able to price discriminate, what would be the maximum amount of profit it
could generate?
a. $500,000
b. $850,000
c. $875,000
d. $975,000
ANSWER: b. $850,000
79
. What is the deadweight loss associated with the nondiscriminating pricing policy compared to the
price discriminating policy?
a. Can't tell from the information provided.
b. $375,000
c. $475,000
d. $400,000
ANSWER: d. $400,000
80
. Price discrimination is a rational strategy for a profit-maximizing monopolist when
a. there is no opportunity for arbitrage across market segmentations.
b. there is an opportunity for arbitrage across market segmentations.
c. consumers are unable to be segmented into identifiable markets.
d. they want to increase the deadweight loss that results from profit-maximizing behavior.
ANSWER: a. there is no opportunity for arbitrage across market segmentations.
81
. If a monopolist is able to perfectly price discriminate,
a. consumer surplus is increased.
b. deadweight loss is increased.
c. the price effect dominates the output effect on monopoly revenue.
d. consumer surplus and deadweight losses are transformed into monopoly profits.
ANSWER: d. consumer surplus and deadweight losses are transformed into monopoly profits.
82
. The practice of selling the same goods to different customers at different prices, but with the same
marginal cost, is known as
a. price discrimination.
b. monopoly pricing.
c. arbitrage.
d. price segregation.
ANSWER: a. price discrimination.
83
. In theory, perfect price discrimination
a. increases the monopolist's profits.
b. decreases consumer surplus.
c. decreases deadweight loss.
d. all of the above
84
. For a firm to price discriminate, it must
a. be unregulated by the government.
b. have some market power.
c. have perfect information about consumer demand.
d. have a horizontal marginal cost curve.
ANSWER: b. have some market power.
85
. A rational pricing strategy for a profit-maximizing monopolist is
a. synergy pricing.
b. price discrimination.
c. price segregation.
d. average cost pricing.
ANSWER: b. price discrimination.
86
. Price discrimination requires the firm to
a. differentiate between different units of its product.
b. engage in arbitrage.
c. separate customers according to their willingness to pay.
d. all of the above
ANSWER: c. separate customers according to their willingness to pay.
87
. When deciding what price to charge consumers, the monopolist may choose to charge them
different prices based on the customers'
a. geographical location.
b. age.
c. income.
d. all of the above
88
. A market force that can prevent firms from price discriminating is
a. arbitrage.
b. fluctuating resource prices.
c. high fixed costs.
ANSWER: a. arbitrage.
89
. Which of the following can eliminate the inefficiency inherent in monopoly pricing?
a. arbitrage
b. price discrimination
c. cost plus pricing
d. regulation
ANSWER: b. price discrimination
90
. In order to better serve the public interest, the government may
a. grant monopoly rights to a certain firm.
b. keep the monopoly from price discriminating.
c. keep the monopoly from engaging in price differentiation.
d. allow the monopoly to engage in arbitrage.
ANSWER: a. grant monopoly rights to a certain firm.
91
. Allowing an inventor to have the exclusive rights to market her new invention will lead to
(i) a product that is priced higher than it would be without the exclusive rights.
(ii) desirable behavior in the sense that inventors are encouraged to invent.
(iii) higher profits for the inventor.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
92
. Drug companies are allowed to be monopolists in the drugs they discover in order to
a. encourage research.
b. discourage new firms from entering the drug market.
c. allow drug companies to charge a price that is equal to their marginal cost.
d. all of the above
ANSWER: a. encourage research.
93
. Authors are allowed to be monopolists in the sale of their books in order to
a. satisfy literary advocacy groups that exercise their lobbying power.
b. promote a society that thinks for themselves and learns from whichever books they please.
c. encourage authors to write more and better books.
d. correct for the negative externalities that the internet and television impose.
ANSWER: c. encourage authors to write more and better books.
94
. Which of the following statements is(are) true about patents and copyrights?
(i) They both have benefits and costs.
(ii) They lead to higher prices.
(iii) They allow for the market to correct for monopolists’ ability to earn above average profits.
a. (i) and (ii)
b. (ii) and (iii)
c. (ii) only
d. all of the above
Use the figure to answer question 95 and 96
95
. The shape of the average total cost curve reveals information about the nature of the “barrier to
entry” that might exist in a monopoly market. Which of the following monopoly types best
coincides with the figure?
a. natural monopoly
b. government-created monopoly
c. a key resource is owned by a single firm
ANSWER: a. natural monopoly
96
. The shape of the average total cost curve in the figure suggests an opportunity for a profit-
maximizing monopolist to exploit
b. average cost pricing.
c. economies of scale.
d. diminishing marginal product.
ANSWER: c. economies of scale.
97
. When an industry is a natural monopoly,
a. a larger number of firms may lead to a lower average cost.
b. a larger number of firms will lead to a higher average cost.
c. it is characterized by constant returns to scale.
d. it is characterized by diseconomies of scale.
ANSWER: b. a larger number of firms will lead to a higher average cost.
98
. If the distribution of water is a natural monopoly, then
(i) allowing for competition among different firms in the water distribution industry is efficient.
(ii) a single firm can serve the market at a lower average total cost.
(iii) multiple firms will each have to pay large fixed costs to develop their own network of pipes.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. (i) only
ANSWER: b. (ii) and (iii)
99
. A firm that is a natural monopoly
a. is not likely to be concerned about new entrants eroding its monopoly power.
b. is not enjoying economies of scale.
c. can achieve a lower average total cost if more firms enter the market.
d. all of the above
ANSWER: a. is not likely to be concerned about new entrants eroding its monopoly power.
100
.
Often times additional firms do not try to compete with a natural monopoly because
a. the natural monopoly doesn’t make a huge profit.
b. they know they cannot achieve the same low costs that the monopolist enjoys.
c. they are unsure of the size of the market in general.
d. they fear retaliation in the form of pricing wars from the natural monopolist.
ANSWER: b. they know they cannot achieve the same low costs that the monopolist enjoys.
Use the information below to answer questions 101 through102.
Consider a transportation corporation named C.R. Evans that has just completed the development of a
new subway system in a middle-sized town in the north-west. Currently, there are plenty of seats on the
subway, and it is never crowded. Its capacity well exceeds the needs of the city. After just a few years of
operation, the shareholders of C.R. Evans common stock experienced incredible rates of return on their
investment, due to the profitability of the corporation.
101
.
Which of the following statements are most likely to be true?
(i) C.R. Evans is a natural monopoly.
(ii) New entrants to the market know they will earn a smaller piece of the market than C.R. Evans
currently has.
(iii) C.R. Evans is most likely experiencing increasing average total cost.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
102
. C.R. Evans may continue to be a monopolist in the subway transportation industry only if
a. there are no new entrants to the market.
b. demand for transportation services decrease.
c. population growth leads to an overcrowding of the subway cars.
d. all of the above
ANSWER: a. there are no new entrants to the market.
103
. Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good
(i) without affecting the quantity sold.
(ii) by adjusting the quantity it supplies to the market.
(iii) without affecting its profit.
a. (ii) only
b. (i) and (ii)
c. (ii) and (iii)
d. (i) and (iii)
ANSWER: a. (ii) only
104
. Competitive firms have
a. horizontal demand curves and can sell only a limited amount at each price.
b. horizontal demand curves and can sell as much as they want at the market price.
c. downward sloping demand curves and can sell as much as they want at the market price.
d. downward sloping demand curves and can sell only a limited amount at each price.
ANSWER: b. horizontal demand curves and can sell as much as they want at the market price.
105
. Because many good substitutes exist for a competitive firm, the demand curve that it faces is
a. perfectly inelastic.
b. perfectly elastic.
c. inelastic only over a certain region.
d. unit-elastic.
ANSWER: b. perfectly elastic.
106
. Monopoly firms have
a. horizontal demand curves and can sell only a limited amount at each price.
b. horizontal demand curves and can sell as much as they want at each price.
c. downward sloping demand curves and can sell as much as they want at each price.
ANSWER: d. downward sloping demand curves and can sell only a limited amount at each price.
107
. As a monopolist raises the price of its good, consumers
a. buy more.
b. buy less.
c. continue to buy the same amount.
d. may buy more or less, depending on elasticity of demand.
ANSWER: b. buy less.
108
. When a monopolist reduces the amount of output that it sells, the price of its output
a. increases.
b. decreases.
c. stays the same.
d. may increase or decrease depending on the elasticity of demand.
ANSWER: a. increases.
109
. Which of the following is an impossible feat for a monopolist to accomplish?
a. control the price of its good
b. maximize its profit
c. operate at any point on the demand curve
d. charge a higher price and continue to sell the same quantity.
ANSWER: d. charge a higher price and continue to sell the same quantity.
Use the following table of numbers to answer questions 110-113
Total Average Marginal

Quantity Price Revenue Revenue Revenue
1 35 35
2 64 32 29
3 29
4 17
5 23 11
6 120
7 17 -1
8 -7
9 99 11 -13
10 8 80
110
. If the monopolist sells 8 units of its product, how much revenue will it receive from the sale?
a. -56
b. 40
c. 112
d. Can't tell from the information provided.
ANSWER: c. 112
111
. If the monopolist wants to maximize its revenue, how many units of its product should it sell?
a. 5
b. 6
c. 9
d. 10
ANSWER: b. 6
112
. What is the average revenue received from selling 4 units of the monopolist's product?
a. 17
b. 23
c. 26
d. 29
ANSWER: c. 26
113
. What is the marginal revenue for the monopolist for the sixth unit sold?
a. 5
b. 11
c. 17
d. 20
ANSWER: a. 5
114
. Marginal revenue for a monopolist is computed as
a. total revenue/quantity sold.
b. total revenue/ quantity sold.
c. (average revenue  quantity)/price.
d. total revenue per 1 unit increase in quantity sold.
ANSWER: d. total revenue per 1 unit increase in quantity sold.
115
. A monopolist’s marginal revenue curve is less than price because
(i) to sell additional units of the good, the price charged on all units must decrease.
(ii) with the sale of an additional unit, the monopolist receives less revenue for each of the
previous units it planned to sell.
(iii) of the downward sloping demand curve.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
116
. Which of the following statements is(are) true?
(i) When a competitive firm sells an additional unit of output, its revenue increases by an amount
equal to the price.
(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount
less than the price.
(iii) Marginal revenue is the same for both competitive and monopoly firms.
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. (i) only
117
. For a monopoly firm, which of the following equalities is true?
a. price = marginal revenue
b. price = total revenue
c. price = average revenue
ANSWER: c. price = average revenue
118
. The marginal revenue curve for a monopoly firm starts
(i) at the same point on the vertical axis as the average revenue curve.
(ii) at the same point on the vertical axis as the demand curve.
(iii) below the demand curve.
a. (i) only
b. (i) and (ii)
c. (i) and (iii)
d. (iii) only
ANSWER: b. (i) and (ii)
119
. Marginal revenue can become negative for
a. competitive firms.
b. monopoly firms.
c. both competitive and monopoly firms.
d. neither competitive nor monopoly firms.
ANSWER: b. monopoly firms.
The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer questions
120 through 128.
120
. The demand curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
ANSWER: a. A.
121
. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
ANSWER: b. B.
122
. The marginal cost curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
ANSWER: c. C.
123
. The average total cost curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
ANSWER: d. D.
124
. If the monopoly firm is currently producing output at a level of Q3, reducing output will always
cause profit to
a. increase as long as output is at least Q2.
b. increase as long as output is at least Q1.
c. remain unchanged.
d. decrease.
ANSWER: a. increase as long as output is at least Q2.
125
. Profit can always be increased by decreasing the level of output by one unit if the monopolist is
currently operating at
(i) Q0 .
(ii) Q1.
(iii) Q2.
(iv) Q3.
a. (i) or (ii)
b. (i), (ii) or (iii)
c. (iii) or (iv)
d (iv) only
ANSWER: d (iv) only
126
. Profit can always be increased by decreasing the level of output by one unit if the monopolist is
currently operating at a level of output in which
a. curve C > curve B.
b. curve B > curve C.
c. curve B > curve D.
d. curve D > curve B.
ANSWER: a. curve C > curve B.
127
. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to
a. Q1.
b. Q2.
c. Q3.
d. Q4.
ANSWER: b. Q2.
128
. Profit will be maximized by charging a price equal to
a. P0.
b. P1.
c. P2.
d. P3.
ANSWER: a. P3.
129
. Which of the following statements is true of a monopoly firm?
a. A monopoly firm is a price taker and has no supply curve.
b. A monopoly firm is a price maker and has a downward sloping supply curve.
c. A monopoly firm is a price maker and has an upward sloping supply curve.
d. A monopoly firm is a price maker and has no supply curve
ANSWER: d. A monopoly firm is a price maker and has no supply curve
130
. Supply curves tell us how much producers are willing to supply at any given price. Hence,
monopoly firms have
a. steeper supply curves than competitive firms
b. flatter supply curves than competitive firms.
c. vertical supply curves.
d. no supply curves.
ANSWER: d. no supply curves.
131
. Along with the monopoly firms’ cost curves, the shape and position of the demand curve determine
(i) which price the monopoly will charge for its good.
(ii) the shape and position of the marginal revenue curve.
(iii) the profit maximizing quantity.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
132
. In a competitive market, a firm’s supply curve dictates the amount it will supply. In a monopoly
market
a. the same is true.
b. the decision about how much to supply is impossible to separate from the demand curve it
faces.
c. the supply curve conceptually makes sense, but in practice is never used.
d. the supply curve will have limited predictive capacity.
ANSWER: b. the decision about how much to supply is impossible to separate from the demand curve
it faces.
The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer questions
133 through137.
133
. A profit maximizing monopoly would have a total revenue equal to
a. (P3 - P0)  Q2.
b. (P3 - P0)  Q4.
c. P3  Q2.
d. P2  Q4.
ANSWER: c. P3  Q2.
134
. A profit maximizing monopoly would have a total cost equal to
a. P0  Q1.
b. P0  Q2.
c. P0  Q3.
d. (P1 - P0)  Q2.
ANSWER: b. P0  Q2.
133
~ANSWER:
c. P3  Q2.
135
. A profit maximizing monopoly would have profit equal to
a. (P3 - P0)  Q2.
b. (P3 - P0)  Q4.
c. P3  Q2.
d. P2  Q4.
ANSWER: a. (P3 - P0)  Q2.
136
. Profit on a typical unit sold for a profit maximizing monopoly would equal
a. P3 - P2.
b. P3 - P0.
c. P2 - P1.
d. P2 - P0.
ANSWER: b. P3 - P0.
137
. At the profit maximizing level of output, average revenue is equal to
a. P3.
b. P2.
c. P1.
d. P0.
ANSWER: a. P3.
138
. When a pharmaceutical company discovers a new drug, patent law gives the monopoly
a. sole ownership of the right to sell the drug for a limited number of years.
b. sole ownership of the right to sell the drug for an unlimited number of years.
c. partial ownership of the right to sell the drug for a limited number of years.
d. partial ownership of the right to sell the drug for an unlimited number of years.
ANSWER: a. sole ownership of the right to sell the drug for a limited number of years.
139
. Due to the nature of the patent laws on pharmaceuticals, the market for such drugs
a. switches from monopolistic to competitive once the firm’s patent runs out.
b. switches from competitive to monopolistic once the firm’s patent runs out.
c. always remains a monopolistic market.
d. always remains a competitive market.
ANSWER: a. switches from monopolistic to competitive once the firm’s patent runs out.
136
~ANSWER:
b. P3 - P0.
140
. What happens to the price and quantity sold of a drug when its patent runs out?
(i) The price will fall.
(ii) The price will equilibrate to marginal cost.
(iii) The quantity sold will fall.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
141
. Generic drugs enter the pharmaceutical drug market once
a. the ingredients to the name brand drug have been discovered.
b. the patent on the name brand drug expires.
c. 10 years have passed.
d. they are patented.
ANSWER: b. the patent on the name brand drug expires.
142
. Name brand drugs are able to continue capitalizing on their market power even after generic drugs
enter the market because
(i) some people fear that generic drugs are inferior.
(ii) some people are loyal to the name brand.
(iii) almost all people fear the generic drug companies are devoting too few resources to research
and development.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above
143
. Economic well-being is generally measured by
(i) the sum of consumer surplus and producer surplus.
(ii) marginal revenue to the producer minus the average cost to the consumer.
(iii) total surplus.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. (ii) only
144
. Consumers’ willingness to pay for a good minus the amount they actually pay for it equals
a. consumer profit.
b. consumer benefit.
c. consumer surplus.
d. consumer cost.
ANSWER: c. consumer surplus.
145
. The amount that producers receive for a good minus their costs of producing it equals
a. producer cost.
b. producer surplus.
c. producer gain.
d. producer margin.
ANSWER: b. producer surplus.
146
. For a monopoly market, total surplus can be defined as the
a. value of the good to consumers minus the costs of making the good.
b. value of the good to consumers plus the cost of making the good.
c. value of the good to producers minus the cost incurred by consumers.
d. value of the good to producer plus the cost incurred by consumers.
ANSWER: a. value of the good to consumers minus the costs of making the good.
The figure below depicts the demand and marginal cost curves of a profit maximizing monopolist. Use
the figure to answer questions 147 through148
147
. A benevolent social planner would cause the monopoly firm to operate at an output level
a. above Q0.
b. equal to Q0.
c. below Q0.
d. equal to zero.
ANSWER: b. equal to Q0.
148
. If the monopoly operates at an output level below Q0, decreasing output would
a. raise the price and raise total surplus.
b. lower the price and raise total surplus.
c. raise the price and lower total surplus.
d. lower the price and lower total surplus.
ANSWER: c. raise the price and lower total surplus.
149
. Selling a good at a price where the demand curve intersects the marginal cost curve is consistent
with
(i) the market solution with competitive firms.
(ii) the market solution with monopoly firms.
(iii) the socially optimal level of output.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
150
. Monopoly firms choose to supply the market with a quantity of their goods consistent with the
intersection of
a. marginal revenue and average total cost.
b. marginal revenue and marginal cost.
c. marginal cost and demand .
d. average total cost and demand.
ANSWER: b. marginal revenue and marginal cost.
151
. If a monopoly sells its good at a level that is below the socially optimal level,
a. the price will equal the intersection of average revenue and marginal cost.
b. the price will be inefficiently high.
c. the price will be inefficiently low
d. the price may be inefficiently low or high because a monopolist is a price maker.
ANSWER: b. the price will be inefficiently high.
152
. Inefficiency arises from a monopoly because
a. some people will choose to go without the good, due to the high prices.
b. the monopoly owner earns an abnormally large profit.
c. consumers who buy the goods feel exploited.
d. all of the above
ANSWER: a. some people will choose to go without the good, due to the high prices.
The figure below depicts the demand, marginal revenue and marginal cost curves of a profit maximizing
monopolist. Use the figure to answer the questions 153 through 154.
153
. Which of the following areas represents the deadweight loss due to monopoly pricing?
a. rectangle acdb
b. rectangle cfgd
c. triangle bde
d. triangle bge
ANSWER: d. triangle bge
154
. Total surplus lost due to monopoly pricing is reflected in
a. Rectangle acdb.
b. Rectangle cfgd.
c. Triangle bde.
d. Triangle bge.
ANSWER: d. Triangle bge.
155
. Monopoly firms exert their market power by charging a price that is
a. above marginal cost.
b. below marginal cost.
c. above average revenue.
d. below average total cost.
ANSWER: a. above marginal cost.
156
. In comparison to the price a competitive firm charges, monopoly pricing has the effect of causing
quantity sold to
a. exceed the social optimum.
b. equal the social optimum.
c. fall short of the social optimum.
d. All of the above are possible.
ANSWER: c. fall short of the social optimum.
157
. Which of the following qualify as a social cost of monopoly power?
(i) loss of consumer surplus
(ii) loss of producer surplus
(iii) excessive profit earned by the owner of a monopoly
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
158
. The extra profit that a monopoly makes comes from a loss of
(i) consumer surplus.
(ii) total surplus.
(iii) producer surplus.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) only
d. (ii) only
ANSWER: c. (i) only
159
. Excessive monopoly profits themselves represent
a. a deadweight loss.
b. a shrinkage in total surplus.
c. a shrinkage in consumer surplus.
ANSWER: c. a shrinkage in consumer surplus.
160
. Total economic loss due to monopoly pricing is equal to
a. the deadweight loss.
b. the loss to consumer and producer surplus combined.
c. the loss to total surplus.
ANSWER: d. all of the above.
161
. The inefficiency of a deadweight loss stems from the fact that
a. consumers buy fewer units when the monopoly firm raises its price.
b. high monopoly prices take money from consumers’ pockets and put it in the pocket of the
monopoly owners.
c. consumers who still buy the product at the high price are worse off.
d. all of the above
ANSWER: a. consumers buy fewer units when the monopoly firm raises its price.
162
. When the government creates a monopoly, the social loss may include
a. high monopoly profits.
b. falling marginal cost.
c. the cost of lawyers and lobbyists to convince lawmakers to continue its monopoly.
ANSWER: c. the cost of lawyers and lobbyists to convince lawmakers to continue its monopoly.
163
. In order for antitrust laws to raise social welfare, the government must
a. disallow any mergers from taking place.
b. always attempt to keep markets in their most competitive form.
c. be able to determine which mergers are desirable and which are not.
d. disallow synergy benefits from accruing to monopolists.
ANSWER: c. be able to determine which mergers are desirable and which are not.
164
. Reduced competition through merging of companies
a. may raise social welfare if the benefit from the synergies exceeds the social cost of increased
market power.
b. may raise social welfare if the cost from the synergies exceeds the benefit of increased market
power.
c. will always benefit society as a whole.
d. will never benefit society as a whole.
ANSWER: a. may raise social welfare if the benefit from the synergies exceeds the social cost of
increased market power.
165
. The government usually deals with the problem of natural monopolies
a. through regulation.
b. by turning these monopolies into public enterprises.
c. by splitting them into smaller companies.
d. all of the above
ANSWER: a. through regulation.
166
. When regulating a monopoly, one of the problems with setting price equal to average cost is that
a. consumer surplus is not maximized.
b. total social welfare is not optimized.
c. there is no incentive for the monopolist to lower its costs.
d. all of the above
167
. Private ownership of a monopoly may benefit society because the monopoly will have an incentive
to
a. lower its costs so that it can earn more profit.
b. charge a price that is consistent with that of a benevolent social planner.
c. charge a price that prevents some people from buying.
d. price its good according to the intersection of marginal cost and average revenue.
ANSWER: a. lower its costs so that it can earn more profit.
168
. Government run monopolies may lead to undesirable outcomes in the form of
a. special interest groups that attempt to block cost reductions.
b. customers and tax payer losses when the monopoly operates inefficiently.
c. the political system as the only form of recourse for customers.
ANSWER: d. all of the above.
169
. A firm cannot price discriminate if it
a. is regulated by the government.
b. operates in a competitive market
c. has perfect information about consumer demand.
d. faces a downward sloping demand curve.
ANSWER: b. operates in a competitive market
170
. The process of buying a good in one market at a low cost and selling the good in another market for
a higher cost in order to profit from the price difference is known as
a. arbitrage.
b. sabotage.
c. collusion.
d. conspiracy.
ANSWER: a. arbitrage.
171
. Which of the following may eliminate some of the inefficiency that results from monopoly pricing?
a. The government can regulate the monopoly.
b. The monopolist can price discriminate.
c. The monopoly can be publically owned.
d. all of the above
172
. Price discrimination adds to social welfare in the form of
(i) increased profits to the monopolist.
(ii) increased consumer surplus.
(iii) increased total surplus.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
173
. Perfect price discrimination describes a situation in which the monopolist
a. knows the exact willingness to pay of each of its customers.
b. can charge each customer a different price.
c. collects the total surplus in the form of higher profit.
d. all of the above
The figure below depicts the demand, marginal revenue and marginal cost curves of a profit-maximizing
monopolist. Use the figure to answer the questions 173 through 178.
174
. If the monopoly firm is NOT allowed to price discriminate, what will the consumer surplus be?
a. abc
b. adf
c. cef
d. Consumer surplus will equal zero.
ANSWER: a. abc
175
. If the monopoly firm perfectly price discriminates, what will the consumer surplus be?
a. abc
b. adf
c. cef
ANSWER: d. Consumer surplus will equal zero.
176
. What is the deadweight loss equal to when the monopolist does NOT price discriminate?
a. abc
b. adf
c. cef
d. Deadweight will equal zero.
ANSWER: c. cef
177
.
What is the deadweight loss equal to when the monopolist engages in perfect price discrimination?
a. abc
b. adf
c. cef
d. Deadweight loss will equal zero.
ANSWER: d. Deadweight will equal zero.
177
~ANSWER:
d. Deadweight will equal zero.
~ANSWER:
a. (i) and (ii)
~ANSWER:
c. (iii) only
~ANSWER:
b. (ii) and (iii)
~ANSWER:
c. both (i) and (ii)
178
.
Monopoly profit without price discrimination equals
a. abc.
b. bdec.
c. adec.
d. adf.
ANSWER: b. bdec
~ANSWER:
a. barriers to entry.
10
~ANSWER:
b. a price which exceeds marginal cost of production.
11
~ANSWER:
b. constrained by demand.
12
~ANSWER:
d. average total cost of production decreases as more output is produced.
13
~ANSWER:
b. (ii) only
179
.
Monopoly profit with perfect price discrimination equals
a. abc.
b. bdec.
c. adec.
d. adf.
ANSWER: d. adf.
14
~ANSWER:
b. never more cost effective for two or more private firms to produce the product.
15
~ANSWER:
b. economies of scale occur over the relevant range of output.
16
~ANSWER:
a. they are generally not worried about competition eroding their monopoly position in the
market.
17
~ANSWER:
c. government-created monopolies.
18
~ANSWER:
a. government-created monopolies.
180
.
In reality, perfect price discrimination is
a. not possible.
b. used by most monopoly firms.
c. used by about half of the monopolies in the United States.
d. seldom used by monopolies because it leads to lower profits.
ANSWER: a. not possible.
19
~ANSWER:
c. natural monopoly.
20
~ANSWER:
a. the price of its output.
21
~ANSWER:
22
~ANSWER:
d. lower its price.
23
~ANSWER:
c. constrained by the market demand curve.
181
.
Compared to the monopoly outcome with a single price, imperfect price discrimination can
(i) raise welfare.
(ii) lower welfare.
(iii) leave welfare unchanged.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. all of the above
24
~ANSWER:
a. profit maximizers.
25
~ANSWER:
b. equal to the price of its product.
26
~ANSWER:
d. marginal revenue is always less than the price of the units it sells.
27
~ANSWER:
b. output effect and the price effect.
28
~ANSWER:
a. Monopolies can charge any price they want.
182
.
Many movie theatres allow discount tickets to be sold to senior citizens because
a. handicap/senior-citizen laws mandate such discounts.
b. they are profit maximizers.
c. efforts of goodwill show community respect and wins loyal patrons.
d. senior citizens usually comprise a solid portion of those who voice their opinions.
ANSWER: b. they are profit maximizers.
29
~ANSWER:
b. negative when the price effect is greater than the output effect.
30
~ANSWER:
a. marginal revenue is equal to marginal cost.
31
~ANSWER:
c. P > MR = MC.
32
~ANSWER:
33
~ANSWER:
a. decreases.
183
.
Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back.
What is the reason for this price discrepancy?
a. Airlines are attempting to charge people based on their willingness to pay.
b. Airlines are practicing imperfect price discrimination to raise their profits.
c. Airlines charge a different rate based on the different nature of peoples’ travel needs.
d. all of the above
34
~ANSWER:
c. (i) and (iii)
35
~ANSWER:
c. marginal cost and marginal revenue
36
~ANSWER:
a. price setter therefore it has no supply curve.
37
~ANSWER:
d. all of the above
38
~ANSWER:
b. $100
184
.
When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to
a. offer their customers a reward for reading the paper.
b. reduce prices for all customers.
c. price discriminate.
d. gain some pricing power over the other grocery stores in town.
ANSWER: c. price discriminate.
39
~ANSWER:
d. Not enough information is given.
40
~ANSWER:
b. marginal revenue exceeds marginal cost.
41
~ANSWER:
d. Never.
42
~ANSWER:
a. generally fails to maximize total economic well-being.
43
~ANSWER:
d. average revenue exceeds marginal cost.
185
.
Discount coupons have the ability to help a grocery store
a. maximize its profit.
b. price discriminate.
c. target their customers based on their individual willingness to pay.
d. all of the above
44
~ANSWER:
b. the deadweight loss.
45
~ANSWER:
c. (iii) only
46
~ANSWER:
a. demand
47
~ANSWER:
a. a deadweight loss to society.
48
~ANSWER:
c. a deadweight loss.
186
.
OPEC often holds oil production below capacity in an effort to
a. keep prices above the competitive level.
b. create a shift in the demand for oil.
c. compel consumers to search for oil substitutes.
d. compel consumers to conserve oil.
ANSWER: a. keep prices above the competitive level.
49
~ANSWER:
b. $200
50
~ANSWER:
a. $8
51
~ANSWER:
a. Not enough information is given.
52
~ANSWER:
b. (i), (ii) and (iii)
53
~ANSWER:
d. enforcement of antitrust laws.
187
.
Price discrimination explains why Ivy League universities often set rules that determine prices of
admission based on the students’
a. high school GPA.
b. sex.
c. age.
d. financial resources.
ANSWER: d. financial resources.
TRUE/FALSE
54
~ANSWER:
a. restrict the ability of firms to merge.
55
~ANSWER:
b. the government typically has little incentive to reduce costs.
56
~ANSWER:
c. falling and marginal cost is below average total cost.
57
~ANSWER:
d. it does not provide an incentive for the monopolist to reduce its cost.
58
~ANSWER:
d. both b and c
188
. When a monopoly charges a higher price, fewer of its goods are sold.
ANSWER: T.
TYPE: T KEY1:D SECTION:1 OBJECTIVE: 1 RANDOM:Y
189
.
The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its
own. This is evidence that they have a monopoly position to some degree.
ANSWER: T.
59
~ANSWER:
d. how ownership of the firm affects the cost of production.
60
~ANSWER:
c. antitrust law.
61
~ANSWER:
a. the Sherman Act.
62
~ANSWER:
d. all of the above
63
~ANSWER:
b. synergies.
190
.
The De Beers Diamond company is not worried about differentiating their product from all the
other gemstones.
ANSWER: F.
191
.
The amount of power that a monopoly has is a function of whether there are close substitutes for its
product.
ANSWER: T.
64
~ANSWER:
c. cause the monopolist to operate at a loss.
65
~ANSWER:
d. (iv) only
66
~ANSWER:
a. not in the best interest of society.
67
~ANSWER:
b. Bill owns the only grocery store in a small community that lies 200 miles from the nearest
city.
68
~ANSWER:
192
.
If the government deems a newly invented drug to be truly original, the pharmaceutical company is
given the exclusive right to manufacture and sell the drug for 50 years.
ANSWER: F.
193
.
Declining average total cost with increased production is one of the defining characteristics of a
natural monopoly
ANSWER: T.
a. own a key resource.

69
~ANSWER:
70
~ANSWER:
71
~ANSWER:
d. all of the above
72
~ANSWER:
d. all of the above
73
~ANSWER:
194
. Average revenue for a monopoly is the total revenue divided by the quantity produced.
ANSWER: T.
195
. For a monopoly, marginal revenue is often greater than the price they charge for their good.
ANSWER: F.
196
.
Like monopolies, competitive firms chose to produce a quantity in which marginal revenue equals
marginal cost.
ANSWER: T.
b. the government gives a firm the exclusive right to sell some good or service.
74
~ANSWER:
a. doing nothing at all
75
~ANSWER:
d. maximize profit and produce a level of output more consistent with optimal social well-
being.
76
~ANSWER:
c. price discrimination.
77
~ANSWER:
c. price = $150; profit = $450,000
78
197
. It doesn’t make sense to talk about a monopolist’s supply curve.
ANSWER: T.
198
.
During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing
the quantity at which marginal revenue equals marginal cost.
ANSWER: T.
~ANSWER:
b. $850,000
79
~ANSWER:
d. $400,000
80
~ANSWER:
a. there is no opportunity for arbitrage across market segmentations.
81
~ANSWER:
d. consumer surplus and deadweight losses are transformed into monopoly profits.
82
~ANSWER:
83
199
.
Antitrust laws give the Justice Department the authority to challenge potential merges between
companies, in an effort to safeguard society from monopoly power.
ANSWER: T.
200
. Some companies merge in order to lower costs through efficient joint production.
ANSWER: T.
201
. A common solution to monopoly in Europeans countries is public ownership.
ANSWER: T.
~ANSWER:
d. all of the above
84
~ANSWER:
b. have some market power.
85
~ANSWER:
b. price discrimination.
86
~ANSWER:
c. separate customers according to their willingness to pay.
87
~ANSWER:
d. all of the above
88
202
. The proper level of government intervention is ambiguous when dealing with a monopoly.
ANSWER: T.
203
.
By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the
publisher is able to price discriminate and raise its profit.
ANSWER: T.
~ANSWER:
a. arbitrage.
89
~ANSWER:
b. price discrimination
90
~ANSWER:
a. grant monopoly rights to a certain firm.
91
~ANSWER:
d. all of the above
92
~ANSWER:
a. encourage research.
93
204
.
Movie theatres charge different prices to different groups of people based on the differing marginal
costs that exist from group to group.
ANSWER: F.
205
.
Airlines often separate their customers into business travelers and personal travelers by giving a
discount to those travelers who stay over a Saturday night.
ANSWER: T.
~ANSWER:
c. encourage authors to write more and better books.
94
~ANSWER:
a. (i) and (ii)
95
~ANSWER:
a. natural monopoly
96
~ANSWER:
c. economies of scale.
97
~ANSWER:
b. a larger number of firms will lead to a higher average cost.
98
206
. University financial aid can be viewed as a type a price discrimination.
ANSWER: T.
207
. By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.
ANSWER: T.
208
.
The NCAA has convinced most observers that it is morally wrong to pay college athletes for their
services.
ANSWER: T.
~ANSWER:
b. (ii) and (iii)
99
~ANSWER:
a. is not likely to be concerned about new entrants eroding its monopoly power.
100
~ANSWER:
b. they know they cannot achieve the same low costs that the monopolist enjoys.
101
~ANSWER:
a. (i) and (ii)
102
~ANSWER:
a. there are no new entrants to the market.
103
209
. Goods that do not have close substitutes face downward sloping demand curves.
ANSWER: T.
210
. Firms with substantial monopoly power are quite common, because many goods are truly unique.
ANSWER: F.
~ANSWER:
a. (ii) only
104
~ANSWER:
b. horizontal demand curves and can sell as much as they want at the market price.
105
~ANSWER:
b. perfectly elastic.
106
~ANSWER:
107
~ANSWER:
b. buy less.
108
SHORT ANSWER
211
. Describe how government is involved in creating a monopoly. Why might the government create
one? Give an example.
ANSWER: The government can create a monopoly by giving a single firm the exclusive right to produce
some good. Monopolies are created for many reasons; one important one is the recognition that a
single firm in industries characterized by high fixed costs can usually supply the entire market at a
lower cost than multiple firms in the industry. Examples include most utility companies. The
government also grants sole ownership of inventions through patent laws in order to help eliminate
the market failure that is likely to otherwise occur in the markets for those goods.
TYPE: S KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y
~ANSWER:
a. increases.
109
~ANSWER:
d. charge a higher price and continue to sell the same quantity.
110
~ANSWER:
c. 112
111
~ANSWER:
b. 6
112
~ANSWER:
c. 26
113
212
. What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.
ANSWER: The defining characteristic of a natural monopoly is when a firm can supply a good or service
to an entire market at a smaller cost than could two or more firms. It may also be defined as when
goods are excludable, but non rival (see Chapter 11). The examples provided in the text include a
water distribution system and a bridge.
TYPE: S KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y
~ANSWER:
a. 5
114
~ANSWER:
d. total revenue per 1 unit increase in quantity sold.
115
~ANSWER:
d. all of the above
116
~ANSWER:
a. (i) and (ii)
117
~ANSWER:
c. price = average revenue
118
213
. Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.
ANSWER: A profit-maximizing monopolist chooses the output level where MR = MC and chooses the
corresponding price off of the market demand curve.
214
.Graphically depict the deadweight loss caused by a monopoly. How is this similar to the
deadweight loss from taxation?
ANSWER:
~ANSWER:
b. (i) and (ii)
119
~ANSWER:
b. monopoly firms.
120
~ANSWER:
a. A.
121
~ANSWER:
b. B.
122
~ANSWER:
c. C.
123
~ANSWER:
d. D.
124
~ANSWER:
a. increase as long as the decrease remains above Q2.
125
~ANSWER:
d (iv) only
126
~ANSWER:
a. curve C > curve B.
127
~ANSWER:
b. Q2.
128
A profit-maximizing monopolist will choose to produce Q0 units of output and sell at price P0.
However, marginal cost is MC0. This is identical to the deadweight loss of taxation when the tax
forces a wedge between market price and marginal cost.
TYPE: S KEY1: G SECTION: 3 OBJECTIVE: 3 GRAPH FORMAT: M RANDOM: Y
215
.What is the deadweight loss due to profit-maximizing monopoly pricing under the following
conditions: The price charged for goods produced is $10. The intersection of the marginal revenue
and marginal cost curves occurs where output is 100 units and marginal revenue is $5. The socially
efficient level of production is 110 units. The demand curve is linear and downward sloping and the
marginal cost curve is linear and upward sloping.
ANSWER: $25
~ANSWER:
a. P3.
129
~ANSWER:
d. A monopoly firm is a price maker and has no supply curve
130
~ANSWER:
d. no supply curves.
131
~ANSWER:
d. all of the above
132
~ANSWER:
b. the decision about how much to supply is impossible to separate from the demand curve
it faces.
216
. Why might economists prefer private ownership of monopolies over public ownership of
monopolies?
ANSWER: The private monopolist is governed by the market. Even though the market solution is sub-
optimal, it may be better than outcomes generated by publicly owned monopolies. Publicly owned
monopolies may restrict output to levels below the private market outcome and thus generate an
even lower level of social surplus than a private profit maximizing monopolist. They also may not
work to reduce costs.
134
~ANSWER:
b. P0*Q2
135
~ANSWER:
a. (P3 - P0)  Q2
137
~ANSWER:
a. P3
138
~ANSWER:
a. sole ownership of the right to sell the drug for a limited number of years.
139
~ANSWER:
a. switches from monopolistic to competitive once the firm’s patent runs out.
217
. In the market for "home heating" consumers typically have several options (i.e., electricity, heating
fuel, natural gas, propane, etc.) yet we often think of firms in this industry as behaving like
monopolists. Using your understanding of monopoly, discuss the context in which your electricity
provider is a monopolist. Is this characterization universally applicable? Carefully explain your
answer.
ANSWER: In this case, the firms are monopolists in the short run when consumers are unable to change
their "home heating" systems. In the long run, consumers can change from electric appliances to
natural gas appliances, and thus lessen the monopoly power of utility providers. As long as
consumers are able to substitute, in the long run the monopoly power is reduced.
140
~ANSWER:
a. (i) and (ii)
141
~ANSWER:
b. the patent on the name brand drug expires.
142
~ANSWER:
a. (i) and (ii)
143
~ANSWER:
c. (i) and (iii)
144
~ANSWER:
c. consumer surplus.
218
. In many countries, the government chooses to "internalize" the monopoly by owning monopoly
providers of goods and services. (In some cases these firms are "nationalized" and the government
actually buys or confiscates firms that operate in monopoly markets.) What would be the
advantages and disadvantages of such an approach to ensuring the "best interest of society" is
promoted in these markets? Carefully explain your answer.
ANSWER: As long as the government "owner" pursues a production and pricing policy that approaches a
competitive outcome, social well-being can be enhanced. In this case the government ownership
would benefit society. However, in most cases, government owners operate much like private
sector monopolists. The political economy of government institutions does not ensure that
government owners will pursue socially optimal policy.
145
~ANSWER:
b. producer surplus.
146
~ANSWER:
a. value of the good to consumers minus the costs of making the good.
147
~ANSWER:
b. equal to Q0.
148
~ANSWER:
c. raise the price and lower total surplus.
149
~ANSWER:
c. (i) and (iii)
219
. There has been much discussion of deregulating electricity and natural gas delivery companies in
the United States. Using your understanding of monopolies, discuss the likely effect of deregulation
on prices in these two industries. Graphically depict these markets to help argue your point.
ANSWER: If deregulation leads to increased competition then production and prices should move
toward the competitive equilibrium. If deregulation does not lead to increased competition then the
monopoly production and price outcome is likely. The success of deregulation movements hinges
on their ability to use markets to promote competitive market outcomes.
TYPE: S KEY1: G SECTION: 2 OBJECTIVE: 4 GRAPH FORMAT: M ANSWER RANDOM: Y
150
~ANSWER:
b. marginal revenue and marginal cost.
151
~ANSWER:
b. the price will be inefficiently high.
152
~ANSWER:
a. some people will choose to go without the good, due to the high prices.
153
~ANSWER:
d. triangle bge
154
~ANSWER:
d. Triangle bge.
220
.
Let's assume that a monopolist decides to maximize revenue, rather than profit. How does this
operating objective change the size of the deadweight loss? If you are a "benevolent" manager of a
monopoly firm and are interested in reducing the deadweight loss of monopoly, should you
maximize profits or maximize revenue? Carefully explain your answer.
ANSWER: A revenue maximizer operates where MR = 0. This solution moves the monopolist closer to
the socially optimal competitive outcome, and reduces deadweight loss. Revenue maximization is
potentially a more "socially" optimal objective for monopoly markets than profit maximization.
155
~ANSWER:
a above marginal cost.
156
~ANSWER:
c. fall short of the social optimum.
157
~ANSWER:
a. (i) and (ii)
158
~ANSWER:
c. (i) only
159
~ANSWER:
c. a shrinkage in consumer surplus.
221
. One solution to the problems of marginal-cost pricing of a regulated monopolist is average-cost
pricing. In this model, the monopolist is allowed to price its production at average total cost. How
does average-cost pricing differ from marginal-cost pricing. Does this solution maximize social
well-being?
ANSWER: Average cost pricing always guarantees that the monopolist earns zero economic profits, but
does not ensure a socially optimal market solution.
222
.What are the four ways that government policymakers can respond to the problem of monopoly?
Briefly describe each.
ANSWER: Trying to make monopolized industries more competitive.
160
~ANSWER:
161
~ANSWER:
a. CONSUMERS buy fewer units when the monopoly firm raises its price.
162
~ANSWER:
c. the cost of lawyers and lobbyists to convince lawmakers to continue its monopoly.
163
~ANSWER:
c. be able to determine which mergers are desirable and which are not.
164
~ANSWER:
a. may raise social welfare if the benefit from the synergies exceeds the social cost of
increased market power.
Regulating the behavior of monopolies.

Turning some private monopolies into public enterprises.
Do nothing.
223
. Explain the benefits and costs of antitrust laws.
ANSWER: Benefits: Promote competition by preventing mergers and breaking-up companies.
Costs: May increase cost of operating by restricting synergy mergers.
165
~ANSWER:
a. through regulation.
166
~ANSWER:
d. all of the above
167
~ANSWER:
a. lower its costs so that it can earn more profit.
168
~ANSWER:
169
~ANSWER:
b. operates in a competitive market
224
. Why do economists usually prefer private ownership to public ownership of natural monopolies?
ANSWER: Private owners have an incentive to minimize cost as long as they reap part of the benefit in
the form of higher profit. By contrast, government bureaucrats have no incentive to reduce costs
and the losers are customers and taxpayers, whose only recourse is the political system.
225
. One example of price discrimination occurs in the publishing industry when a publisher initially
releases an expensive hardcover edition of a popular novel, and later releases a cheaper paperback
edition. Use this example to demonstrate the benefits and potential pitfalls of a price discrimination
pricing strategy.
170
~ANSWER:
a. arbitrage.
171
~ANSWER:
d. All of the above.
172
~ANSWER:
c. (i) and (iii)
173
~ANSWER:
d. all of the above
174
~ANSWER:
a. abc
ANSWER: The answer should address the three basic lessons of price discrimination. First, price
discrimination is a rational strategy that can lead to higher monopoly profits. Second, price
discrimination requires an ability to separate customers according to their willingness to pay.
Third, price discrimination can raise economic welfare.
175
~ANSWER:
176
~ANSWER:
c. cef
178
~ANSWER:
b. bdec.
179
~ANSWER:
d. adf.
180
~ANSWER:
a. not possible.
181
~ANSWER:
182
~ANSWER:
b. they are profit maximizers.
183
~ANSWER:
184
~ANSWER:
c. price discriminate.
185
~ANSWER:
186
~ANSWER:
a. keep prices above the competitive level.
187
~ANSWER:
d. financial resources.
188
~ANSWER:
T.
189
~ANSWER:
T.
190
~ANSWER:
F.
191
~ANSWER:
T.
193
~ANSWER:
T.
192
~ANSWER:
F.
196
~ANSWER:
T.
194
~ANSWER:
T.
195
~ANSWER:
F.
197
~ANSWER:
T.
198
~ANSWER:
T.
199
~ANSWER:
T.
200
~ANSWER:
T.
201
~ANSWER:
T.
202
~ANSWER:
T.
203
~ANSWER:
T.
204
~ANSWER:
F.
205
~ANSWER:
T.
206
~ANSWER:
T.
207
~ANSWER:
T.
208
~ANSWER:
T.
209
~ANSWER:
T.
210
~ANSWER:
F.
211
~ANSWER:
The government can create a monopoly by giving a single firm the exclusive right to produce some good.
Monopolies are created for many reasons; one important one is the recognition that a single firm in
industries characterized by high fixed costs can usually supply the entire market at a lower cost than
multiple firms in the industry. Examples include most utility companies. The government also grants sole
ownership of inventions through patent laws in order to help eliminate the market failure that is likely to
otherwise occur in the markets for those goods.
212
~ANSWER:
The defining characteristic of a natural monopoly is when a firm can supply a good or service to an entire
market at a smaller cost than could two or maore firms. It may also be defined as when goods are
excludable, but non rival (see Chapter 11). The examples provided in the text include a water
distribution system and a bridge.
213
~ANSWER:
A profit maximizing monopolist chooses the output level where MR = MC and chooses the corresponding
price off of the market demand curve.
214
~ANSWER:
215
~ANSWER:
$25
216
~ANSWER:
The private monopolist is governed by the market. Even though the market solution is sub-optimal, it
may be better than outcomes generated by publicly owned monopolies. Publicly owned monopolies may
restrict output to levels below the private market outcome and thus generate an even lower level of social
surplus than a private profit maximizing monopolist. They also may not work to reduce costs.
217
~ANSWER:
In this case, the firms are monopolists in the short run when consumers are unable to change their "home
heating" systems. In the long run consumers can change from electric appliances to natural gas
appliances, and thus lessen the monopoly power of utility providers. As long as consumers are able to
substitute, in the long run the monopoly power is reduced.
218
~ANSWER:
As long as the government "owner" pursues a production and pricing policy that approaches a
competitive outcome, social well-being can be enhanced. In this case the government ownership would
benefit society. However, in most cases, government owners operate much like private sector
monopolists. The political economy of government institutions does not ensure that government owners
will pursue socially optimal policy.
219
~ANSWER:
If deregulation leads to increased competition then production and prices should move toward the
competitive equilibrium. If deregulation does not lead to increased competition then the monopoly
production and price outcome is likely. The success of deregulation movements hinges on their ability to
use markets to promote competitive market outcomes.
TYPE: S KEY1: G SECTION: 2 OBJECTIVE: 4 GRAPH FORMAT: M ANSWER RANDOM: Y
220
~ANSWER:
A revenue maximizer operates where MR = 0. This solution moves the monopolist closer to the socially
optimal competitive outcome, and reduces deadweight loss. Revenue maximization is potentially a more
"socially" optimal objective for monopoly markets than profit maximization.
221
~ANSWER:
Average cost pricing always guarantees that the monopolist earns zero economic profits, but does not
ensure a socially optimal market solution.
TYPE: S KEY1: C SECTION: 4 OBJECTIVE: 4 GRAPH FORMAT: M ANSWER RANDOM: Y
222
~ANSWER:
Trying to make monopolized industries more competitive.
Regulating the behavior of monopolies.
223
~ANSWER:
Benefits: Promote competition by preventing mergers and breaking-up companies.
Costs: May increase cost of operating by restricting synergy mergers.
224
~ANSWER: Private owners have an incentive to minimize cost as long as they reap part of the benefit in
the form of higher profit. By contrast, government bureaucrats have no incentive to reduce costs
and the losers are customers and taxpayers, whose only recourse is the political system.
225
~ANSWER: The answer should address the three basic lessons of price discrimination. First, price
discrimination is a rational strategy that can lead to higher monopoly profits. Second, price
discrimination requires an ability to separate customers according to their willingness to pay.
Third, price discrimination can raise economic welfare.

Chap 15

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap 15

Uploaded by

Copyright:

Available Formats

Chapter 15

Use the following information to answer question 69 through 71.

Use the following information to answer questions 77 through 79.

Use the figure to answer question 95 and 96

Use the information below to answer questions 101 through102.

Use the following table of numbers to answer questions 110-113

Total Average Marginal

TYPE: M KEY1:D SECTION:4 OBJECTIVE: 4 RANDOM:Y

TYPE: M KEY1:D SECTION:4 OBJECTIVE: 4 RANDOM:Y

a. own a key resource.

TYPE: T KEY1:D SECTION:2 OBJECTIVE: 2 RANDOM:Y

TYPE: T KEY1:D SECTION:4 OBJECTIVE: 4 RANDOM:Y

TYPE: T KEY1:D SECTION:5 OBJECTIVE: 5 RANDOM:Y

TYPE: S KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y

Regulating the behavior of monopolies.

TYPE: T KEY1:D SECTION:1 OBJECTIVE: 1 RANDOM:Y

TYPE: T KEY1:D SECTION:5 OBJECTIVE: 5 RANDOM:Y

TYPE: S KEY1: C SECTION: 1 OBJECTIVE: 4 RANDOM: Y

Regulating the behavior of monopolies.

You might also like