51.

Suppose Johnny, seven years old, is selling lemonade and he sells each of his buyers the refreshment
for the maximum price that each buyer is willing to pay. Johnny is practicing
a. perfect competition.
b perfect price discrimination.
.
c. second-degree price discrimination.
d third-degree price discrimination.
.

52. Arbitrage is
a. a form of negotiation between two parties having a disagreement.
b buying a good in one market and selling it in another for a profit.
.
c. a form of price discrimination where the producer sells its product at two different
prices.
d a means of deciding the most efficient way of producing a product.
.

53. Which of the following statements is false?

a. The perfectly competitive firm and the perfectly price-discriminating monopolist both exhibit
resource-allocative efficiency.
b. The perfectly competitive firm, unlike the single-price monopolist, exhibits resource-allocative
efficiency.
c. The perfectly competitive firm charges the same price for each unit of the good it sells.
d. The perfectly price-discriminating monopolist charges the same price for each unit of the good it
sells.

54. If a perfectly competitive firm and a single-price monopolist face the same demand and cost curves,
then the competitive firm will produce a
a. greater output and charge a lower price than the monopolist.
b. greater output but charge the same price as the monopolist.
c. greater output and charge a higher price than the monopolist.
d. smaller output and charge a lower price than the monopolist.
e. smaller output and charge a higher price than the
monopolist.

55. If a perfectly competitive firm and a single-price monopolist face the same demand and cost curves,
then
a. the competitive firm will attain resource-allocative efficiency, but the monopolist will not.
b. the competitive firm will attain resource-allocative efficiency, but the monopolist may or may not,
depending upon the demand for its product.
c. the competitive firm will not attain resource-allocative efficiency, but the monopolist will.
d. both the competitive firm and the monopolist will attain resource-allocative efficiency.
e. neither the competitive firm nor the monopolist will attain resource-allocative efficiency.

56. If a perfectly competitive firm and a perfectly price-discriminating monopolist face the same demand
and cost curves, then
a. the competitive firm will attain resource-allocative efficiency, but the monopolist will not.
b. the competitive firm will attain resource-allocative efficiency, but the monopolist may or may not,
depending upon the demand for its product.
c. the competitive firm will not attain resource-allocative efficiency, but the monopolist will.
d. both the competitive firm and the monopolist will attain resource-allocative efficiency.
e. neither the competitive firm nor the monopolist will attain resource-allocative efficiency.
57. If a single-price monopolist and a perfectly price-discriminating monopolist face the same demand
and cost curves, then
a. the single-price monopolist will attain resource-allocative efficiency, but the discriminating
monopolist will not.
b. the single-price monopolist will attain resource-allocative efficiency, but the discriminating
monopolist may or may not, depending upon the demand for its product.
c. the single-price monopolist will not attain resource-allocative efficiency, but the discriminating
monopolist will.
d. both the single-price and the discriminating monopolist will attain resource-allocative efficiency.
e. neither the single-price nor the discriminating monopolist will attain resource-allocative
efficiency.

58. Which of the following statements is true?

a. The perfectly competitive firm produces a level of output at which P=MC.
b. The single-price monopolist produces a level of output at which P > MC.
c. The perfectly price-discriminating monopolist produces a level of output at which
P>MC.
d. a and b
e. all of the above

Exhibit 24-1

59. Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what quantity will be
produced and what price will be charged in order to maximize profit?
a. Q units at P
2 1

b. Q units at P
1 1

c. Q units at P
1 2

d. Q units at P
2 2

60. Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do profits equal
at the profit maximizing level of output?
a. area 0P BQ1 1

b. area BCA
c. area P P CB
1 2

d. area P CAP
2 1

e. none of the
above
61. Refer to Exhibit 24-1 The deadweight loss of the profit-maximizing monopoly is identified by what
area?
a. area Q BAQ
1 2

b. area BCA
c. area P P CB
1 2

d. area 0P BQ 1 1

e. none of the
above

62. Refer to Exhibit 24-1. According to economist Gordon Tullock, what area is subject to rent seeking
activity?
a. area Q BAQ
1 2

b. area BCA
c. area P P CB
1 2

d. area 0P BQ1 1

e. none of the
above

63. Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what does total
revenue equal at the profit maximizing level of output?
a. area 0P CQ 2 1

b. area BCA
c. area P P CB
1 2

d. area P CAP
2 1

e. none of the
above

64. Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do total costs
equal at the profit maximizing level of output?
a. area 0P BQ1 1

b. area BCA
c. area P P CB
1 2

d. area P CAP
2 1

e. none of the
above

65. The difference between profit seeking under perfect competition and profit seeking under monopoly is
that
a. under the former output will increase and price will decrease, whereas under the latter only output
will increase.
b. under the former output will increase and price may increase, whereas under the latter output will
increase and price will decrease.
c. under the former new firms will enter the industry, whereas under the latter the firm will simply
raise its price and earn higher profits.
d. none of the above

66. Individuals who spend resources to influence public policy in a way that will redistribute income to
themselves are
a. stabilizing the economy.
b rent seeking.
.
c. engaging in collusion.
d minimizing explicit costs.
.
67. "Rent seeking" is socially wasteful because
a. resources devoted to transferring rents are not used to produce
goods.
b. wage income is converted into profit income.
c. it results in higher prices than would exist without monopoly.
d. it discourages innovation and risk taking.

68. Barriers to entry include all of the following except

a. exclusive ownership of a scarce resource.
b. patents.
c. public franchises.
d. diseconomies of scale.
e. government licenses.

69. In general, electric, gas, and water companies are examples of __________  monopolies.
a. unregulated
b. patent
c. natural
d. government

70. The demand curve facing a monopolist is always

a. the same as the industry demand curve.
b perfectly inelastic.
.
c. perfectly elastic.
d unit elastic.
.

71. By adhering to the MR = MC rule, a single-price monopoly

a. will always have an above-zero profit.
b. will always have a normal profit.
c. maximizes its profit, which may in some cases mean minimizing its
losses.
d. is not earning as large a profit as it can by setting MR = (MC - P).

72. If a price-discriminating monopoly charges a lower price to individuals in City X, it is likely that the
firm
a. believes that the demand of individuals in City X is relatively inelastic.
b believes that the demand of individuals in City X is relatively elastic.
.
c. wants to shift the demand of individuals in City X.
d cares about the well-being of the individuals in City X.
.

73. At the quantity where a single-price monopolist maximizes profit, price will be
a. equal to marginal cost.
b. equal to marginal revenue.
c. greater than marginal cost.
d. less than marginal cost.
e. less than marginal
revenue.
74. A single-price monopolist sets a price of $35 and is selling more than one unit of the product. Which
of the following is true?
a. The average cost of that unit must be $35.
b The marginal cost of that unit must be $35.
.
c. The marginal revenue of that unit must be $35.
d The marginal revenue of that unit must be less than $35.
.

75. A monopolist can sell 8,000 units at a price of $15. Lowering price by $2 raises the quantity
demanded by 2,000 units. What is the change in total revenue that results from this price change?
a. $10,000
b $4,000
.
c. $130,000
d $90,000
.

76. For a single-price monopoly, marginal revenue is

a. equal to price for the first unit of output.
b less than price for all units of output after the first
. unit.
c. greater than price.
d horizontal.
.
e. a and b

77. The term "arbitrage" refers to

a. buying a good in a market where its price is high and selling the good in another market where its
price is lower.
b. buying a good in a market where its price is low and selling the good in another market where its
price is higher.
c. selling a good in a market where its price is high.
d. selling a good in a market where its price is low.

78. Which of the following is true at the level of output which maximizes profits for a perfectly price-
discriminating monopolist?
a. P > MC.
b. P < ATC.
c. P < MC.
d. a and b
e. none of the
above

Exhibit 24-2
79. Refer to Exhibit 24-2. The profit-maximizing monopolist produces Q units and charges a price of
0

a. P0.

b. P1.

c. P .
3

d. P .
2

e. none of the
above

80. Refer to Exhibit 24-2. Total revenue at the profit-maximizing quantity of output is the
a. area 0P AQ .
0 0

b. area 0P FQ .
3 0

c. distance from Q to A.
0

d. distance from Q to D.
0

e. none of the above

81. Refer to Exhibit 24-2. This monopolist is earning

a. an economic loss of area P P FA.
0 3

b an economic loss of area P P CA.

0 2

.
c. an economic profit of area P P FC.
2 3

d an economic profit of area P P CA.

0 2

82. Refer to Exhibit 24-2. Total cost at the profit-maximizing quantity of output is the
a. area 0P CQ .
2 0

b. area 0P FQ .
3 0

c. area 0P BQ .
1 0

d. distance from Q to D.
0

e. none of the above

83. The monopoly firm may earn positive economic profits in the long run because
a. it produces a homogeneous product.
b it is the only firm that wishes to produce the product.
.
c. of high barriers to entry.
d a and c
.
e. all of the above
84. X-inefficiency refers to
a. the tendency for an economy to allocate too many resources to the monopolist.
b. the increase in costs and organizational slack in a monopoly resulting from the lack of competitive
pressure.
c. the resources used to regulate the behavior of a monopolist.
d. a and b
e. a and c

85. The monopolist's demand curve is

a. upward sloping.
b. perfectly elastic.
c. perfectly inelastic.
d. downward sloping.

86. The monopolist's marginal revenue curve is

a. downward sloping and lies below the firm’s demand curve.
b. upward sloping and lies above the firm’s demand curve.
c. perfectly inelastic.
d. downward sloping and lies above the firm’s demand curve.
e. the same as the industry demand curve.

87. The profit-maximizing single-price monopolist will charge a price

a. equal to marginal revenue.
b. greater than marginal cost.
c. less than marginal revenue, but greater than marginal
cost.
d. greater than marginal revenue, but equal to marginal cost.
e. a and b

Exhibit 24-3
88. Refer to Exhibit 24-3. The profit-maximizing single-price monopolist charges price
a. P .
1

b. P .
2

c. P .
3

d. P .
4

e. P .
5

89. Refer to Exhibit 24-3. The profit-maximizing single-price monopolist produces output
a. q .
1

b q.2

.
c. q .
3

d q.4

90. Refer to Exhibit 24-3. The profit of the single-price monopolist is

a. positive.
b. zero.
c. negative.
d. uncertain without more
information.

91. Refer to Exhibit 24-3. The level of output the profit-maximizing perfectly price-discriminating
monopolist produces is
a. q .
1

b q. 2

.
c. q .
3

d q. 4

92. To engage in price discrimination, it is necessary that

a. a seller be a price searcher.
b there be no arbitrage.
.
c. a seller incur different costs for servicing different
 customers.
d a and b
.
e. all of the above

93. A monopoly exhibits resource-allocative efficiency if it

a. is a single-price monopolist.
b is a perfectly price-discriminating monopolist.
.
c. engages in second-degree price discrimination.
d engages in third-degree price discrimination.
.
e. all of the above

Exhibit 24-4

Total Total
Quantity Fixed Variable Total Marginal Marginal
Pric Demanded Cost Cost Revenue Total Revenue Cost
e Cost
$50 0 $8 $0 (C) (H)
  45 1 8 20 (D) (I) (L) (R)
  40 2 (A) 30 (E) (J) (M) (S)
  35 3 8 55 105 63 (N) (T)
  30 4 8 (B) (F) 93 (P) (U)
  25 5 8 125 (G) (K) (Q) (V)

94. Refer to Exhibit 24-4. The profit-maximizing single-price monopolist will produce
a. 3 units.
b. 4 units.
c. 5 units.
d. 6 units.

95. Refer to Exhibit 24-4. The profit-maximizing single-price monopolist's maximum profit is
a. $22.
b. $42.
c. $82.
d. $130.
e. $140.

96. Refer to Exhibit 24-4.  What dollar amounts go in blanks (A), (B), (C), (D), and (E), respectively?
a. $8; $60; $0; $10; and $130
b. $8; $70; $50; $30; and $10
c. $25; $10; $10; $30; and $50
d. $8; $85; $0; $45; and $80

97. Refer to Exhibit 24-4.  What dollar amounts go in blanks (F), (G), (H), (I), and (J), respectively?
a. $120; $125; $8; $28; and $38
b $9; $70; $50; $30; and $10
.
c. $250; $15; $10; $30; and $50
d $100; $90; $8; $28; and $48
 .

98. Refer to Exhibit 24-4.  What dollar amounts go in blanks (K), (L), (M), and (N), respectively?
a. $90; $80; $53.33; and $60
b. $90; $70; $50; and $30
c. $133; $45; $35; and $25
d. $0; $90; $160; and $210

99. Refer to Exhibit 24-4.  What dollar amounts go in blanks (P), (Q), (R), and (S), respectively?
a. $90;$80; $53.33; and $60
b $10; $0; $28; and $19
.
c. $15; $5; $20; and $10
d $75; $45; $33.33; and $32.50
.

100. Refer to Exhibit 24-4.  What dollar amounts go in blanks (T), (U) and (V), respectively?
a. $25; $30; and $40
b. $16; $19.50; and $23.60
c. $30; $40; and $29
d. $23; $15; and $28