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Chapter 12 Pure Monopoly Answer Key

Multiple Choice Questions
1. Pure monopoly refers to
A. any market in which the demand curve for the firm is downsloping.
B. a standardized product being produced by many firms.
C. a single firm producing a product for which there are no close substitutes.
D. a large number of firms producing a differentiated product.
AACSB: Knowledge Application

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 12-01 List the characteristics of pure monopoly.
Test Bank: I
Topic: An Introduction to Pure Monopoly
2. Which of the following is correct?
A. Both purely competitive and monopolistic firms are "price takers."

B. Both purely competitive and monopolistic firms are "price makers."
C. A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D. A purely competitive firm is a "price maker," while a monopolist is a "price taker."

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
3. A purely monopolistic firm
A. has no entry barriers.

B. faces a downsloping demand curve.
C. produces a product or service for which there are many close substitutes.
D. earns only a normal profit in the long run.

12-1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 12-03 Explain how demand is seen by a pure monopoly.
Test Bank: I
Topic: Monopoly Demand
4. Pure monopolists may obtain economic profits in the long run because
A. of advertising.
B. marginal revenue is constant as sales increase.
C. of barriers to entry.
D. of rising average fixed costs.

Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 12-02 List and explain the barriers to entry that shield pure monopolies from competition.
Test Bank: I
Topic: Barriers to Entry
5. Which of the following best approximates a pure monopoly?
A. the foreign exchange market

B. the Kansas City wheat market
C. the only grocery store in a small isolated town
D. the soft drink market

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
6. Which of the following is a characteristic of pure monopoly?
A. close substitute products

B. barriers to entry
C. the absence of market power
D. "price taking"

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
7. Which of the following is not a barrier to entry?
A. patents
B. X-inefficiency
C. economies of scale
D. ownership of essential resources

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
8. Barriers to entering an industry
A. encourage allocative efficiency.

B. encourage productive efficiency.
12-2
C. are the basis for monopoly.
D. apply only to purely monopolistic industries.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
9. A natural monopoly occurs when
A. long-run average costs decline continuously through the range of demand.

B. a firm owns or controls some resource essential to production.
C. long-run average costs rise continuously as output is increased.
D. economies of scale are obtained at relatively low levels of output.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
10. Large minimum efficient scale of plant combined with limited market demand may lead to
A. natural monopoly.
B. patent monopoly.
C. government franchise monopoly.
D. shared monopoly.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
11. What do economies of scale, the ownership of essential raw materials, and patents have in common?
A. They must all be present before price discrimination can be practiced.

B. They are all barriers to entry.
C. They all help explain why a monopolist's demand and marginal revenue curves coincide.
D. They all help explain why the long-run average cost curve is U-shaped.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
12. The nondiscriminating pure monopolist's demand curve
A. is the industry demand curve.

B. shows a direct or positive relationship between price and quantity demanded.
C. tends to be inelastic at high prices and elastic at low prices.
D. is identical to its marginal revenue curve.

Blooms: Understand
Test Bank: I
12-3
13. The nondiscriminating monopolist's demand curve
A. is less elastic than a purely competitive firm's demand curve.

B. is perfectly elastic.
C. coincides with its marginal revenue curve.
D. is perfectly inelastic.

Blooms: Understand
Test Bank: I
14. If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue
A. may be either greater or less than $35.

B. will also be $35.
C. will be less than $35.
D. will be greater than $35.

Blooms: Understand
Test Bank: I
15. For an imperfectly competitive firm,
A. total revenue is a straight, upsloping line because a firm's sales are independent of product price.
B. the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold.
C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
D. the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

Blooms: Understand
Test Bank: I
16. When a firm is on the inelastic segment of its demand curve, it can
A. increase total revenue by reducing price.

B. decrease total costs by decreasing price.
C. increase profits by increasing price.
D. increase total revenue by more than the increase in total cost by increasing price.

Blooms: Understand
Test Bank: I
17.
12-4
In the accompanying diagram, if price is reduced from P1 to P2, total revenue will
A. increase by A − C.
B. increase by C − A.
C. decrease by A − C.
D. decrease by C − A.

Blooms: Understand
Test Bank: I
Type: Graph
18.
In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures
12-5
A. marginal cost.
B. marginal revenue.
C. monopoly price.
D. a welfare or efficiency loss.

Blooms: Understand
Test Bank: I
Type: Graph
19.
Answer the question on the basis of the accompanying demand schedule.
Price Quantity Demanded

$7 1
6 2
5 3
4 4
3 5
The marginal revenue obtained from selling the third unit of output is
A. $6.
B. $1.
C. $3.
D. $5.

Blooms: Understand
Test Bank: I
Type: Table
20.

$7 1
6 2
5 3
4 4
3 5
The marginal revenue obtained from selling the fourth unit of output is
A. $16.
B. $3.
C. $1.
12-6
D. $4.

Blooms: Understand
Test Bank: I
Type: Table
21.

$7 1
6 2
5 3
4 4
3 5
At the point where 3 units are being sold, the coefficient of price elasticity of demand
A. cannot be estimated.
B. suggests that the market is purely competitive.
C. is less than unity (one).
D. is greater than unity (one).

Blooms: Understand
Test Bank: I
Type: Table
22. A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9
per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is
A. âˆ’$1,000.
B. $9,000.
C. $10,000.
D. $1,000.

Blooms: Understand
Test Bank: I
23.
12-7
Refer to the two diagrams for individual firms. Figure 1 pertains to , while Figure 2 refers to .
A. an imperfectly competitive firm; a purely competitive firm

B. a purely competitive firm; an imperfectly competitive firm
C. an oligopolist; a monopolistically competitive firm
D. a pure monopolist; a monopolistically competitive firm

Blooms: Understand
Test Bank: I
Type: Graph
24.
Refer to the two diagrams for individual firms. In Figure 2, line B represents the firm's
A. demand curve only.

B. marginal cost curve only.
C. marginal revenue curve only.
D. total revenue curve only.

Blooms: Understand
Test Bank: I
Type: Graph
25.
12-8
Refer to the two diagrams for individual firms. Line A represents the firm's
A. total revenue in Figure 1 and average revenue in Figure 2.

B. demand curve in both figures.
C. marginal revenue in Figure 1 and total revenue in Figure 2.
D. total revenue curve in both figures.

Blooms: Understand
Test Bank: I
Type: Graph
26.
Refer to the two diagrams for individual firms. Figure 2 pertains to
A. a market characterized by government regulation of price and output.

B. either an imperfectly competitive or a purely competitive seller.
C. a purely competitive seller.
D. an imperfectly competitive seller.
12-9
Blooms: Understand
Test Bank: I
Type: Graph
27.
Refer to the two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by
A. lines B and C, respectively.

B. lines A and C, respectively.
C. lines A and B, respectively.
D. line B.

Blooms: Understand
Test Bank: I
Type: Graph
28. With respect to the pure monopolist's demand curve, it can be said that
A. the stronger the barriers to entry, the more elastic is the monopolist's demand curve.
B. price exceeds marginal revenue at all outputs greater than 1.
C. demand is perfectly inelastic.
D. marginal revenue equals price at all outputs.

Blooms: Understand
Test Bank: I
29.
12-10
The firm described in the accompanying diagram is selling in
A. a market in which there are an extremely large number of other firms producing the same product.
B. an imperfectly competitive market.
C. a market in which demand is elastic at all prices.
D. a purely competitive market.

Blooms: Understand
Test Bank: I
Type: Graph
30.
In the accompanying diagram, demand is relatively elastic
A. in the P2P1 price range.

B. in the 0P1 price range.
12-11
C. in the P2P4 price range.
D. only at price P2.

Blooms: Understand
Test Bank: I
Type: Graph
31.
In the accompanying diagram, demand is relatively inelastic
A. at price P3.
B. at any price below P2.
C. in the P2P4 price range.
D. in the P2P3 price range.

Blooms: Understand
Test Bank: I
Type: Graph
32.
12-12
Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by
A. selling the product at the highest possible price at which a positive quantity will be demanded.
B. producing Q1 units and charging a price of P1.
C. producing Q3 units and charging a price of P3.
D. producing Q2 units and charging a price of P2.

Blooms: Understand
Learning Objective: 12-04 Explain how a pure monopoly sets its profit-maximizing output and price.
Test Bank: I
Topic: Output and Price Determination
Type: Graph
33. The demand curve faced by a pure monopolist
A. may be either more or less elastic than that faced by a single purely competitive firm.
B. is less elastic than that faced by a single purely competitive firm.
C. has the same elasticity as that faced by a single purely competitive firm.
D. is more elastic than that faced by a single purely competitive firm.

Blooms: Understand
Test Bank: I
34. The marginal revenue curve for a monopolist
A. is a straight, upsloping curve.

B. rises at first, reaches a maximum, and then declines.
C. becomes negative when output increases beyond some particular level.
D. is a straight line, parallel to the horizontal axis.

Blooms: Understand
Test Bank: I
35.
12-13
If the firm in the diagram lowers price from P1 to P2, it will
A. lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales.
B. lose P1P2ca in revenue from the price cut but increase revenue by Q1acQ2 from the increase in sales.
C. incur a decline in total revenue because it is operating on the elastic segment of the demand curve.
D. incur an increase in total revenue because it is operating on the inelastic segment of the demand curve.

Blooms: Understand
Test Bank: I
Type: Graph
36.
The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures
A. marginal cost.
B. total revenue.
C. marginal revenue.
D. average revenue.

Blooms: Understand
12-14
Test Bank: I
Type: Graph
37. Which of the following is characteristic of a pure monopolist's demand curve?
A. Average revenue is less than price.

B. Its elasticity coefficient is 1 at all levels of output.
C. Price and marginal revenue are equal at all levels of output.
D. It is the same as the market demand curve.

Blooms: Understand
Test Bank: I
38. Because the monopolist's demand curve is downsloping,
A. MR will equal price.

B. price must be lowered to sell more output.
C. the elasticity coefficient will increase as price is lowered.
D. its supply curve will also be downsloping.

Blooms: Understand
Test Bank: I
39. The pure monopolist's demand curve is relatively elastic
A. in the price range where total revenue is declining.

B. at all points where the demand curve lies above the horizontal axis.
C. in the price range where marginal revenue is negative.
D. in the price range where marginal revenue is positive.

Blooms: Understand
Test Bank: I
40. A nondiscriminating profit-maximizing monopolist
A. will never produce in the output range where marginal revenue is positive.
B. will never produce in the output range where demand is inelastic.
C. will never produce in the output range where demand is elastic.
D. may produce where demand is either elastic or inelastic, depending on the level of production costs.

Blooms: Understand
Test Bank: I
41. For a pure monopolist, the relationship between total revenue and marginal revenue is such that
A. marginal revenue is positive when total revenue is at a maximum.

B. total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing.
C. marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.
D. marginal revenue is positive so long as total revenue is positive.
12-15
Blooms: Understand
Test Bank: I
42. For a pure nondiscriminating monopolist, marginal revenue is less than price because
A. the monopolist's demand curve is perfectly elastic.

B. the monopolist's demand curve is perfectly inelastic.
C. when a monopolist lowers price to sell more output, the lower price applies to all units sold.
D. the monopolist's total revenue curve is linear and slopes upward to the right.

Blooms: Understand
Test Bank: I
43.
Refer to the diagram for a non discriminating monopolist. Demand is elastic
A. in the q1q3 output range.

B. only for outputs greater than q4.
C. for all levels of output less than q2.
D. for all levels of output greater than q2.

Blooms: Understand
Test Bank: I
Type: Graph
44.
12-16
Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output
A. q1.
B. q2.
C. q3.
D. q4.

Blooms: Understand
Test Bank: I
Type: Graph
45.
Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will
A. always produce at output q2.

B. always produce more than q2.
C. never produce an output larger than q2.
D. never produce an output larger than q1.
12-17
Blooms: Understand
Test Bank: I
Type: Graph
46. Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is
seeking maximum profits, it should
A. retain its current price-quantity combination.

B. increase both price and quantity sold.
C. charge a lower price.
D. charge a higher price.

Blooms: Understand
Test Bank: I
47. A pure monopolist should never produce in the
A. elastic segment of its demand curve, because it can increase total revenue and reduce total cost by lowering price.
B. inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price.
C. inelastic segment of its demand curve, because it can always increase total revenue by more than it increases total cost by reducing price.
D. segment of its demand curve, where the price elasticity coefficient is greater than one.

Blooms: Understand
Test Bank: I
48. Assuming no change in product demand, a pure monopolist
A. can increase price and increase sales simultaneously because it dominates the market.
B. adds an amount to total revenue that is equal to the price of incremental sales.
C. should produce in the range where marginal revenue is negative.
D. must lower price to increase sales.

Blooms: Understand
Test Bank: I
49. If a monopolist were to produce in the inelastic segment of its demand curve,
A. total revenue would be at a maximum.

B. marginal revenue would be positive.
C. the firm would not be maximizing profits.
D. it would necessarily incur a loss.

Blooms: Understand
Test Bank: I
50. If a pure monopolist is operating in a range of output where demand is elastic,

12-18
A. it cannot possibly be maximizing profits.
B. marginal revenue will be positive but declining.
C. marginal revenue will be positive and rising.
D. total revenue will be declining.

Blooms: Understand
Test Bank: I
51. Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that
A. demand is inelastic at this price.

B. the firm is maximizing profits.
C. total revenue is increasing.
D. total revenue is at a maximum.

Blooms: Understand
Test Bank: I
52. A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the
A. price of the seventh unit is $10.

B. price of the seventh unit is $11.
C. price of the seventh unit is greater than $12.
D. firm's demand curve is perfectly elastic.

Blooms: Understand
Test Bank: I
53. The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures
A. the quantity demanded.

B. product price and marginal revenue.
C. total revenue.
D. product price and average revenue.

Blooms: Understand
Test Bank: I
54.
12-19
The diagram indicates that the marginal revenue of the sixth unit of output is
A. −$1.
B. $1.
C. $4.
D. $24.

Blooms: Understand
Test Bank: I
Type: Graph
55. Which of the following is incorrect? Imperfectly competitive producers
A. face downsloping demand curves.

B. do not compete with one another.
C. can alter their output by changing price.
D. find that, when they reduce price, their total revenue increases by less than the new price.

Blooms: Understand
Test Bank: I
56. Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist.
P Qd
$10 1
7 2
5 3
3 4
1 5
The monopolist will select its profit-maximizing level of output somewhere within the
A. 3–5 unit range of output.

B. 1–3 unit range of output.
C. 1–4 unit range of output.
D. 2–4 unit range of output.

Blooms: Understand
Test Bank: I
Type: Table
57.
12-20
Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist.
P Qd
$10 1
7 2
5 3
3 4
1 5
The profit-maximizing monopolist will sell at a price
A. of $10.
B. of $7.
C. of $5.
D. that cannot be determined with the information provided.

Blooms: Understand
Test Bank: I
Type: Table
58.
Answer the question on the basis of the accompanying table, which shows the demand schedule facing a non discriminating monopolist
P Qd
$10 1
7 2
5 3
3 4
1 5
Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of
A. $10.
B. $7.
C. $5.
D. $3.

Blooms: Understand
Test Bank: I
Type: Table
59. A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal
A. cost of the 50th unit is also $50.

B. revenue of the 50th unit is also $50.
C. revenue of the 50th unit is less than $50.
D. revenue of the 50th unit is greater than $50.
12-21
Blooms: Understand
Test Bank: I
60. If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be
A. equal to its price.

B. the price at which that unit is sold less the price reductions that apply to all other units of output.
C. the price at which that unit is sold plus the price increases that apply to all other units of output.
D. indeterminate unless marginal cost data are known.

Blooms: Understand
Test Bank: I
61.
Which of the diagrams correctly portrays a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves?
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: I
Type: Graph
62.
Which of the diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a pure monopolist that is able to price discriminate by
charging each customer his or her maximum willingness to pay?
12-22
A. A
B. B
C. C
D. D

Blooms: Understand
Learning Objective: 12-06 Describe why a monopolist might prefer to charge different prices in different markets.
Test Bank: I
Topic: Price Discrimination
Type: Graph
63.
Which of the diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a purely competitive seller?
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: I
Type: Graph
64. Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of
output is
A. $9.75.
B. $204.75.
C. $4.75.
D. $.25.

Blooms: Understand
Test Bank: I
65. The MR = MC rule
A. applies only to pure competition.

B. applies only to pure monopoly.
C. does not apply to pure monopoly, because price exceeds marginal revenue.
D. applies both to pure monopoly and pure competition.
12-23
Blooms: Understand
Test Bank: I
66. In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to
A. average total cost.

B. marginal revenue.
C. average variable cost.
D. average cost.

Blooms: Understand
Test Bank: I
67. An unregulated pure monopolist will maximize profits by producing that output at which
A. P = MC.
B. P = ATC.
C. MR = MC.
D. MC = AC.

Blooms: Understand
Test Bank: I
68. Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth
unit if its marginal cost is
A. $4 or less.
B. $3.90 or less.
C. $3.50 or less.
D. $3.40 or less.

Blooms: Understand
Test Bank: I
69. Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth
unit if its marginal cost is
A. $1 or less.
B. $.75 or less.
C. $1.75 or less.
D. $2 or less.

Blooms: Understand
Test Bank: I
70. Marginal Average Marginal

Total Output Price Revenue Total Cost Cost
12-24
1 $100 $100 $100.00 $30 without the prior written consent of McGraw-Hill Education.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing
A. 3 units.
B. 4 units.
C. 5 units.
D. 6 units.

Blooms: Understand
Test Bank: I
Type: Table

1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130
Refer to the data for a non discriminating monopolist. At its profit-maximizing output, this firm will be operating in the
A. perfectly elastic portion of its demand curve.

B. perfectly inelastic portion of its demand curve.
C. elastic portion of its demand curve.
D. inelastic portion of its demand curve.

Blooms: Understand
Test Bank: I
Type: Table

1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
12-25
5 60 20 49.60 50 without the prior written consent of McGraw-Hill Education.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130
Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by and its
average total cost by .
A. $20; $27.33
B. $10; $10.40
C. $24; $27.33
D. $30; $20.50

Blooms: Understand
Test Bank: I
Type: Table

1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130
Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total costs will be
A. $300.
B. $248.
C. $198.
D. $126.

Blooms: Understand
Test Bank: I
Type: Table

1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.7512-26 80
Copyright ©
9 2018 McGraw-Hill
20Education. All rights
-60 reserved. No reproduction
60.67 or distribution
100 without the prior written consent of McGraw-Hill Education.
10 10 -80 67.60 130
Refer to the data. At its profit-maximizing output, this firm's total revenue will be
A. $300.
B. $198.
C. $180.
D. $280.

Blooms: Understand
Test Bank: I
Type: Table

1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130
Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be
A. $82.
B. zero.
C. $54.
D. $27.

Blooms:
Understand
Difficulty: 02
Medium
Test Bank:
I Topic: Output and Price
Determination
Type: Table
76. A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing
A. a loss that could be reduced by producing more output.

B. a loss that could be reduced by producing less output.
C. an economic profit that could be increased by producing more output.
D. an economic profit that could be increased by producing less output.
AACSB: Knowledge
Application Accessibility:
Keyboard Navigation
Blooms:
12-27
Understand
Difficulty: 02
Medium
Test Bank:
Determination
77. If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by
A. reducing output and raising price.

B. reducing both output and price.
C. increasing both price and output.
D. raising price while keeping output unchanged.
AACSB: Knowledge
Application Accessibility:
Keyboard Navigation
Blooms:
Understand
Difficulty: 02
Medium
Test Bank:
Determination
78. Answer the question on the basis of the provided demand and cost data for a pure monopolist.
Demand Data Cost Data

Quantity
Price Demanded Output Total Cost
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00
The profit-maximizing price for the monopolist will be
A. $5.00.
B. $2.90.
C. $3.35.
D. $4.50.

Blooms: Understand
Test Bank: I
Type: Table
79.
Answer the question on the basis of the provided demand and cost data for a pure monopolist.

Quantity
Price Demanded Output Total Cost
12-28
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00
The profit-maximizing level of output will be
A. 4 units.
B. 7 units.
C. 6 units.
D. 5 units.

Blooms: Understand
Test Bank: I
Type: Table
80.
Answer the question on the basis of the provided demand and cost data for a pure monopolist.

Quantity
Price Output Total Cost
Demanded
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00
The profit-maximizing monopolist will realize a
A. profit of $8.50.
B. profit of $7.50.
C. profit of $16.
D. loss of $14.

Blooms: Understand
Test Bank: I
Type: Table
81.
12-29
Refer to the diagram. To maximize profits or minimize losses, this firm should produce
A. E units and charge price C.

B. E units and charge price A.
C. M units and charge price N.
D. L units and charge price LK.

Blooms: Understand
Test Bank: I
Type: Graph
82.
12-30
Refer to the diagram. At the profit-maximizing level of output, total revenue will be
A. NM times 0M.
B. 0AJE.
C. 0EGC.
D. 0EHB.

Blooms: Understand
Test Bank: I
Type: Graph
83.
Refer to the diagram. At the profit-maximizing level of output, total cost will be
A. NM times 0M.
B. 0AJE.
C. 0CGC.
D. 0BHE.

Blooms: Understand
Test Bank: I
Type: Graph
84.
12-31
Refer to the diagram. At the profit-maximizing level of output, the firm will realize
A. an economic profit of ABHJ.

B. an economic profit of ACGJ.
C. a loss of GH per unit.
D. a loss of JH per unit.

Blooms: Understand
Test Bank: I
Type: Graph
85. If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?
A. MC = P
B. MC = ATC
C. MR = MC
D. P = MR

Blooms: Understand
Test Bank: I
86. A pure monopolist
A. will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
B. will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.
C. will realize an economic loss if MC intersects the downsloping portion of MR.
D. always realizes an economic profit.

Blooms: Understand
12-32
Test Bank: I
87. If a pure monopolist is producing at that output where P = ATC, then
A. its economic profits will be zero.

B. it will be realizing losses.
C. it will be producing less than the profit-maximizing level of output.
D. it will be realizing an economic profit.

Blooms: Understand
Test Bank: I
88. A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price
A. equals marginal revenue.

B. will vertically intersect demand where MR = MC.
C. will always equal ATC.
D. always exceeds ATC.

Blooms: Understand
Test Bank: I
89.
Refer to the diagram for a pure monopolist. Monopoly price will be
A. e.
B. c.
C. b.
D. a.

Blooms: Understand
Test Bank: I
12-33
Type: Graph
90.
Refer to the diagram for a pure monopolist. Monopoly output will be
A. between f and g.
B. h.
C. g.
D. f.

Blooms: Understand
Test Bank: I
Type: Graph
91.
Refer to the diagram for a pure monopolist. Monopoly profit
12-34
A. cannot be determined from the information given.
B. will be ae per unit sold.
C. will be bc per unit sold.
D. will be ac per unit sold.

Blooms: Understand
Test Bank: I
Type: Graph
92. In the short run, a monopolist's economic profits
A. are always positive because the monopolist is a price-maker.

B. are usually negative because of government price regulation.
C. are always zero because consumers prefer to buy from competitive sellers.
D. may be positive or negative depending on market demand and cost conditions.

Blooms: Understand
Test Bank: I
93. Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?
A. if it discovered that it was producing where MC = MR

B. if it discovered that it was producing where its MC curve intersects its demand curve
C. if it discovered that it was producing where MC < MR
D. under none of these circumstances because a monopolist would never lower price

Blooms: Understand
Test Bank: I
94.
If the industry depicted in the graph is purely monopolistic, the profit-maximizing price and quantity will be
12-35
A. P3 and Q3.
B. P1 and Q1.
C. P2 and Q2.
D. indeterminate on the basis of the information given.

Blooms: Understand
Learning Objective: 12-05 Discuss the economic effects of monopoly.
Test Bank: I
Topic: Economic Effects of Monopoly
Type: Graph
95.
If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be
A. P3 and Q3.
B. P1 and Q3.
C. P2 and Q2.
D. indeterminate on the basis of the information given.

Blooms: Understand
Test Bank: I
Type: Graph
96. When a pure monopolist is producing its profit-maximizing output, price will
A. be less than MR.

B. equal neither MC nor MR.
C. equal MR.
D. equal MC.

Blooms: Understand
Test Bank: I
Type: Graph
97.
12-36
Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that
A. if marginal costs were somehow zero, the firm would be maximizing its profits.
B. if marginal costs were positive, the firm would increase profits by reducing price and selling more output.
C. the firm is producing where the price elasticity coefficient is less than one.
D. the firm is a "price taker."

Blooms: Understand
Test Bank: I
Type: Graph
98. The supply curve for a monopolist is
A. perfectly elastic.
B. upsloping.
C. that portion of the marginal cost curve lying above minimum average variable cost.
D. nonexistent.

Blooms: Understand
Test Bank: I
99. The supply curve of a pure monopolist
A. is that portion of its marginal cost curve that lies above average variable cost.
B. is the same as that of a purely competitive industry.
C. is its average variable cost curve.
D. does not exist because prices are not "given" to a monopolist.

Blooms: Understand
Test Bank: I
100. If the variable costs of a profit-maximizing pure monopolist decline, the firm should
12-37
A. produce more output and charge a higher price.
B. produce more output and charge a lower price.
C. reduce both output and price.
D. raise both output and price.

Blooms: Understand
Test Bank: I
101. To maximize profit, a pure monopolist must
A. maximize its total revenue.

B. maximize the difference between marginal revenue and marginal cost.
C. maximize the difference between total revenue and total cost.
D. produce where average total cost is at a minimum.

Blooms: Understand
Test Bank: I
102.
Refer to the diagrams. Firm A is a
A. pure competitor, and Firm B is a pure monopoly.

B. pure competitor, as is Firm B.
C. pure monopoly, and Firm B is a pure competitor.
D. pure monopoly, as is Firm B.

Blooms: Understand
Test Bank: I
Type: Graph
103.
12-38
Refer to the diagrams. The demand for Firm A's product is
A. perfectly elastic over all ranges of output.

B. perfectly inelastic over all ranges of output.
C. elastic for prices above $1 and inelastic for prices below $1.
D. inelastic for prices above $1 and elastic for prices below $1.

Blooms: Understand
Test Bank: I
Type: Graph
104.
Refer to the diagrams. The demand for Firm B's product is
A. perfectly elastic over all ranges of output.

B. perfectly inelastic over all ranges of output.
C. elastic for prices above $4 and inelastic for prices below $4.
D. inelastic for prices above $4 and elastic for prices below $4.
12-39
Blooms: Understand
Test Bank: I
Type: Graph
105.
Refer to the diagrams. If $4 is Firm B's profit-maximizing price, its
A. ATC must be $4.

B. MC must be $4.
C. MR must be $4.
D. MC must be zero.

Blooms: Understand
Test Bank: I
Type: Graph
106. Economic profit in the long run is
A. possible for both a pure monopoly and a pure competitor.

B. possible for a pure monopoly but not for a pure competitor.
C. impossible for both a pure monopolist and a pure competitor.
D. only possible when barriers to entry are nonexistent.

Blooms: Understand
Test Bank: I
107. Which of the following statements is correct?
A. The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero.
B. In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.
C. The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest.
D. Purely monopolistic sellers earn only normal profits in the long run.

12-40
Blooms: Understand
Test Bank: I
108. Confronted with the same unit cost data, a monopolistic producer will charge
A. the same price and produce the same output as a competitive firm.
B. a higher price and produce a larger output than a competitive firm.
C. a higher price and produce a smaller output than a competitive firm.
D. a lower price and produce a smaller output than a competitive firm.

Blooms: Understand
Test Bank: I
109. An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are
A. overallocated because price exceeds marginal cost.

B. overallocated because marginal cost exceeds price.
C. underallocated because price exceeds marginal cost.
D. underallocated because marginal cost exceeds price.

Blooms: Understand
Test Bank: I
110. A single-price monopoly is economically inefficient because, at the profit-maximizing output,
A. marginal revenue exceeds product price at all profitable levels of production.

B. monopolists always price their products on the basis of the ability of consumers to pay rather than on costs of production.
C. MC > P.
D. society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise
produce.

Blooms: Understand
Test Bank: I
111. If a pure monopolist is producing more output than the MR = MC output,
A. the firm may, or may not, be maximizing profits.

B. it will be in the interest of the firm, but not necessarily of society, to reduce output.
C. it will be in the interest of the firm and society to increase output.
D. it will be in the interest of the firm and society to reduce output.

Blooms: Understand
Test Bank: I
112. At its profit-maximizing output, a pure nondiscriminating monopolist achieves
A. neither productive efficiency nor allocative efficiency.

B. both productive efficiency and allocative efficiency.
12-41
C. productive efficiency but not allocative efficiency.
D. allocative efficiency but not productive efficiency.

Blooms: Understand
Test Bank: I
113. The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium
A. price equals minimum average total cost.

B. marginal revenue equals marginal cost.
C. marginal cost exceeds price.
D. price exceeds marginal cost.

Blooms: Understand
Test Bank: I
114. A single-price pure monopoly is economically inefficient
A. only because it produces beyond the point of minimum average total cost.
B. only because it produces short of the point of minimum average total cost.
C. because it produces short of minimum average total cost and price is greater than marginal cost.
D. because it produces beyond minimum average total cost and marginal cost is greater than price.

Blooms: Understand
Test Bank: I
115. Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's
A. price, output, and average total cost would all be higher.

B. price and average total cost would be higher, but output would be lower.
C. price, output, and average total cost would all be lower.
D. price and output would be lower, but average total cost would be higher.

Blooms: Understand
Test Bank: I
116.
12-42
Refer to the diagrams. Diagram (A) represents
A. equilibrium price and quantity in a purely competitive industry.

B. the pure monopoly model.
C. an industry in which there is productive efficiency but not allocative efficiency.
D. a single firm operating in a purely competitive industry.

Blooms: Understand
Test Bank: I
Type: Graph
117.
Refer to the diagrams. In diagram (B) the profit-maximizing quantity is
A. g, and the profit-maximizing price is e.

B. h, and the profit-maximizing price is e.
C. g, and the profit-maximizing price is f.
D. g, and the profit-maximizing price is d.
12-43
Blooms: Understand
Test Bank: I
Type: Graph
118.
Refer to the diagrams. With the industry structures represented by diagram
A. (A), there will be only a normal profit in the long run, while in (B) an economic profit can persist.
B. (A), price exceeds marginal cost, resulting in allocative inefficiency.
C. (B), price equals marginal cost, resulting in allocative efficiency.
D. (B), equilibrium price and quantity will be e and h, respectively.

Blooms: Understand
Test Bank: I
Type: Graph
119. (p. $$pageTag$$)
Refer to the diagrams. With the industry structures represented by diagram

12-44
A. (B), there will be allocative efficiency.
B. (A), economic profit can persist in the long run.
C. (B), output will be less than in diagram (A).
D. (B), output will be the same as in diagram (A).

Blooms: Understand
Test Bank: I
Type: Graph
120.
Refer to the diagrams. The price will be and the quantity will be with the industry structure represented by diagram (B)
compared to the one represented in (A).
A. higher; higher
B. higher; lower
C. lower; lower
D. lower; higher

Blooms: Understand
Test Bank: I
Type: Graph
121. The higher prices charged by monopolists
A. are like a private tax that redistributes income from consumers to monopoly sellers.
B. are socially optimal because they better reflect how much society values the good relative to the resources used to produce it.
C. return to consumers through the public goods provided by monopolies.
D. have no effect on the distribution of income.

Blooms: Understand
Test Bank: I
12-45
122. The gains to monopolists from exercising market power
A. exceed the losses to consumers in monopoly markets, resulting in a net gain to society.
B. equal the losses to consumers in monopoly markets, resulting in no net change for society.
C. are less than the losses to consumers in monopoly markets, resulting in a net loss to society.
D. create smaller deadweight losses than occur in purely competitive industries.

Blooms: Understand
Test Bank: I
123. X-inefficiency refers to a situation in which a firm
A. is not as technologically progressive as it might be.

B. encounters diseconomies of scale.
C. fails to realize all existing economies of scale.
D. fails to achieve the minimum average total costs attainable at each level of output.

Blooms: Understand
Test Bank: I
124. Which of the following is not a possible source of natural monopoly?
A. large-scale network effects

B. simultaneous consumption
C. greater use of specialized inputs
D. rent-seeking behavior

Blooms: Understand
Test Bank: I
125. There is some evidence to suggest that X-inefficiency is
A. absent whenever two or more producers are competing with one another.
B. not encountered in either competitive or monopolistic firms.
C. more likely to occur in monopolistic firms than in competitive firms.
D. more likely to occur in competitive firms than in monopolistic firms.

Blooms: Understand
Test Bank: I
126.
12-46
Refer to the long-run cost curve for a firm. If the firm produces output Q1 at an average total cost of ATC1, then the firm is
A. producing the profit-maximizing output but is failing to minimize production costs.

B. incurring X-inefficiency but is realizing all existing economies of scale.
C. incurring X-inefficiency and is failing to realize all existing economies of scale.
D. producing that output with the most efficient combination of inputs and is realizing all economies of scale.

Blooms: Understand
Test Bank: I
Type: Graph
127.
Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC2, then the firm is
12-47
B. incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized.
C. incurring X-inefficiency and is failing to produce the output at which all economies of scale might be realized.
D. producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

Blooms: Understand
Test Bank: I
Type: Graph
128.
Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC3, then the firm is

B. incurring X-inefficiency but is realizing all existing economies of scale.
C. incurring X-inefficiency and is failing to realize all existing economies of scale.
D. producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

Blooms: Understand
Test Bank: I
Type: Graph
129. In which one of the following market models is X-inefficiency most likely to be the greatest?
A. pure competition
B. oligopoly
C. monopolistic competition
D. pure monopoly

Blooms: Understand
Test Bank: I
12-48
130. In which one of the following market models is X-inefficiency least likely to be present?
A. pure competition
B. oligopoly
C. monopolistic competition
D. pure monopoly

Blooms: Understand
Test Bank: I
131. Price discrimination refers to
A. selling a given product for different prices at two different points in time.
B. any price above that which is equal to a minimum average total cost.
C. the selling of a given product to different customers at different prices that do not reflect cost differences.
D. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

Blooms: Understand
Test Bank: I
132. Which of the following conditions is not required for price discrimination?
A. Buyers with different elasticities must be physically separate from each other.
B. The good or service cannot be profitably resold by original buyers.
C. The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand.
D. The seller must possess some degree of monopoly power.

Blooms: Understand
Test Bank: I
133. The practice of price discrimination is associated with pure monopoly because
A. it can be practiced whenever a firm's demand curve is downsloping.

B. monopolists have considerable ability to control output and price.
C. monopolists usually realize economies of scale.
D. most monopolists sell differentiated products.

Blooms: Understand
Test Bank: I
134. Which of the following is not a precondition for price discrimination?
A. The commodity involved must be a durable good.

B. The good or service cannot be profitably resold by original buyers.
C. The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand.
D. The seller must possess some degree of monopoly power.

12-49
Blooms: Understand
Test Bank: I
135. A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)
A. different prices to compensate for differences in the characteristics of the product.

B. the same price if per unit cost is constant for each unit of the product.
C. that price that equals the buyer's marginal cost.
D. the maximum price each would be willing to pay.

Blooms: Understand
Test Bank: I
136. Other things equal, in which of the following cases would economic profit be the greatest?
A. an unregulated monopolist that is able to engage in price discrimination

B. an unregulated, nondiscriminating monopolist
C. a regulated monopolist charging a price equal to average total cost
D. a regulated monopolist charging a price equal to marginal cost

Blooms: Understand
Test Bank: I
137. If a pure monopolist can price discriminate by separating buyers into two or more groups,
A. the marginal revenue curve and the total revenue curve will now coincide.
B. the marginal revenue curve will now shift to a position above the demand curve.
C. the firm will face multiple marginal revenue curves.
D. marginal revenue will become less at each level of output than it would be without price discrimination.

Blooms: Understand
Test Bank: I
138. If a monopolist engages in price discrimination, it will
A. realize a smaller profit.

B. charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
C. produce a smaller output than when it did not discriminate.
D. charge a competitive price to all its customers.

Blooms: Understand
Test Bank: I
139. Price discrimination is
A. always legal.
B. always illegal.
C. only illegal if it hurts consumers more than nondiscrimination.
12-50
D. only illegal if used to lessen or eliminate competition.

Blooms: Understand
Test Bank: I
140. Output Total Cost Product Price

0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100
Based on the accompanying table, how many units would the given profit-maximizing non discriminating pure monopolist produce?
A. 1
B. 2
C. 3
D. 4

Blooms: Understand
Test Bank: I
Type: Table

0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100
According to the accompanying table, this nondiscriminating pure monopolist should set its price at
A. $300.
B. $250.
C. $200.
D. $150.

Blooms: Understand
Test Bank: I
Type: Table

0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
12-51
5 700 100 No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2018 McGraw-Hill Education. All rights reserved.
At its profit-maximizing output, the nondiscriminating pure monopolist whose information is in the accompanying table
A. incurs a loss.
B. earns an economic profit of $250.
C. earns a normal profit of $250.
D. earns an economic profit of $150.

Blooms: Understand
Test Bank: I
Type: Table

0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100
If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the
price associated with each given level of output, how many units will the firm produce?
A. 2.
B. 3.
C. 4.
D. 5.

Blooms: Understand
Test Bank: I
Type: Table

0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100
If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the
price associated with each given level of output, how much profit will the firm earn?
A. $120.
B. $250.
C. $300.
D. $420.
12-52
Blooms: Understand
Test Bank: I
Type: Table
145.
The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes
the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right
graph the weekend demand, this profit-maximizing golf course should
A. charge $9 for each round, regardless of the day of the week.

B. charge $7 for each round, regardless of the day of the week.
C. charge $7 for each round on weekdays and $10 during the weekend.
D. charge $9 for each round on weekdays and $10 during the weekend.

Blooms: Understand
Test Bank: I
Type: Graph
146.
The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the
price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the
weekend demand, then over the course of a full seven-day week, this price-discriminating, profit-maximizing golf course should sell a total of
A. 300 rounds.
B. 740 rounds.
12-53
C. 900 rounds.
D. 1,200 rounds.

Blooms: Understand
Test Bank: I
Type: Graph
147.
The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price
of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend
demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week?
A. $4,200
B. $3,700
C. $3,400
D. $2,700

Blooms: Understand
Test Bank: I
Type: Graph
148.
12-54
Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and
adults, it should charge prices of
A. P1 to children and P2 to adults.

B. P1 to adults and P2 to children.
C. P1 to both children and adults.
D. P2 to both children and adults.

Blooms: Understand
Test Bank: I
Type: Graph
149.
adults, its profit-maximizing level of output will be
A. Q1A + Q1C.
B. Q1C + Q2.
C. Q1A + Q2.
D. Q1A + Q1C + Q2.

Blooms: Understand
Test Bank: I
Type: Graph
150.
12-55
adults, its economic profit will be
A. (P2 − MC) × (Q1C + Q2).

B. (P1 − MC) × (Q1C + Q2).
C. (P2 − P1) × (Q1C + Q2).
D. [(P1 − MC) × Q1C] + [(P2 − MC) × Q2].

Blooms: Understand
Test Bank: I
Type: Graph
151. Other things equal, a price-discriminating monopolist will
A. realize a smaller economic profit than a nondiscriminating monopolist.

B. produce a larger output than a nondiscriminating monopolist.
C. produce the same output as a nondiscriminating monopolist.
D. produce a smaller output than a nondiscriminating monopolist.

Blooms: Understand
Test Bank: I
152.
12-56
Refer to the diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging
A. a price above P3 and selling a quantity less than Q3.

B. price P3 and producing output Q3.
C. price P2 and producing output Q2.
D. price P1 and producing output Q1.
AACSB: Analytical Thinking

Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 12-07 Distinguish between the monopoly price, the socially optimal price, and the fair-return price of a government-regulated monopoly.
Test Bank: I
Topic: Regulated Monopoly
Type: Graph
153.
Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the
commission seeks to provide the monopolist with a "fair return," it will set price at
12-57
A. P1.
B. P3.
C. P2.
D. P4.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
154.
Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of
production, it will set a price of
A. P1.
B. P3.
C. P2.
D. P4.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
155.
12-58
Refer to the diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to
A. tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit.
B. subsidize the monopolist or the monopolist will go bankrupt in the long run.
C. subsidize the monopolist P1P4 per unit to allow the monopolist to break even.
D. tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
156. A dilemma of regulation is that
A. the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits.
B. the regulated price that results in a "fair return" restricts output by more than would unregulated monopoly.
C. regulated pricing always conflicts with the "due process" provision of the Constitution.
D. the regulated price that achieves allocative efficiency is also likely to result in losses.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
157. If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to
A. minimum average fixed cost.

B. average total cost.
C. marginal cost.
D. marginal revenue.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
158. If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price
12-59
A. at which the marginal cost curve intersects the demand curve.
B. at which marginal revenue is zero.
C. at which the average total cost curve intersects the demand curve.
D. that corresponds with the equality of marginal cost and marginal revenue.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
159. If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost
at the resulting output, then
A. the firm will realize an economic profit.

B. the firm will earn only a normal profit.
C. allocative efficiency will be worsened.
D. the firm must be subsidized or it will go bankrupt.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
160.
Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would
A. maximize profits.
B. increase output beyond the profit-maximizing level.
C. reduce output below the profit-maximizing level.
D. be unable to make a normal profit.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
161.
12-60
Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would
A. produce output Q1 and realize an economic profit.

B. produce output Q3 and realize an economic profit.
C. close down in the short run.
D. produce output Q3 and realize a normal profit.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
162.
Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output
A. Q2 and realize a normal profit.

B. Q4 and realize a normal profit.
12-61
C. Q3 and realize an economic profit.
D. Q4 and realize a loss.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
163. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the
concession stands. This pricing system occurs because
A. children have an elastic demand for game tickets but an inelastic demand for concession items.
B. children have an inelastic demand for game tickets but an elastic demand for concession items.
C. the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.
D. children can personally "consume" only a single game ticket but can personally consume more than one concession item.

Blooms: Understand
Test Bank: I
164. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the
concession stands. Which of the following conditions of price discrimination explains why this occurs?
A. The seller must have some monopoly power; that is, it must be able to set the product price.
B. The seller must be able to identify buyers by group characteristics such as age or income.
C. Groups must have different elasticities of demand for the product.
D. The items can be bought by people in the low-price group and transferred to members of the high-price group.

Blooms: Understand
Test Bank: I
165. (Last Word) "Big Data"
A. has completely eliminated the monopoly pricing power of online retailers.

B. is used by firms to price discriminate through personalized pricing.
C. is a significant barrier to entry to new Internet retailers.
D. makes it easier for government to regulate monopolistic industries.

Blooms: Understand
Test Bank: I
166. (Last Word): Alex owns a luxury automobile and regularly purchases high-end fashion items online. Kara drives an old sedan and does most online
shopping on eBay and Amazon. Suppose both Alex and Kara search the same online retailer for a nice watch to give on Fatherâ€™s Day. Based on
Big Data and personalized pricing, we would expect
A. Alex to see a higher price than Kara for the same watch.
B. Alex and Kara to see the same price for a given watch.
C. Alex to see a lower price than Kara for the same watch.
D. that either Alex or Kara might see a higher price for the same watch, as algorithms randomly determine what price each consumer sees.

Blooms: Understand
12-62
Test Bank: I
167. (Last Word): The ability of personalized pricing by online retailers to price discriminate
A. is enhanced by Big Data’s ability to accurately determine a buyer’s reservation price.

B. is only effective at the group level.
C. means that buyers with more elastic demand face systematically higher prices.
D. is limited by buyers’ willingness and ability to easily search out lower prices at other online sites.

Blooms: Understand
Test Bank: I
True / False Questions

168. A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.
FALSE
Blooms: Understand
Test Bank: I
169. In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total
cost is at a maximum.
FALSE
Blooms: Understand
Test Bank: I
170. In the short run a pure monopolist will charge the highest price the market will bear for its product.
FALSE
Blooms: Understand
Test Bank: I
171. Pure monopolists always earn economic profits.
FALSE
Blooms: Understand
Test Bank: I
12-63
172. If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5.
TRUE
Blooms: Understand
Test Bank: I
173. Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output.
FALSE
Blooms: Understand
Test Bank: I
174. Because of the ability to influence price, a pure monopolist can increase price and increase volume of sales simultaneously.
FALSE
Blooms: Understand
Test Bank: I
175.
In the accompanying diagrams, both firms are selling their products in purely competitive markets.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
12-64
176.
In the accompanying diagram, the demand for Firm B's product is elastic at all prices in excess of $4.
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
177.
In the accompanying diagram, Firm B's average revenue curve coincides with its marginal revenue curve.
FALSE
Blooms: Understand
12-65
Test Bank: I
Type: Graph
178. Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of
consumers.
TRUE
Blooms: Understand
Test Bank: I
179. Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that
everyone else is using.
TRUE
Blooms: Understand
Test Bank: I
180. Price discrimination occurs whenever a firm sells a good for two different prices.
FALSE
Blooms: Understand
Test Bank: I
181. Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all
consumers in the market.
TRUE
Blooms: Understand
Test Bank: I
182. Successful price discrimination requires that buyers charged the different prices be physically separated.
FALSE
Blooms: Understand
Test Bank: I
183. Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.
12-66
FALSE
Blooms: Understand
Test Bank: I
184.
Refer to the diagram for a nondiscriminating monopolist. The profit-maximizing output for this firm is M.
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
185.
12-67
Refer to the diagram for a nondiscriminating monopolist. At the profit-maximizing output, the firm's economic profit will be BAFG.
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
186.
Refer to the diagram for a nondiscriminating monopolist. At output R economic profits will be zero.
TRUE
Blooms: Understand
12-68
Test Bank: I
Type: Graph
187.
Refer to the diagram for a nondiscriminating monopolist. At output Q production will be unprofitable.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
188.
12-69
Refer to the diagram for a nondiscriminating monopolist. The profit-maximizing price for this firm is J.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
189.
Refer to the diagram for a nondiscriminating monopolist. At output M total cost will be 0CHM.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
190.
12-70
Refer to the diagram for a nondiscriminating monopolist. From society's point of view, it would be desirable to have the monopolist produce a larger
output than M.
TRUE
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
191.
Refer to the diagram for a nondiscriminating monopolist. If the government regulates the monopolist so that it charges the "fair return" price, the
monopolist will produce output N.
FALSE
12-71
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
192.
Refer to the diagram for a nondiscriminating monopolist. If the government regulates the monopolist so that it charges the socially optimal price, the
monopolist will produce output Q.
TRUE
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: I
Type: Graph
Multiple Choice Questions

193. One feature of pure monopoly is that the firm is
A. a producer of products with close substitutes.

B. one of several producers of a product.
C. a price taker.
D. a price maker.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
194. One defining characteristic of pure monopoly is that
A. the monopolist is a price taker.

B. the monopolist uses advertising.
C. the monopolist produces a product with no close substitutes.
D. there is relatively easy entry into the industry, but exit is difficult.
12-72
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
195. Which phrase would be most characteristic of pure monopoly?
A. close substitutes
B. efficient advertiser
C. price taker
D. sole seller

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
196. If you want to enjoy a Major League Baseball game at the stadium in St Louis, you must patronize the Cardinals. This makes the Cardinals
organization a
A. purely competitive firm in St Louis.

B. monopoly firm in St Louis.
C. monopoly firm in Major League Baseball.
D. purely competitive firm in Major League Baseball.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
197. A market where there are many firms, but one firm dominates and has the bulk (85 percent) of sales in the market, is called a
A. natural monopoly.
B. monopolistically competitive market.
C. pure monopoly.
D. near-monopoly.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
198. One major barrier to entry under pure monopoly arises from
A. the availability of close substitutes for a product.

B. ownership of essential resources.
C. the price taking ability of the firm.
D. diseconomies of scale.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
199. Barriers to entry
12-73
A. usually result in pure competition.
B. can result from government regulation.
C. exist in economic theory but not in the real world.
D. are typically the result of wrongdoing on the part of a firm.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
200. Which of the following is a barrier to entry?
A. patents and licenses

B. buyers' incomes
C. close substitutes
D. diminishing marginal returns

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
201. A monopoly is most likely to emerge and be sustained when
A. output demand is relatively elastic.

B. firms have U-shaped average-total-cost curves.
C. fixed capital costs are small relative to total costs.
D. economies of scale are large relative to market demand.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
202.
12-74
A firm that has the long-run cost curves shown in the graph would be able to do or have the following, except
A. exploit economies of scale.

B. have an entry barrier protecting it from new entrants into the market.
C. serve an increasing share of the market at lower and lower unit costs.
D. attain lower unit costs by reducing its output level.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
203. Natural monopolies result from
A. patents and copyrights.

B. pricing strategies.
C. extensive economies of scale in production.
D. control over an essential natural resource.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
204. Which of the following is not a barrier to entry in an industry?
A. economies of scale
B. profit maximization
C. strategic pricing
D. government licensing

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
205. In many large U.S. cities, taxicab companies operate as near monopolies because of
A. patents.
B. licenses.
C. economies of scale.
D. strategic pricing.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
206. An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a
A. copyright.
B. franchise.
C. patent.
D. license.

12-75
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
207. One feature of pure monopoly is that the demand curve
A. is vertical.
B. is horizontal.
C. slopes upward.
D. slopes downward.

Blooms: Understand
Test Bank: II
208. The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why
A. there are barriers to entry in pure monopoly.

B. a monopoly has a perfectly elastic demand curve.
C. marginal revenue is less than average revenue.
D. total revenues are greater than total costs at the profit maximizing level of output.

Blooms: Understand
Test Bank: II
209. The demand curve confronting a nondiscriminating pure monopolist is
A. horizontal.
B. the same as the industry's demand curve.
C. more elastic than the demand curve confronting a competitive firm.
D. derived by vertically summing the individual demand curves for the buyers.

Blooms: Understand
Test Bank: II
210. "Price makers" refers to firms that
A. face a downward-sloping demand curve.

B. are pure monopolies, rather than monopolistic competitors.
C. have no ability to influence the market price.
D. are pure monopolies or monopolistic competitors, but not oligopolies.

Blooms: Understand
Test Bank: II
211. Under pure monopoly, a profit-maximizing firm will produce
A. in the inelastic range of its demand curve.

B. in the elastic range of its demand curve.
12-76
C. only where marginal costs are decreasing.
D. only where marginal revenue is increasing.

Blooms: Understand
Test Bank: II
212. Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be
A. positive and demand is elastic.

B. negative and demand is elastic.
C. positive and demand is inelastic.
D. negative and demand is inelastic.

Blooms: Understand
Test Bank: II
213. Given a linear demand curve, at which combination of price and marginal revenue (P, MR) is the price elasticity of demand greater than 1?
A. P = 15, MR = 8
B. P = 12, MR = 0
C. P = 8, MR = −2
D. P = 4, MR = −4

Blooms: Understand
Test Bank: II
214. A nondiscriminating monopolist will find that marginal revenue
A. exceeds average revenue or price.

B. is identical to price.
C. is sometimes greater and sometimes less than price.
D. is less than average revenue or price.

Blooms: Understand
Test Bank: II
215. Assume that a monopolist faces a linear demand curve. If the firm is operating at an output level where marginal revenue is positive, the firm
A. has maximized total revenues.

B. could raise revenues by raising prices.
C. can always increase profits by lowering its price.
D. is operating on the elastic portion of its demand curve.

Blooms: Understand
Test Bank: II
12-77
216. Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the
price elasticity of demand for the product is
A. greater or equal to one.

B. less than one.
C. equal to one.
D. impossible to determine.

Blooms: Understand
Test Bank: II
217. A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will
A. increase total revenue, increase total cost, and decrease profit.

B. decrease total revenue, increase total cost, and decrease profit.
C. increase total revenue, decrease total cost, and decrease profit.
D. decrease total revenue, total cost, and profit.

Blooms: Understand
Test Bank: II
218. The region of demand in which the monopolist will choose a price-output combination will be
A. inelastic because, as price declines and output increases, total revenue will increase.
B. inelastic because, as price declines and output increases, total revenue will decrease.
C. elastic because, as price declines and output increases, total revenue will decrease.
D. elastic because, as price declines and output increases, total revenue will increase.

Blooms: Understand
Test Bank: II
219. In the inelastic portion of a monopolist's demand curve, an increase in price will
A. reduce output quantity, increase total revenue, and increase total cost.
B. reduce output quantity, increase total revenue, and decrease total cost.
C. raise output quantity, decrease total revenue, and increase total cost.
D. reduce output quantity, decrease total revenue, and decrease total cost.

Blooms: Understand
Test Bank: II
220.
12-78
Refer to the graph, which shows the revenue curves for a monopolist. What price should be charged in order to maximize total revenue?
A. P1
B. P2
C. P3
D. P4

Blooms: Understand
Test Bank: II
221.
12-79
Refer to the graph, which shows the revenue curves for a monopolist. Total revenue will be greatest at what output level?
A. Q1
B. Q2
C. Q3
D. Q4

Blooms: Understand
Test Bank: II
222.
Refer to the graph, which shows the revenue curves for a monopolist. The elastic portion of the demand curve ranges from quantity
A. 0 to Q4.
B. Q2 to Q4.
C. 0 to Q3.
D. Q3 to Q4.

Blooms: Understand
Test Bank: II
223.
12-80
Refer to the graph, which shows the revenue curves for a monopolist. At what output level is demand inelastic?
A. Q1
B. Q2
C. Q3
D. Q4

Blooms: Understand
Test Bank: II
224.
12-81
Refer to the graph, which shows the revenue curves for a monopolist. If it wants to sell quantity Q1, it must charge at price
A. P1.
B. P2.
C. 0.
D. The correct price is not labeled on the graph.

Blooms: Understand
Test Bank: II
225.
Refer to the graph, which shows a total revenue curve for a monopolist. The firm's marginal revenue curve must be
A. downsloping.
B. constant.
C. upsloping.
D. U-shaped.

Blooms: Understand
Test Bank: II
226.
12-82
Refer to the graph, which shows a total revenue curve for a monopolist. When the total revenue curve reaches a maximum, marginal revenue is
A. positive.
B. negative.
C. zero.
D. greater than price at that level of output.

Blooms: Understand
Test Bank: II
227.
Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue declines as output expands, demand is
12-83
A. elastic.
B. inelastic.
C. perfectly inelastic.
D. perfectly elastic.

Blooms: Understand
Test Bank: II
228.
Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue falls as output expands, marginal revenue is
A. positive.
B. negative.
C. zero.
D. greater than demand at that output level.

Blooms: Understand
Test Bank: II
229.
12-84
Refer to the graph, which shows a total revenue curve for a monopolist. The profit-maximizing firm will produce in that output level where total revenue is
A. rising.
B. falling.
C. rising and falling.
D. zero.

Blooms: Understand
Test Bank: II
230.
Refer to the graph, which shows a linear demand curve for a monopolist. Which of the following statements is correct?
12-85
A. The area 0QVS is greater than the area 0RWT.
B. The demand curve has unit price elasticity at W.
C. The price elasticity of demand is less at U than at V.
D. The price elasticity of demand is greater at W than at V.

Blooms: Understand
Test Bank: II
231.
Refer to the graph, which shows a linear demand curve for a monopolist. In which range of the demand curve (or output quantity) will the firm operate?
A. to the right of point W

B. between V and W
C. between S and T
D. between quantities 0 and S

Blooms: Understand
Test Bank: II
232.
12-86
Refer to the graphs of D and MR for a monopolist. Which of the following statements is true?
A. Demand is elastic at a price of P1.

B. Demand is inelastic at a price of P2.
C. The price elasticity of demand is constant over the entire demand curve.
D. Demand is unitary-elastic over the entire demand curve.

Blooms: Understand
Test Bank: II
233.
12-87
Refer to the graphs of D and MR for a monopolist. Which of the following statements is true?
A. A price cut from P1 to P2 would lead to a decrease in the amount of dollars consumers spend on the product.
B. A price cut from P1 to P2 would lead to an increase in the amount of dollars consumers spend on the product.
C. A price cut from P2 to P3 would lead to no change in the amount of dollars consumers spend on the product.
D. A price cut from P2 to P3 would lead to an increase in the amount of dollars consumers spend on the product.

Blooms: Understand
Test Bank: II
234.
Refer to the graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price
A. above P1.
B. below P2.
C. above P2.
D. below P3.

Blooms: Understand
Test Bank: II
235. Price Number of Baskets Sold

$20 3
18 5
16 7
14 10
12 15
10 30
12-88
The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from
$20 to $18?
A. $10
B. $20
C. $30
D. $40

Blooms: Understand
Test Bank: II
236. Price Number of Baskets Sold

$20 3
18 5
16 7
14 10
12 15
10 30
The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she raises the price from $10
to $12?
A. −$300
B. +$300
C. +$120
D. −$120

Blooms: Understand
Test Bank: II
237.
12-89
Which of the graphs shows the correct relationship between demand and marginal revenue?
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: II
238. A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy
is
A. âˆ’$10.
B. âˆ’$13.
C. +$7.
D. +$21.

Blooms: Understand
Test Bank: II
239. A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies
that its sales quantity increases by
A. 4 units per day.

B. 3 units per day.
C. 2 units per day.
D. 1 unit per day.

Blooms: Understand
Test Bank: II
240. For a monopolist to sell an output level of 10 units, the price must be $8. MR at this output level will be
A. > $8 and < $16.

B. < $8.
C. = $8.
D. > $16.

Blooms: Understand
Test Bank: II
241. Demand Data Cost Data

Price Quantity Demanded Output Total Cost
$2.75 3 3 12-90 $4.00
Copyright2.50
© 2018 McGraw-Hill Education.
4 All rights reserved. No
4 reproduction or distribution
4.50 without the prior written consent of McGraw-Hill Education.
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
Answer the question on the basis of the demand and cost data for a pure monopolist. The profit-maximizing price for the monopolist will be
A. $2.50.
B. $2.25.
C. $2.00.
D. $1.75.

Blooms: Understand
Test Bank: II
242. Demand Data Cost Data

Price Quantity Demanded Output Total Cost
$2.75 3 3 $4.00
2.50 4 4 4.50
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
Answer the question on the basis of the demand and cost data for a pure monopolist. At equilibrium, the monopolist will realize a
A. profit of $10.00.
B. profit of $6.50.
C. profit of $4.50.
D. loss of $7.25.

Blooms: Understand
Test Bank: II
243. At the profit-maximizing level of output for a monopolist,
A. price is greater than marginal cost.

B. price is greater than average revenue.
C. average total cost equals marginal cost.
D. total revenue is greater than total cost.

Blooms: Understand
Test Bank: II
244. Suppose that a monopolist calculates that at its present output level, marginal revenue is $1.00 and marginal cost is $2.00. It could maximize profits
or minimize losses by
12-91
A. decreasing price and increasing output.
B. increasing price and decreasing output.
C. decreasing price and leaving output unchanged.
D. decreasing output and leaving price unchanged.

Blooms: Understand
Test Bank: II
245. Many people believe that monopolies charge any price they want to without affecting sales. In fact, the output and sales level for a profit-
maximizing monopoly is codetermined with price where
A. marginal cost = average revenue.

B. marginal revenue = average cost.
C. average total cost = average revenue.
D. marginal cost = marginal revenue.

Blooms: Understand
Test Bank: II
246. Suppose that a monopolist calculates that at its present output level, marginal cost is $4.00 and marginal revenue is $5.00. The firm could increase
profits by
A. decreasing price and increasing output.

B. increasing price and decreasing output.
C. decreasing price and leaving output unchanged.
D. decreasing output and leaving prices unchanged.

Blooms: Understand
Test Bank: II
247.
The data relate to a pure monopolist and the product it produces. What is the profit-maximizing output and price for this monopolist?
P Q TC
22 0 20
20 1 24
18 2 27
16 3 32
14 4 40
12 5 49
10 6 59
A. P = $12; Q = 5
B. P = $14; Q = 4
C. P = $15; Q = 3
D. P = $18; Q = 2

Blooms: Understand
12-92
Test Bank: II
248.
Refer to the graph for a profit-maximizing monopolist. The firm will set its price at
A. 0J.
B. 0G.
C. 0K.
D. 0H.

Blooms: Understand
Test Bank: II
249.
12-93
Refer to the graph for a profit-maximizing monopolist. The firm will produce the quantity
A. 0V.
B. 0Y.
C. 0T.
D. 0X.

Blooms: Understand
Test Bank: II
250.
12-94
Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning
A. positive profits.
B. negative profits.
C. zero profits.
D. profits that cannot be determined from the given graph.

Blooms: Understand
Test Bank: II
251. Pure monopolists
A. maximize MR.
B. are price takers.
C. operate where P > MC.
D. face demand curves that are perfectly inelastic.

Blooms: Understand
Test Bank: II
252. A firm will earn economic profits whenever
A. marginal revenue exceeds marginal costs.

B. marginal revenue exceeds variable costs.
C. average revenue exceeds average total costs.
D. average revenue exceeds average variable costs.

Blooms: Understand
Test Bank: II
253. The supply curve for a monopoly is
A. the portion of the marginal cost curve that lies above the average variable cost curve.
B. the portion of the marginal cost curve that lies above the average total cost curve.
C. the portion of the marginal cost curve that lies above the average fixed cost curve.
D. not clearly defined.

Blooms: Understand
Test Bank: II
254.
The table shows the relationship between output, total costs, and total revenue for a pure monopoly.
Output TC TR
50 $750 $1,000
60 800 1,100
12-95
70 950 1,250
80 1,200 1,450
90 1,300 1,500
Within which of the following ranges of output will the firm earn maximum economic profits?
A. 50 to 60 units
B. 60 to 70 units
C. 70 to 80 units
D. 80 to 90 units

Blooms: Understand
Test Bank: II
255. A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than
A. average variable cost.

B. average total cost.
C. average fixed cost.
D. marginal cost.

Blooms: Understand
Test Bank: II
256.
A profit-maximizing monopolist facing the situation shown in the graph should
A. shut down in the short run.

B. continue producing to minimize losses.
C. continue producing to make economic profits.
D. continue producing as long as price is greater than marginal cost.
12-96
Blooms: Understand
Test Bank: II
257.
At equilibrium, the profit-maximizing monopolist facing the situation shown in the graph will face a negative
A. average revenue.
B. total revenue.
C. marginal revenue.
D. profit.

Blooms: Understand
Test Bank: II
258. In the short-run equilibrium, a monopolist's profits
A. may be positive, negative, or zero.

B. are positive because of the monopolist's market power.
C. are positive if the product's elasticity of demand is less than 1.
D. are positive if the product's elasticity of demand is greater than 1.

Blooms: Understand
Test Bank: II
259. In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally
A. increase price and decrease production.

B. not change its level of output or price.
C. decrease the price it charges for its product.
D. increase its output and practice price discrimination.
12-97
Blooms: Understand
Test Bank: II
260. If marginal costs decrease and the MC curve shifts down, a typical monopolist will
A. reduce price and reduce quantity of output.

B. reduce price and increase quantity of output.
C. increase price and reduce quantity of output.
D. increase price and increase quantity of output.

Blooms: Understand
Test Bank: II
261.
Refer to the graph for a monopolist in short-run equilibrium. This monopolist will charge a price
A. 0A.
B. 0B.
C. 0C.
D. not labeled on the graph.

Blooms: Understand
Test Bank: II
262.
12-98
Refer to the graph for a monopolist in short-run equilibrium. This monopolist
A. has a loss per unit equal to DE.

B. has total fixed costs equal to area BEFC.
C. earns positive economic profit equal to the area of ABED.
D. will cease production since its economic profits are negative.

Blooms: Understand
Test Bank: II
263.
Refer to the graph for a monopolist in short-run equilibrium. This monopolist has total cost equal to area
A. CADF.
B. 0ADQ.
C. ADFC.
D. 0CFQ.

12-99
Blooms: Understand
Test Bank: II
264. Which of the following does not necessarily apply to a pure monopoly?
A. The product the firm produces must have no close substitutes.

B. The firm must be the sole producer of a product.
C. The firm will charge the highest price possible.
D. Entry must be blocked.

Blooms: Understand
Test Bank: II
A. In the short run, the pure monopolist will maximize total profits by producing at that level of output where the difference between price and average
total cost is greatest.
B. In the short run, the pure monopolist will charge the highest price it can get for its product.
C. Because of its ability to set its own price, the pure monopolist can increase price and increase its volume of sales simultaneously.
D. Pure monopolists do not always realize positive profits, sometimes they suffer losses.

Blooms: Understand
Test Bank: II
266. Under which of the following conditions would a profit-maximizing monopolist necessarily raise price?
A. if product demand was price-elastic

B. if marginal revenue is positive
C. if marginal revenue was greater than marginal cost
D. if marginal cost was greater than marginal revenue

Blooms: Understand
Test Bank: II
267.
12-100
In the graph, what is the profit-maximizing level of output for this pure monopolist?
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: II
268.
Refer to the graph. At its equilibrium level of output, this monopolist earns
A. positive economic profits.

B. negative economic profits.
C. zero economic profits.
D. zero revenues.

Blooms: Understand
Test Bank: II
269. Monopolists are said to be allocatively inefficient because
A. they produce where MR > MC.

B. at the profit-maximizing output, price is greater than AVC.
C. they produce only the type of product they desire and do not consider the consumer.
D. at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Blooms: Understand
12-101
Test Bank: II
270. Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,
A. P > ATC.
B. P > MR.
C. P > MC.
D. P > AVC.

Blooms: Understand
Test Bank: II
271. A monopoly results in productive inefficiency because at the profit-maximizing output level,
A. P > MC.
B. ATC is not at its minimum level.
C. MC is not at its minimum level.
D. P > AVC.

Blooms: Understand
Test Bank: II
272. When compared with the purely competitive industry with identical costs of production, a monopolist will produce
A. more output and charge the same price.

B. more output and charge a higher price.
C. less output and charge a higher price.
D. less output and charge the same price.

Blooms: Understand
Test Bank: II
273. Which is a major criticism of a monopoly as a source of allocative inefficiency?
A. A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.
B. A monopolist has no incentive to produce efficiently, because even the inefficient monopolist can be assured of economic profits.
C. A monopolist will always earn profits, and that means that prices are too high.
D. A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms can.

Blooms: Understand
Test Bank: II
274. A nondiscriminating pure monopolist is generally viewed as
A. productively efficient but allocatively inefficient.

B. productively inefficient but allocatively efficient.
C. both productively and allocatively inefficient.
D. both productively and allocatively efficient.
12-102
Blooms: Understand
Test Bank: II
275.
If the industry depicted in this graph were purely competitive, then the market price would be
A. $25, which is higher than what the price would have been if the industry were a monopoly.
B. $25, which is lower than what the price would have been if the industry were a monopoly.
C. $20, which is higher than what the price would have been if the industry were a monopoly.
D. $20, which is lower than what the price would have been if the industry were a monopoly.

Blooms: Understand
Test Bank: II
276.
12-103
Based on the graph, what is the difference between the purely competitive equilibrium level of output and the pure monopoly equilibrium level of output?
A. 20
B. 70
C. 90
D. 110

Blooms: Understand
Test Bank: II
277. Compared to the purely competitive industry, a pure monopoly
A. is able to use barriers to entry and maintain positive economic profits in the long run.
B. produces an equal amount of output, but charges higher prices to cover all costs in the market.
C. is often more efficient from society's perspective because it has big plants and it uses the newest technology.
D. will always become competitive in the long run because positive economic profits will entice competitors into the market.

Blooms: Understand
Test Bank: II
278.
12-104
If the industry depicted in this graph were purely competitive, the output quantity would be
A. 90.
B. 160.
C. 195.
D. a level that is not labeled in the graph.

Blooms: Understand
Test Bank: II
279.
If the industry depicted in this graph operated as a pure monopoly, the output quantity would be
A. 90.
B. 160.
C. 195.
D. a level that is not labeled in the graph.
12-105
Blooms: Understand
Test Bank: II
280.
If the industry depicted in this graph were purely competitive, the market price would be
A. lower than $8.

B. $8.
C. $14.
D. $16.

Blooms: Understand
Test Bank: II
281.
12-106
If the industry depicted in this graph were a pure monopoly, the product price would be
A. lower than $8.

B. $8.
C. $14.
D. $16.

Blooms: Understand
Test Bank: II
282.
If the industry depicted in this graph were served by a pure monopoly, the price and output quantity would be
A. P3 and Q1.
B. P1 and Q3.
C. P2 and Q2.
D. P1 and Q1.

Blooms: Understand
Test Bank: II
283.
12-107
Refer to the provided graph for an industry. If the industry was initially a monopoly, but the monopolist was broken up into a large number of small, purely
competitive firms and production cost-curves remained unchanged, then market price and industry output would be
A. P3 and Q1.
B. P1 and Q3.
C. P2 and Q2.
D. P1 and Q1.

Blooms: Understand
Test Bank: II
284. Society suffers a deadweight loss in a pure-monopoly market because
A. output is less, while price is more, than is socially optimal.

B. output is more, while price is less, than is socially optimal.
C. both output and price are higher than is socially optimal.
D. both output and price are lower than is socially optimal.

Blooms: Understand
Test Bank: II
285. Marginal costs of a producer may be very small due to its product's ability to satisfy a large number of consumers at the same time. This
characteristic of a product is called
A. economies of scale.
B. rent-seeking.
C. simultaneous consumption.
D. consumer sovereignty.

Blooms: Understand
Test Bank: II
286. With nonrivalrous consumption, such as in the case of online music and movies, as more consumers buy the product,
A. the average cost of the output declines because the marginal cost is very small.
B. marginal cost is low, but the average cost of the output will be rising.
C. the average cost of the output will be rising because marginal cost is quite high.
D. marginal cost is quite high, but the average cost of the output will be declining.

Blooms: Understand
Test Bank: II
287. When the value of a product to each user, including existing users, increases due to an increase in the total number of users—as in the case of
Facebook—we refer to this as
A. income transfer.
B. price discrimination.
C. simultaneous consumption.
D. network effects.

12-108
Blooms: Understand
Test Bank: II
288. Network effects and simultaneous consumption tend to foster the development of
A. pure competition.
B. monopoly power.
C. net social benefits.
D. allocative efficiency.

Blooms: Understand
Test Bank: II
289. X-inefficiency is said to occur when a monopolist's
A. average cost is greater than the minimum possible average cost.

B. marginal costs are greater than the minimum possible average cost.
C. output level is higher than is socially optimal.
D. price is higher than its average cost.

Blooms: Understand
Test Bank: II
290. Possible reasons for X-inefficiency include the following, except
A. managers having other goals besides maximizing profits.

B. workers being poorly motivated or poorly supervised.
C. costs of materials rising due to tight supply conditions.
D. the firm being lethargic due to the absence of competition.

Blooms: Understand
Test Bank: II
A. Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization.
B. Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency.
C. Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products.
D. Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits.

Blooms: Understand
Test Bank: II
292. Any activity designed to transfer income or wealth to a particular individual or firm at society's expense is called
A. patent protection.
12-109
B. X-inefficiency.
C. price discrimination.
D. rent-seeking.

Blooms: Understand
Test Bank: II
293. Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their
gambling monopoly. Economists refer to these expenditures as
A. rent-seeking.
B. price discrimination.
C. X-efficiency.
D. network effects.

Blooms: Understand
Test Bank: II
294. Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy
option?
A. If the monopoly is attained and maintained through anticompetitive behavior, the government can file a suit based on antitrust laws.
B. If the firm is a natural monopoly, the government may decide to regulate its prices and operations.
C. If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry.
D. If the monopoly is subject, and vulnerable, to potential competition, the government can decide to leave it alone.

Blooms: Understand
Test Bank: II
295. If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably
A. raise price and reduce output.

B. reduce price and raise output.
C. start operating at the inelastic portion of its demand curve.
D. increase production so that MR > MC.

Blooms: Understand
Test Bank: II
296. The economic incentive for price discrimination is based upon
A. prejudices of business managers.

B. differences among sellers' costs.
C. a desire to evade antitrust legislation.
D. differences among buyers' elasticities of demand.

Blooms: Understand
12-110
Test Bank: II
297. To practice long-run price discrimination, a monopolist must
A. be a natural monopoly.
B. charge one price to all buyers.
C. permit the resale of the product by the original buyers.
D. be able to separate buyers into different markets with different price elasticities.

Blooms: Understand
Test Bank: II
298. Which of the following statements is true of price discrimination?
A. Successful price discrimination will provide the firm with lower total profits than if it did not discriminate.
B. Successful price discrimination will provide the firm with more profit than if it did not discriminate.
C. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.
D. Successful price discrimination occurs when there are differences in the costs of producing for different groups of buyers.

Blooms: Understand
Test Bank: II
299. Which is not true of price discrimination?
A. Successful price discrimination requires that different segments of the market have different demand elasticities.
B. Successful price discrimination will provide the firm with more profit than if it does not discriminate.
C. Successful price discrimination implies that the producer can separate customers into easily identifiable groups.
D. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.

Blooms: Understand
Test Bank: II
300. Which would definitely not be an example of price discrimination?
A. A movie theater charges children less than adults for a movie ticket.
B. Universities charge higher tuition for out-of-state residents than for in-state students.
C. A doctor charges for services according to the income of individual patients.
D. An electric power company charges less for electricity used during off-peak hours, when production costs are lower.

Blooms: Understand
Test Bank: II
301. Which case best represents a case of price discrimination?
A. An insurance company offers discounts to safe drivers.

B. A major airline sells tickets to senior citizens at lower prices than to other passengers.
C. A professional baseball team pays two players with identical batting averages different salaries.
D. A utility company charges less for electricity used during off-peak hours, when it does not have to operate its less-efficient generating plants.
12-111
Blooms: Understand
Test Bank: II
302. Which is the best example of price discrimination?
A. an airline company charging lower fares per pound for air freight than for passengers
B. a telephone company charging lower rates to weekend users than weekday users
C. a supermarket charging lower prices in its city stores than its out-of-the-way rural store
D. a private doctor charging higher fees to patients receiving special services than patients receiving regular services

Blooms: Understand
Test Bank: II
303. Which is true of a price-discriminating pure monopolist?
A. P > MR for the last unit sold.

B. Profit will be higher than in the nondiscriminating case.
C. The average price will be higher than in the nondiscriminating case.
D. Allocative inefficiency will be greater than in the nondiscriminating case.

Blooms: Understand
Test Bank: II
304. Price discrimination is more common in service industries because
A. low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers.
B. the costs of providing such industries' products to different groups of buyers vary dramatically.
C. the price elasticity of demand is the same for all groups of buyers in these industries.
D. all firms in these industries have significant monopoly power over price.

Blooms: Understand
Test Bank: II
305. A price-discriminating monopolist will follow a system where
A. buyers with inelastic demand are charged higher prices than buyers with elastic demand.
B. buyers with inelastic demand are charged lower prices than buyers with elastic demand.
C. all buyers are charged the same price regardless of their elasticity of demand.
D. the price of the product is held the same even if the demand changes.

Blooms: Understand
Test Bank: II
306. Consumers who clip and redeem discount coupons
A. exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
12-112
B. exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
C. exhibit a lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
D. cause total revenue to decrease for firms that issue coupons for their products.

Blooms: Understand
Test Bank: II
307. Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for
electricity used for heat. These lower prices for electric heating result primarily from
A. the existence of good heating substitutes.

B. economies of scale in electric heat generation.
C. prices for electric heat being set at the socially optimal level.
D. strict government regulation of the price charged for electric heat.

Blooms: Understand
Test Bank: II
308. If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y,
the pricing difference indicates that demand is
A. more elastic in market X than in market Y.

B. less elastic in market X than in market Y.
C. less elastic in market Y than in market X.
D. the same in both markets X and Y.

Blooms: Understand
Test Bank: II
309. Even though many ballparks practice price discrimination between adults and children in selling tickets, such discrimination is not applied at the
concession stands because
A. children's demand for food is elastic and adults' demand for food is inelastic.
B. adults' demand for food is elastic and children's demand for food is inelastic.
C. there can be exchange of the product from children, whoâ€™d buy it at a lower price, to adults.
D. there can be exchange of the product from adults, whoâ€™d buy it at a higher price, to children.

Blooms: Understand
Test Bank: II
310.
12-113
Refer to the cost and demand data for a pure monopolist. Suppose that this monopoly is subjected to a regulatory commission. If the commission seeks
to achieve the most efficient allocation of resources for this industry, it should set the socially optimal price at
A. P1.
B. P2.
C. P3.
D. 0.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
311. One argument for having the government regulate natural monopolies is that without regulation,
A. these monopolies usually produce things that are potentially harmful to our health.
B. these monopolies produce at a level where marginal benefit is greater than marginal cost.
C. these monopolies produce at a level where marginal benefit is less than marginal cost.
D. the industry would become competitive and there would be too many firms in the market to achieve efficiency.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
312.
Output Price Total Cost

0 $500 $250
1 300 260
2 250 290
3 200 350
4 150 500
5 100 680
Refer to the demand and cost data for a pure monopolist given in the table. A nondiscriminating monopolist would maximize profits at a price and
quantity of
12-114
A. $250 and 2 units.
B. $200 and 3 units.
C. $150 and 4 units.
D. $100 and 5 units.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
313. Output Price Total Cost

0 $500 $250
1 300 260
2 250 290
3 200 350
4 150 500
5 100 680
Refer to the demand and cost data for a pure monopolist given in the table. A nondiscriminating monopolist would earn maximum profits of
A. $600.
B. $500.
C. $250.
D. $100.

Blooms: Understand
Test Bank: II

0 $500 $250
1 300 260
2 250 290
3 200 350
4 150 500
5 100 680
Refer to the demand and cost data for a pure monopolist given in the table. If the monopolist perfectly price-discriminated and sold each unit of the
product at the maximum price the buyer of that unit would be willing to pay, and if the monopolist sold 4 units, then total revenue would be
A. $600.
B. $900.
C. $1,000.
D. $1,400.

Blooms: Understand
Test Bank: II

0 $500 $250
1 300 260
2 250 290 12-115
3 © 2018 McGraw-Hill
Copyright 200 Education. All rights reserved.
350 No reproduction or distribution without the prior written consent of McGraw-Hill Education.
4 150 500
5 100 680
Refer to the demand and cost data for a pure monopolist given in the table. If the monopolist perfectly price-discriminated and sold each unit of the
product at the maximum price the buyer of that unit would be willing to pay, and if the monopolist sold 4 units, then total profits would be
A. $100.
B. $900.
C. $150.
D. $400.

Blooms: Understand
Test Bank: II

0 $500 $250
1 300 260
2 250 290
3 200 350
4 150 500
5 100 680
Refer to the demand and cost data for a pure monopolist given in the table. If the monopolist were forced to produce the socially optimal output
through the imposition of a ceiling price, the ceiling price would have to be set at
A. $100.
B. $150.
C. $200.
D. $250.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
317.
12-116
Refer to the graph for a pure monopoly. A profit-maximizing monopolist would set what price and quantity levels in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
318.
Refer to the graph for a pure monopoly. If the government regulated the monopoly and made the firm set a fair-return price, what price and quantity
levels would we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
319.
12-117
Refer to the graph for a pure monopoly. If the government regulated the monopoly and made it produce the level of output that would achieve allocative
efficiency, what price and quantity levels would we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
320.
Refer to the graph for a pure monopoly. If the government regulated the monopoly and made it charge the socially optimal price, this price would be
A. higher than the profit-maximizing price.

B. higher than the fair-return price.
C. lower than both the fair-return price and the profit-maximizing price.
D. between the fair-return price and the profit-maximizing price.
12-118
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
321.
Refer to the graph for a pure monopoly. Which of the following pricing models would allow the monopolist to earn positive economic profits?
A. profit-maximizing price only

B. both profit-maximizing price and fair-return prices
C. both fair-return price and the socially optimal prices
D. all three: profit-maximizing, fair return, and socially optimal prices

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
322. The problem with socially optimal pricing regulation of a natural monopoly is that
A. P < MC.
B. P < AVC.
C. P < ATC.
D. P < MR.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
323. The problem with adopting a fair-return pricing policy for a natural monopoly is that
A. economic profits will be positive.

B. economic profits will be negative.
C. it is not productively efficient.
D. it is not allocatively efficient.

12-119
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
324. An argument for making regulated monopolies adopt marginal-cost pricing is that this would
A. increase productive efficiency by making price equal average cost.

B. benefit higher-income groups by making monopoly products more affordable.
C. increase managerial incentives to reduce employment and production.
D. make the marginal cost equal to society's valuation of the marginal benefit.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
325. With a natural monopoly, the fair-return price
A. is allocatively efficient; the socially optimal price is allocatively inefficient.

B. is allocatively inefficient; the socially optimal price is allocatively efficient.
C. and the socially optimal price are both allocatively inefficient.
D. and the socially optimal price are both allocatively efficient.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
326. What is the meaning of the phrase "dilemma of regulation"?
A. Natural monopolies achieve economies of scale but charge high prices when there is no government regulation; government regulation reduces prices
but results in diseconomies of scale.
B. Natural monopolies are profitable, but only if the government permits price discrimination; government regulation to restrict price discrimination
reduces monopoly prices, but the regulation also reduces monopoly output.
C. The fair-return price achieves allocative efficiency but may produce economic losses; the socially optimal price yields a normal profit but may not
be allocatively efficient.
D. The socially optimal price achieves allocative efficiency but may produce economic losses; the fair-return price yields a normal profit but may not
be allocatively efficient.

Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
327. "Big data" collection by online firms about buyers and their behaviors allows the firms to practice
A. fair-return pricing.
B. socially optimal pricing.
C. price discrimination.
D. price regulation.

Blooms: Understand
Test Bank: II
12-120
True / False Questions
328. "Price maker" means that a monopoly can decide whatever price it wants to, in order to sell a specific given quantity of its product.
FALSE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
329. The government may create barriers to entry that serve to foster monopoly power of firms.
TRUE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
330. A patent for a new product or a new business process is typically granted for a hundred years.
FALSE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
331. A monopolist can use its pricing strategy as a barrier to entry by other firms.
TRUE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
332. A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of
output is negative.
TRUE
Blooms: Understand
Test Bank: II
333. The monopolist's demand curve is more elastic than the industry demand curve.
FALSE
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Blooms: Understand
Test Bank: II
334. At the inelastic portion of a monopolist's demand curve, the marginal revenue of each extra unit of output is positive.
FALSE
Blooms: Understand
Test Bank: II
335. As a monopolist lowers the price of its product from a high level, it finds that its total revenue may at first increase and then, below a certain price,
its total revenue begins to decrease.
TRUE
Blooms: Understand
Test Bank: II
336. A monopolist will avoid setting a price in the elastic segment of the demand curve and prefer to set the price in the inelastic segment.
FALSE
Blooms: Understand
Test Bank: II
337. In order to maximize profits, the monopolist will produce the output level where MR = MC and charge a price equal to MR and MC.
FALSE
Blooms: Understand
Test Bank: II
338. A monopolist, being the sole seller in a market, is assured of positive economic profits.
FALSE
Blooms: Understand
Test Bank: II
339. If a monopolist finds itself operating in the inelastic portion of its demand curve, then it should never lower its price because doing so would
reduce its profits.
TRUE
12-122
Blooms: Understand
Test Bank: II
340. The supply curve for a monopolist is the upward-sloping portion of the marginal cost curve that lies above the average variable cost curve.
FALSE
Blooms: Understand
Test Bank: II
341. For a monopolist, maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.
FALSE
Blooms: Understand
Test Bank: II
342. In the long-run equilibrium, a monopolist will earn zero economic profits.
FALSE
Blooms: Understand
Test Bank: II
343. In a monopoly at equilibrium, price is greater than marginal cost.
TRUE
Blooms: Understand
Test Bank: II
344. A monopolist is free to charge whatever price it wishes, to sell a certain level of output.
FALSE
Blooms: Understand
Test Bank: II
345. In an unregulated monopoly at equilibrium, the output level is higher than the economically efficient level.
12-123
FALSE
Blooms: Understand
Test Bank: II
346. One of the economic effects of monopoly is an income transfer from consumers to the firm.
TRUE
Blooms: Understand
Test Bank: II
347. Price discrimination is not viable if consumers can resell the products they purchase to other consumers.
TRUE
Blooms: Understand
Test Bank: II
348. In most cases, a monopolist practicing price discrimination will end up earning less economic profits than a nondiscriminating monopolist.
FALSE
Blooms: Understand
Test Bank: II
349. A price-discriminating monopolist will set a higher price where demand is more elastic and a lower price where demand is less elastic.
FALSE
Blooms: Understand
Test Bank: II
350. In a natural monopoly case, the socially optimal pricing policy rule will often yield a higher price than the fair-return pricing rule.
FALSE
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
12-124
351. In a natural monopoly case, the socially optimal pricing policy rule will often result in negative economic profits for the firm.
TRUE
Blooms: Analyze
Difficulty: 03 Hard
Test Bank: II
12-125

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Chapter 12 Pure Monopoly Answer Key

AACSB: Knowledge Application

2. Which of the following is correct?

A. Both purely competitive and monopolistic firms are "price takers."

AACSB: Knowledge Application

3. A purely monopolistic firm

A. has no entry barriers.

AACSB: Knowledge Application

AACSB: Knowledge Application

A. the foreign exchange market

AACSB: Knowledge Application

6. Which of the following is a characteristic of pure monopoly?

A. close substitute products

AACSB: Knowledge Application

7. Which of the following is not a barrier to entry?

AACSB: Knowledge Application

8. Barriers to entering an industry

A. encourage allocative efficiency.

AACSB: Knowledge Application

A. long-run average costs decline continuously through the range of demand.

AACSB: Knowledge Application

AACSB: Knowledge Application

A. They must all be present before price discrimination can be practiced.

AACSB: Knowledge Application

12. The nondiscriminating pure monopolist's demand curve

A. is the industry demand curve.

AACSB: Knowledge Application

A. is less elastic than a purely competitive firm's demand curve.

AACSB: Knowledge Application

A. may be either greater or less than $35.

AACSB: Knowledge Application

15. For an imperfectly competitive firm,

AACSB: Knowledge Application

A. increase total revenue by reducing price.

AACSB: Knowledge Application

AACSB: Knowledge Application

AACSB: Knowledge Application

Answer the question on the basis of the accompanying demand schedule.

Price Quantity Demanded

AACSB: Knowledge Application

Answer the question on the basis of the accompanying demand schedule.

Price Quantity Demanded

AACSB: Knowledge Application

Answer the question on the basis of the accompanying demand schedule.

Price Quantity Demanded

AACSB: Knowledge Application

AACSB: Knowledge Application

A. an imperfectly competitive firm; a purely competitive firm

AACSB: Knowledge Application

A. demand curve only.

AACSB: Knowledge Application

A. total revenue in Figure 1 and average revenue in Figure 2.

AACSB: Knowledge Application

Refer to the two diagrams for individual firms. Figure 2 pertains to

A. a market characterized by government regulation of price and output.

AACSB: Knowledge Application

A. lines B and C, respectively.

AACSB: Knowledge Application

AACSB: Knowledge Application

AACSB: Knowledge Application

In the accompanying diagram, demand is relatively elastic

A. in the P2P1 price range.