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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) A monopoly is a seller of a product
A) with many substitutes.
B) without a close substitute.
C) with a perfectly inelastic demand.
D) without a well-defined demand curve.
Answer: B
Diff: 1
Topic: Characteristics of Monopoly
Learning Obj.: 9.1 Define monopoly.
AACSB: Analytic thinking
2) If we use a narrow definition of monopoly, then a monopoly is defined as a firm

A) that has been granted special production rights by the government.
B) that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products.
C) that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
D) that has the largest market share in an industry.
Answer: C
Diff: 1
3) A monopoly is characterised by all of the following except

A) there are only a few sellers each selling a unique product.
B) entry barriers are high.
C) there are no close substitutes to the firm's product.
D) the firm has market power.
Answer: A
Diff: 1
4) Peet's Coffee and Teas produces some flavourful varieties of Peet's brand coffee. Is Peet's a monopoly?
A) Yes, there are no substitutes to Peet's coffee.
B) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.
C) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry.
D) No, Peet's is not a monopoly because there are many branches of Peet's.
Answer: B
Diff: 2
5) A firm that has the ability to control to some degree the price of the product it sells
A) is also able to dictate the quantity purchased.
B) faces a demand curve that is inelastic throughout the range of market demand.
C) is a price maker.
D) faces a perfectly inelastic demand curve.
Answer: C
Diff: 1
6) A monopolist faces
A) a perfectly elastic demand curve.
B) a perfectly inelastic demand curve.
C) a horizontal demand curve.
D) a downward-sloping demand curve.
Answer: D
Diff: 1
7) Compared to a monopolistic competitor, a monopolist faces

A) a more elastic demand curve.
B) a more inelastic demand curve.
C) a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.
D) a demand curve that has a price elasticity coefficient of zero.
Answer: B
Diff: 2
8) A monopoly differs from monopolistic competition in that

A) a monopoly has market power while a firm in monopolistic competition does not have any market power.
B) a monopoly can never incur a loss, but a firm in monopolistic competition can.
C) in a monopoly there are significant entry barriers, but there are low barriers to entry in a monopolistically competitive
market structure.
D) a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.
Answer: C
Diff: 2
9) Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
A) Each must lower its price to sell more output.
B) Each sets a price for its product that will maximise its revenue.
C) Each maximises profits by producing a quantity for which marginal revenue equals marginal cost.
D) Each maximises profits by producing a quantity for which price equals marginal cost.
Answer: C
Diff: 2
10) Consider the following characteristics:

a. a market structure with barriers to entry
b. demand curves that are easily identified
c. firm cannot make zero profits in the long run
d. firm can reap long run profits.
Which of the characteristics in the list above is shared by an oligopolist and a monopolist?
A) a, b, c, and d
B) a, b, and d
C) a, c, and d
D) a and d
Answer: D
Diff: 2
11) A monopoly is a firm that is the only seller of a good or service that does not have
A) a patent.
B) a close complement.
C) a barrier to entry.
D) a close substitute.
Answer: D
Diff: 1
12) A narrow definition of monopoly is that a firm is a monopoly if it can ignore

A) government antitrust laws.
B) the pricing decisions of its suppliers.
C) the pricing decisions of firms that produce complementary products.
D) the actions of all other firms.
Answer: D
Diff: 1
13) Using a broad definition, a firm would have a monopoly if

A) it produced a product that has substitutes.
B) it does not have to collude with any other producer to earn an economic profit.
C) there is no other firm selling a substitute for its product close enough that its economic profits are competed away in
the long run.
D) it can make decisions regarding price and output without violating antitrust laws.
Answer: C
Diff: 2
14) A monopoly firm is the only seller of a good or service that

A) has a perfectly elastic demand.
B) has no close complements.
C) does not need to be advertised.
D) does not have a close substitute.
Answer: D
Diff: 1
15) A firm that is the only seller of a good or service that does not have a close substitute is called
A) a monopoly.
B) an oligopolist.
C) a market maker.
D) a price maker.
Answer: A
Diff: 1
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
16) A monopoly is defined as a firm that has the largest market share in an industry.
Answer: True False
Diff: 1
17) The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic
competitor.
Answer: True False
Diff: 2
18) A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is
open 24 hours a day.
Answer: True False
Diff: 1
19) A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.
Answer: True False
Diff: 2
20) Unlike a perfect competitor, a monopolist faces the market demand curve.
Answer: True False
Diff: 2
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
21) What is a monopoly? Can a firm be a monopoly if close substitutes for its product exists?
Answer: A monopoly is the only seller of a good or service that does not have a close substitute. The firm can't be a
monopoly if a close substitute for its product exists.
Diff: 2
22) If you own the only bookstore in a small town, do you have a monopoly?
Answer: Because consumers in your town could buy books on the Internet or by driving to another town that has a
bookstore, you would not have a monopoly under the narrow definition of the term. However, because competition from
online sellers and stores in other towns may not be sufficient to eliminate your economic profits in the long run, you may
have a monopoly in the broader sense of the term.
Diff: 2
23) To maintain a monopoly, a firm must have
A) a perfectly inelastic demand.
B) an insurmountable barrier to entry.
C) marginal revenue equal to demand.
D) few competitors.
Answer: B
Diff: 2
Topic: Barriers to Entry
Learning Obj.: 9.2 Explain the four main reasons why monopolies arise.
24) Which one of the following about a monopoly is false?

A) A monopoly could make profits in the long run.
B) A monopoly could break even in the long run.
C) A monopoly must have some kind of government privilege or government-imposed barrier to maintain its monopoly.
D) A monopoly status could be temporary.
Answer: C
Diff: 2
25) A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of
A) control of a key raw material.
B) network externalities.
C) economies of scale.
D) perfectly inelastic demand curve.
Answer: C
Diff: 1
26) A patent or copyright is a barrier to entry based on

A) ownership of a key necessary raw material.
B) large economies of scale as output increases.
C) government action to protect a producer.
D) widespread network externalities.
Answer: C
Diff: 1
Topic: Patents and Copyrights
27) A public franchise

A) is a corporation that is owned by stockholders.
B) results from ownership of a key raw material.
C) is a government designation that a private firm is the only legal producer of a good or service.
D) is an unregulated monopoly necessary for the public good.
Answer: C
Diff: 2
Topic: Public Franchise
28) Governments grant patents to encourage

A) research and development on new products.
B) competition.
C) low prices.
D) firms to form public enterprises.
Answer: A
Diff: 1
29) Governments grant patents to

A) compensate firms for research and development costs.
B) encourage competition.
C) encourage low prices.
D) encourage firms to reveal secret production techniques.
Answer: A
Diff: 1
30) For which of the following firms is patent protection of vital importance?
A) furniture producers
B) software firms
C) pharmaceutical firms
D) auto makers
Answer: C
Diff: 1
31) One reason patent protection is vitally important to pharmaceutical firms is

A) successful new drugs are not profitable. If firms are not granted patents, many would go out of business and health
care would be severely diminished.
B) the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is
very costly. Patents enable firms to recover costs incurred during this process.
C) that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes.
D) the high salaries pharmaceutical firms pay to scientists and doctors make their labour costs higher than for any other
business. Profits from patents are needed to pay these labour costs.
Answer: B
Diff: 2
32) Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug
is first offered for sale. The main reason for the elimination of profits is
A) after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was
intended to treat.
B) firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses.
C) the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls.
D) after 20 years patent protection is ended and other firms can produce less expensive generic versions of the drug.
Answer: D
Diff: 1
33) What is a network externality?

A) It refers to having a network of suppliers and buyers for a good or service.
B) It refers to lobbying to form a public enterprise.
C) It refers to a situation in which a product's usefulness increases with the number of people using it.
D) It refers to a product that requires connection to a network for it to be useful.
Answer: C
Diff: 1
Topic: Network Externalities
34) For a natural monopoly to exist

A) a firm must continually buy up its rivals.
B) a firm's long-run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level.
C) a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.
D) a firm must have a government-imposed barrier.
Answer: C
Diff: 2
Topic: Natural Monopoly
35) In a natural monopoly, throughout the range of market demand

A) marginal cost is above average total cost and pulls average total cost upward.
B) average total cost is above marginal cost and pulls marginal cost upward.
C) marginal cost is below average total cost and pulls average total cost downward.
D) there are diseconomies of scale.
Answer: C
Diff: 1
36) To have a monopoly in an industry there must be

A) barriers to entry so high that no other firms can enter the industry.
B) a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C) an inelastic demand for the industry's product.
D) a public franchise, making the monopoly the exclusive legal provider of a good or service.
Answer: A
Diff: 1
37) Which one of the following is not a possible barrier to entry high enough to keep competing firms out of a monopoly
industry?
A) The monopoly firm has control of a key resource necessary to produce a good.
B) There are important network externalities in supplying a good or service.
C) large economies of scale that result in a natural monopoly
D) a high concentration ratio
Answer: D
Diff: 1
38) When the government wants to give an exclusive right to one firm to produce a product, it
A) imposes a tariff on imports of the product.
B) imposes a quota on imports of the product.
C) grants a patent or copyright to an individual or firm.
D) uses antitrust laws to keep other firms from entering the market.
Answer: C
Diff: 1
39) There are several types of barriers to entry that can create a monopoly. Which of the following barriers is the result of
government action?
A) network externalities
B) public franchise
C) economies of scale
D) control of a key resource
Answer: B
Diff: 1
40) When the government makes a firm the exclusive legal provider of a good or service, it grants the firm
A) a copyright.
B) a network externality.
C) a quota.
D) a public franchise.
Answer: D
Diff: 1
41) A patent
A) grants the creator of a book, film, or piece of music the exclusive right to use the creation for 20 years.
B) grants the creator of a book, film, or piece of music the exclusive right to use the creation during the creator's lifetime.
C) gives a firm the exclusive right to a new product for 20 years from the date the product is invented.
D) gives the firm the exclusive right to a new product during the product inventor's lifetime.
Answer: C
Diff: 1
42) Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry
into some markets when this prohibits competition?
A) Patents encourage firms to spend money on research necessary to create new products.
B) Politicians sometimes succumb to pressure from lobbyists to grant favours to businesses for political reasons.
C) Patents are an important source of government revenue.
D) Patents are justified because they are an important means for creating network externalities.
Answer: A
Diff: 2
43) Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,
A) most patients will continue to buy the drugs from the same firms because their doctors recommend they buy
brand-name drugs.
B) prices remain high without patent protection because of a lack of competition. Firms that are not granted patents
cannot compete with firms that are granted patents.
C) other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the
firms that received patents.
D) firms will find ways to obtain additional patent protection—often by making cosmetic changes in drugs that were
patented—so that they can continue charging high prices.
Answer: C
Diff: 1
44) Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are
allowed to be introduced to the market. This reflects which of the following barriers to entry?
A) control of a key resource
B) network externalities
C) entry blocked by government action
D) economies of scale creating a natural monopoly
Answer: C
Diff: 1
45) The 10-year protection period from generic competition for drug manufacturers is a form of
A) copyright.
B) trademark.
C) hallmark.
D) patent.
Answer: D
Diff: 1
46) Network externalities

A) can only exist when there are economies of scale.
B) prevent the dominance of a market by one firm.
C) exist when the usefulness of a product increases with the number of consumers who use it.
D) are created when celebrity endorsements of products lead to a surge in the demand for those products.
Answer: C
Diff: 1
47) Some economists argue that Microsoft became a monopoly in the market for computer software by developing
MS-DOS, an operating system used for the first IBM personal computers. The more people who used MS-DOS-based
programs, the greater the usefulness of a using a computer with an MS-DOS operating system. The explanation for
Microsoft's monopoly is
A) the development of new technology that other firms could not copy.
B) control of a key resource which, in this case, is the MS-DOS operating system.
C) network externalities.
D) patents Microsoft obtained when it developed the MS-DOS operating system.
Answer: C
Diff: 2
48) Although some economists believe network externalities are important barriers to entry, other economists disagree
because
A) they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater
extent the result of the efficiency of firms in offering products that satisfy consumer preferences.
B) they believe that most examples of network externalities are really barriers to entry caused by the control of a key
resource.
C) network externalities are really negative externalities.
D) they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater
extent the result of economies of scale.
Answer: A
Diff: 1
49) In discussions of barriers to entry, what is meant by the term 'virtuous cycle'?
A) A virtuous cycle refers to successful research and development that leads to information that is used to develop other
new products.
B) A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another
market.
C) A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an
increase in social welfare (the 'invisible hand').
D) A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional
customers because its product's value has been increased by other customers using it, which attracts even more
customers.
Answer: D
Diff: 1
50) To be a natural monopoly a firm must

A) control a key resource input.
B) have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms.
C) have significant network externalities.
D) be very large relative to the total market.
Answer: B
Diff: 1
Figure 9-1
51) Refer to Figure 9-1. Which of the following statements about the firm depicted in the diagram is true?
A) The fact that this firm is a natural monopoly is shown by the continually declining long-run average total cost as
output rises.
B) The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output
rises.
C) The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output
rises.
D) The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average
total cost where the firm maximises its profits.
Answer: A
Diff: 1
52) A natural monopoly is most likely to occur in which of the following industries?
A) the pharmaceutical industry because the development and approval of new drugs through the Food and Drug
Administration can take more than 10 years
B) the diamond mining and marketing industry because one firm can control a key resource
C) the software industry because of the importance of network externalities
D) an industry where fixed costs are very large relative to variable costs
Answer: D
Diff: 2
53) If a restaurant was a natural monopoly, its

A) marginal cost curve would still be declining when it crossed the demand curve.
B) average total cost curve would still be declining when it crossed the demand curve.
C) marginal revenue curve wold be the same as its demand curve.
D) marginal revenue curve would be horizontal.
Answer: B
Diff: 2
54) If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would
A) decrease marginal cost.
B) raise average total cost.
C) increase total revenue.
D) make marginal revenue less elastic.
Answer: B
Diff: 2
55) A natural monopoly is characterised by large fixed costs relative to variable costs.
Answer: True False
Diff: 2
56) For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.
Answer: True False
Diff: 2
57) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the
prescription drugs expire because they have established a strong foothold in the market.
Answer: True False
Diff: 2
58) Network externalities refer to the situation where the usefulness of a product increases with the number of consumers
who use it.
Answer: True False
Diff: 1
59) A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.
Answer: True False
Diff: 1
60) A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.
Answer: True False
Diff: 2
61) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
Answer: A network externality exists where the usefulness of the product increases with the number of people who use
it. It can serve as an entry barrier because the popularity of the product attracts more and more consumers, thereby
increasing the supplier's dominance in the market. However, this barrier is not insurmountable. If a rival enters the
market with a superior product, then it is possible that customers will switch to the superior product.
Diff: 2
62) What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
Answer: A natural monopoly arises when the production function exhibits economies of scale over the relevant range of
market demand. The average cost of production is lower as the output produced increases. Consumers benefit from
having one supplier because the supplier will be able to pass some of the cost savings to consumers.
Diff: 3
63) What is a public franchise? Are all public franchises natural monopolies?
Answer: A public franchise is a firm which the government designates as the only legal provider of a good or service. It
is doubtful that most public franchises are natural monopolies. If they were, they wouldn't need the government to
restrict their competitors.
Diff: 2
64) Identify four reasons for high entry barriers. Briefly explain each reason.
Answer: 1. Economies of scale. This occurs when a firm faces declining average total cost over the entire range of
output that consumers are willing to buy. When this happens, the larger the firm's output, the smaller its per-unit costs,
making it difficult for small firms to enter the market since the small firms face much higher average costs. Thus, only a
single firm will survive.
2. Government can block entry via legal barriers such as public franchise, government license, patent, or copyright. A
public franchise is a firm the government designates will be the only legal provider of a good or service. A government
license controls entry into particular occupations, professions, and industries. Patents and copyrights grant exclusive
rights to a product that is invented or created.
3. Control over a key resource. If one firm owns the entire (or a great percentage of the) resource needed to produce a
final good, it creates a barrier to entry because it limits other producers' access to that resource.
4. Network externalities in supplying the good or service. If a product becomes more valuable when more people use it,
then firms with larger outputs (networks) may have advantages over smaller firms.
Diff: 2
65) The demand curve for the monopoly's product is
A) the market demand for the product.
B) more elastic than the market demand for the product.
C) more inelastic than the market demand for the product.
D) undefined.
Answer: A
Diff: 2
Topic: Demand and Marginal Revenue
Learning Obj.: 9.3 Explain how a monopoly chooses price and output.
66) A monopolist's profit-maximising price and output correspond to the point on a graph
A) where average total cost is minimised.
B) where total costs are the smallest relative to price.
C) where marginal revenue equals marginal cost.
D) where price is as high as possible.
Answer: C
Diff: 3
67) Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy
corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?
A) because Microsoft is large enough to hire the best people in the field
B) because Microsoft could potentially lose sales if it sets prices indiscriminately
C) because the wealthy corn farmer is a price taker who chooses his optimal output independently of market price but
Microsoft's optimal output depends on the price it selects
D) because unlike Microsoft, the wealthy corn farmer is probably a monopolist
Answer: B
Diff: 2
Topic: Comparing Monopoly and Perfect Competition
68) Because a monopoly's demand curve is the same as the market demand curve for its product
A) the monopoly's marginal revenue equals its price.
B) the monopoly is a price taker.
C) the monopoly must lower its price to sell more of its product.
D) the monopoly's average total cost always falls as it increases its output.
Answer: C
Diff: 2
69) If a theatre company expects $250 000 in ticket revenue from five performances and $288 000 in ticket revenue if it
adds a sixth performance, the
A) marginal revenue of the sixth performance is $48 000.
B) marginal revenue of the sixth performance is $38 000.
C) cost of staging the sixth performance is probably higher than the cost of staging the previous five.
D) company will be making a loss on the sixth performance because its ticket sales will be less than the average received
from the previous five.
Answer: B
Diff: 2
70) If a monopolist's price is $50 per unit and its marginal cost is $25, then
A) to maximise profit the firm should increase output.
B) to maximise profit the firm should decrease output.
C) to maximise profit the firm should continue to produce the output it is producing.
D) Not enough information is given to say what the firm should do to maximise profit.
Answer: D
Diff: 2
Topic: Profit Maximisation
71) If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then
Answer: C
Diff: 2
Figure 9-2
Figure 9-2 above shows the demand and cost curves facing a monopolist.
72) Refer to Figure 9-2. To maximise profit, the firm will produce
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Answer: B
Diff: 1
73) Refer to Figure 9-2. The firm's profit-maximising price is

A) P1.
B) P2.
C) P3.
D) P4.
Answer: C
Diff: 1
74) Refer to Figure 9-2. If the firm's average total cost curve is ATC1, the firm will
A) suffer a loss.
B) break even.
C) make a profit.
D) face competition.
Answer: C
Diff: 2
A) suffer a loss.
B) break even.
C) make a profit.
Answer: B
Diff: 2
A) suffer a loss.
B) break even.
C) make a profit.
Answer: A
Diff: 2
77) If a firm's average total cost is less than price where MR = MC,
A) the firm should shut down.
B) the firm should raise its price.
C) the firm should continue to produce the output it is producing.
D) the firm should cut back on its output to lower its cost.
Answer: C
Diff: 2
Table 9-1
Price per Unit Quantity Demanded Total Cost of Production
(units) (dollars)
$85 10 $530
80 11 540
75 12 550
70 13 560
65 14 575
60 15 595
55 16 625
A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 9-1.
78) Refer to Table 9-1. What is the marginal revenue from the sale of the 12th unit?
A) $75
B) $50
C) $20
D) -$5
Answer: C
Diff: 2
79) Refer to Table 9-1. What is the firm's profit-maximising output and what is the price charged to sell this output?
A) P = $85; Q = 10
B) P = $80; Q = 11
C) P = $70; Q = 13
D) P = $65; Q = 14
Answer: C
Diff: 2
80) Refer to Table 9-1. What is the amount of the firm's profit?
A) $335
B) $350
C) $880
D) $910
Answer: B
Diff: 2
81) Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit
maximising outputs?
A) Marginal revenue is less than price.
B) Marginal revenue equals marginal cost.
C) Price equals marginal cost.
D) Average revenue equals average cost.
Answer: A
Diff: 2
82) Long-run economic profits would most likely exist in which market structure?
A) monopoly, monopolistic competition and oligopoly
B) monopoly and oligopoly
C) monopoly and monopolistic competition
D) monopoly only
Answer: B
Diff: 1
Figure 9-3
Figure 9-3 above shows the demand and cost curves facing a monopolist.
83) Refer to Figure 9-3. Suppose the monopolist represented in the diagram above produces positive output. What is the
profit-maximising/loss-minimising output level?
A) 630 units
B) 800 units
C) 850 units
D) 880 units
Answer: A
Diff: 2
price charged at the profit-maximising/loss-minimising output level?
A) $38
B) $54
C) $68
D) $75
Answer: C
Diff: 2
profit/loss per unit?
A) loss of $7 per unit
B) profit of $30 per unit
C) loss of $21 per unit
D) profit of $14 per unit
Answer: A
Diff: 2
86) Refer to Figure 9-3. What happens to the monopolist represented in the diagram in the long run?
A) It will raise its price at least until it breaks even.
B) If the cost and demand curves remain the same, it will exit the market.
C) The government will subsidise the monopoly to enable it to break even.
D) It will be forced out of business by more efficient producers.
Answer: B
Diff: 2
Figure 9-4
Figure 9-4 shows the demand and cost curves for a monopolist.
87) Refer to Figure 9-4. What is the profit-maximising/loss-minimising output level?

A) 600 units
B) 800 units
C) 940 units
D) 1160 units
Answer: A
Diff: 1
88) Refer to Figure 9-4. What is the price charged for the profit-maximising output level?
A) $13
B) $21
C) $27
D) $34
Answer: D
Diff: 1
89) Refer to Figure 9-4. What is the amount of the monopoly's total revenue?
A) $21 600
B) $20 400
C) $19 740
D) $7800
Answer: B
Diff: 2
90) Refer to Figure 9-4. What is the amount of the monopoly's total cost of production?
A) $21 600
B) $17 700
C) $9340
D) $7800
Answer: B
Diff: 2
91) Refer to Figure 9-4. What is the amount of the monopoly's profit?
A) $2700
B) $4200
C) $10 400
D) $12 600
Answer: A
Diff: 2
92) Refer to Figure 9-4. What is likely to happen to this monopoly in the long run?
A) New firms will enter the market to eliminate its profits.
B) It will expand its output to take advantage of economies of scale so as to further increase its profit.
C) As long as there are entry barriers, this firm will continue to enjoy economic profits.
D) It will be regulated by the government because of its excess profits.
Answer: C
Diff: 2
93) A monopoly firm's demand curve

A) is the same as the market demand curve.
B) is perfectly inelastic.
C) is more inelastic than the demand curve for the product.
D) is inelastic at high prices and elastic at lower prices.
Answer: A
Diff: 1
94) Which of the following is true for a monopolist?

A) Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve.
B) Being the only seller in the market, the monopolist faces a perfectly elastic demand curve.
C) Being the only seller in the market, the monopolist faces the market demand curve.
D) Being the only seller in the market, the monopolist faces a downward-sloping demand curve that lies below the
marginal revenue curve.
Answer: C
Diff: 1
95) A price maker is

A) a person who actively seeks out the best price for a product that he or she wishes to buy.
B) a firm that has some control over the price of the product it sells.
C) a firm that is able to sell any quantity at the highest possible price.
D) a consumer who participates in an auction where she announces her willingness to pay for a product.
Answer: B
Diff: 1
96) Firms that face downward-sloping demand curves for their output in the product market are called
A) price takers.
B) price dictators.
C) monopolists.
D) price makers.
Answer: D
Diff: 1
97) Wendell can sell five motor homes per week at a price of $22 000. If he lowers the price of motor homes to $20 000 per
week he will sell six motor homes. What is the marginal revenue of the sixth motor home?
A) $10 000
B) $12 000
C) $20 000
D) $22 000
Answer: A
Diff: 2
Figure 9-5
98) Refer to Figure 9-5. If the monopolist charges price P* for output Q*, in order to maximise profit or minimise loss in
the short run, it should
A) continue to produce because price is greater than average variable cost.
B) shut down because price is greater than marginal cost.
C) shut down because price is less than average total cost.
D) continue to produce because a monopolist always earns a profit.
Answer: A
Diff: 2
Table 9-2
Quantity per
Price per Case Total Cost
Day (cases)
1 $16 $7.00
2 15 9.50
3 14 11.00
4 13 12.00
5 12 14.50
6 11 17.50
7 10 21.00
8 9 25.00
9 8 30.00
10 7 35.50
The government of a small developing country has granted exclusive rights to Linden Enterprises for the production of
plastic syringes. Table 9-2 shows the cost and demand data for this government protected monopolist.
99) Refer to Table 9-2. What is the profit-maximising quantity and price for the monopolist?
A) Quantity = 8 cases, Price = $9
B) Quantity = 7 cases, Price = $10
C) Quantity = 9 cases, Price = $8
D) Quantity = 10 cases, Price = $7
Answer: B
Diff: 2
100) Refer to Table 9-2. What is the amount of profit that the firm earns?
A) $34.50
B) $42
C) $47
D) $49
Answer: D
Diff: 2
Figure 9-6
Figure 9-6 shows the cost and demand curves for a monopolist.
101) Refer to Figure 9-6. The profit-maximising output and price for the monopolist are
A) output = 62; price = $24.
B) output = 62; price = $18.
C) output = 83; price = $22.
D) output = 104; price = $20.80.
Answer: A
Diff: 1
102) Refer to Figure 9-6. The monopolist's total revenue is

A) $1116.
B) $1488.
C) $1726.40
D) $1826.
Answer: B
Diff: 2
103) Refer to Figure 9-6. The monopolist's total cost is

A) $1116.
B) $1240.
C) $1660.
D) $1726.40.
Answer: B
Diff: 2
104) Refer to Figure 9-6. The monopolist earns a profit of

A) $0.
B) $170.
C) $248.
D) $372.
Answer: C
Diff: 2
105) To maximise profit a monopolist will produce where

A) marginal revenue is equal to marginal cost.
B) demand for its product is unit-elastic.
C) revenue per unit is maximised.
D) average total cost is equal to average revenue.
Answer: A
Diff: 1
106) If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then
Answer: A
Diff: 2
107) If a monopolist's price is $50 at 63 units of output, and marginal revenue equals marginal cost, and average total cost
equals $43, then the firm's total profit is
A) $3150.
B) $2709.
C) $441.
D) $7.
Answer: C
Diff: 3
108) Which of the following statements is true?

A) Monopolists are price makers. All other firms are price takers.
B) Unlike other industries, monopoly industries have high barriers to entry.
C) Only monopoly firms are granted patents and copyrights.
D) Unlike other firms, a monopolist's demand curve is the same as the market demand curve.
Answer: D
Diff: 1
109) The demand curve for a monopoly firm

A) is perfectly inelastic.
B) lies below its marginal revenue curve.
C) is the same as the market demand curve.
D) is horizontal.
Answer: C
Diff: 1
110) If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,
then the average profit is $7.
Answer: True False
Diff: 2
111) If a monopolist's marginal revenue is $15 per unit and its marginal cost is $25, then to maximise profit the firm
should decrease output.
Answer: True False
Diff: 2
112) In the short run, even if a monopoly's total revenue does not cover its variable costs, it should continue to produce
because ultimately in the long run, the monopoly will start earning profits.
Answer: True False
Diff: 2
113) To maximise profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue
equals marginal cost, and will charge a price given by the demand curve at that output level.
Answer: True False
Diff: 2
114) A monopolist's demand curve is the same as the marginal revenue curve for the product.
Answer: True False
Diff: 1
115) If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,
then the incremental profit from the last unit sold is $7.
Answer: True False
Diff: 2
116) A monopolist currently sells 18 units of a good. If marginal revenue on the last unit sold is $117, then the price of the
good must be less than $117.
Answer: True False
Diff: 2
117) What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a
perfect competitor?
Answer: Average revenue is equal to price for any firm but for a monopolist, marginal revenue is always less than price,
and therefore marginal revenue is less than average revenue. For a perfect competitor, marginal revenue is equal to price.
Diff: 2
118) What happens to a monopoly's revenue when it sells more units of its product?
Answer: The monopolist must lower its price to sell more. Two things happen when a monopolist lowers its price. First,
revenue will tend to rise as the monopolist sells more units and second, revenue will tend to fall because less revenue is
received from each unit than the amount received at the higher price. The total effect on total revenue could be an
increase, a decrease, or no change in total revenue.
Diff: 2
119) Explain why the monopolist has no supply curve?

Answer: A supply curve shows the relationship between the price of a product and the quantity that suppliers are
willing and able to supply. The monopolist selects its profit maximising output by equating marginal revenue to marginal
cost and takes the price dictated by the demand curve. Thus, there is no array of prices and quantities supplied.
Diff: 3
120) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue
curve?
Answer: A monopoly's marginal revenue curve lies entirely below its market demand curve and is downward sloping,
but a perfect competitor's marginal revenue curve is the same as its demand curve, which is horizontal at the prevailing
market price.
Diff: 2
121) 'Being the only seller in the market, the monopolist can choose any price and quantity it desires.' Evaluate this
statement: Is it true or false? Explain your answer.
Answer: The statement is false. The monopolist cannot choose both the price and quantity. The monopolist has some
market power and therefore has some ability to affect market price but it does not control the demand curve. If the
monopolist sets a price, the quantity sold will be indicated by the demand curve.
Diff: 2
122) Explain whether a monopoly that maximises profit will also be maximising revenue and production.
Answer: Profit maximisation is not the same thing as revenue maximisation. To maximise revenue, the firm would
produce up to the point where marginal revenue is zero. Unless marginal cost is zero, this is a larger quantity than the
quantity where marginal revenue equals marginal cost. Maximising production could mean producing the physical
maximum possible. This is likely to be far beyond the profit-maximising level of output.
Diff: 2
Figure 9-7
123) Refer to Figure 9-7. Use the figure above to answer the following questions.
a. What is the profit-maximising quantity and what price will the monopolist charge?
b. What is the total revenue at the profit-maximising output level?
c. What is the total cost at the profit-maximising output level?
d. What is the profit?
e. What is the profit per unit (average profit) at the profit-maximising output level?
f. If this industry was organised as a perfectly competitive industry, what would be the profit-maximising price and
quantity?
Answer: a. Quantity = 50; price = 32
b. Total revenue = 50 × $32 = $1600
c. Total cost = 50 × $20 = $1000
d. Profit = $1600 - $1000 = $600
e. Profit per unit = $32 - $20 = $12
f. If purely competitive, quantity = 80; price = $22
Diff: 3
Figure 9-8
Figure 9-8 reflects the cost and revenue structure for a monopoly that has been in business for a very long time.
124) Refer to Figure 9-8. Use the figure above to answer the following questions.
a. Identify the curves labeled A and B. Identify the curve which contains both point Y and point Z. Identify the curve
which contains both point V and point W.
b. What is the profit-maximising quantity and what price will the monopolist charge?
c. What area represents total revenue at the profit-maximising output level?
d. What area represents total cost at the profit-maximising output level?
e. What area represents profit?
f. What is the profit per unit (average profit) at the profit-maximising output level?
g. If this industry was organised as a perfectly competitive industry, what would be the profit-maximising price and
quantity?
h. What area represents the deadweight loss as a result of a monopoly?
Answer: a. A = Demand curve; B = Marginal revenue curve; The curve which contains both points Y and Z =
Marginal cost curve; The curve which contains both points V and W = Average total cost curve.
b. Quantity = Q2 units; Price = P3
c. Area 0P3XQ2
d. Area 0P0VQ2
e. Area P0P3XV
f. P3 - P0
g. Quantity = Q4 and Price = P2
h. The triangle XYZ
Diff: 3
125) Economic efficiency in a free market occurs when
A) consumer surplus is maximised.
B) producer surplus is maximised.
C) the sum of consumer surplus and producer surplus is maximised.
D) price is as low as possible.
Answer: C
Diff: 2
Topic: Monopoly and Economic Efficiency
Learning Obj.: 9.4 Use a graph to illustrate how a monopoly affects economic efficiency.
126) A profit-maximising monopoly's price is

A) the same as the price that would prevail if the industry was perfectly competitive.
B) less than the price that would prevail if the industry was perfectly competitive.
C) greater than the price that would prevail if the industry was perfectly competitive.
D) not consistently related to price that would prevail if the market was perfectly competitive.
Answer: C
Diff: 2
Figure 9-9
Figure 9-9 shows the demand and cost curves for a monopolist.
127) Refer to Figure 9-9. What is the economically efficient output level?
A) 600 units
B) 800 units
C) 940 units
D) 1160 units
Answer: C
Diff: 2
128) Refer to Figure 9-9. What is the difference between the monopoly output and the perfectly competitive output?
A) 140 units
B) 240 units
C) 340 units
D) 560 units
Answer: C
Diff: 2
129) Refer to Figure 9-9. What is the difference between the monopoly's price and perfectly competitive industry's price?
A) The monopoly's price is higher by $9.50.
B) The monopoly's price is higher by $13.
C) The monopoly's price is higher by $3.50.
D) The monopoly's price is higher by $21.
Answer: B
Diff: 2
130) Refer to Figure 9-9. At the profit-maximising quantity, what is the difference between the monopoly's price and the
marginal cost of production?
A) $8
B) $11.50
C) $21
D) There is no difference.
Answer: C
Diff: 2
131) Compared to perfect competition, the consumer surplus in a monopoly

A) is unchanged because price and output are the same.
B) is lower because price is higher and output is lower.
C) is higher because price is higher and output is the same.
D) is eliminated.
Answer: B
Diff: 2
132) Why does a monopoly cause a deadweight loss?

A) because it does not produce some output for which marginal benefit exceeds marginal cost
B) because it appropriates a portion of consumer surplus for itself
C) because it increases producer surplus at the expense of consumer surplus
D) because it does not produce some output for which demand exceeds supply
Answer: A
Diff: 2
133) Relative to a perfectly competitive market, a monopoly results in

A) a gain in producer surplus equal to the gain in consumer surplus.
B) a gain in producer surplus equal to the loss in consumer surplus.
C) a gain in producer surplus less than the loss in consumer surplus.
D) greater economic efficiency.
Answer: C
Diff: 2
Figure 9-10
134) Refer to Figure 9-10. What is the area that represents consumer surplus under a monopoly?
A) the triangle P0P1F
B) the triangle P0P2E
C) the trapezium P1P2EF
D) the rectangle P1P3HF
Answer: A
Diff: 2
135) Refer to Figure 9-10. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an
amount equal to the
A) area FHE.
B) area FGE.
C) area P1P2EF.
D) area P1P2GF.
Answer: C
Diff: 2
136) Refer to Figure 9-10. What is the area that represents producer surplus under a monopoly?
A) the triangle 0P2E
B) the triangle 0P3H
C) the trapezium 0P1FH
D) the rectangle P1P3HF
Answer: C
Diff: 2
137) Refer to Figure 9-10. The deadweight loss due to a monopoly is represented by the area
A) FHE.
B) FGE.
C) GEH.
D) FQ1Q2E.
Answer: A
Diff: 2
138) Market power refers to

A) the ability of consumers to dictate what products should be produced.
B) the ability of a firm to advertise its product and succeed in selling more output.
C) the ability of a firm to sell at a lower price than rival sellers.
D) the ability of a firm to charge a price higher than the marginal cost of production.
Answer: D
Diff: 1
Topic: Market Power
139) Firms do not have market power in which of the following market structures?
A) perfect competition only
B) perfect competition and monopolistic competition
C) oligopoly
D) monopoly
Answer: A
Diff: 1
Topic: Market Power
140) The size of a deadweight loss in a market is reduced by
A) government legislating a price ceiling.
B) government legislating a price floor.
C) market price being close to marginal cost.
D) creative destruction.
Answer: C
Diff: 2
141) A market economy benefits from market power

A) if the majority of the population are entrepreneurs.
B) if firms with market power do research and development with the profits earned.
C) if market power gets so bad the government creates public enterprises.
D) under no circumstances.
Answer: B
Diff: 2
Topic: Market Power
142) Which of the following statements is consistent with the views of Joseph Schumpeter?
A) Research and development by competitive firms is responsible for most technological changes.
B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds
for research and development.
C) Enforcement of antitrust laws is necessary to promote competition among firms.
D) A lack of competition discourages firms from developing new technologies.
Answer: B
Diff: 2
Topic: Market Power
143) Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which
of the following statements regarding economic surplus in each market structure is true?
A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer
surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is
the same as it was under perfectly competitive conditions.
B) Under perfectly competitive conditions, economic surplus in this industry is maximised. Under monopoly conditions,
economic surplus is minimised.
C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus
because firms are price-takers. Under monopoly conditions, economic surplus is equal to producer surplus.
D) Under perfectly competitive conditions, economic surplus is maximised. Under monopoly conditions, economic
surplus is less than under perfect competition and there is a deadweight loss.
Answer: D
Diff: 2
144) Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which
of the following statements comparing the conditions in the industry under both market structures is true?
A) A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the
same good.
B) A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same
good.
C) A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the
same good.
D) A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the
same good.
Answer: C
Diff: 1
145) Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. As a
result of this change
A) Price will be higher, output will be lower and the deadweight loss will be eliminated.
B) Consumer surplus will be smaller, producer surplus will be greater and there will be a reduction in economic
efficiency.
C) Price will be higher, consumer surplus will be greater and output will be greater.
D) Consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic
surplus.
Answer: B
Diff: 2
146) Which of the following statements is true?

A) If a tax is imposed on a product sold by a monopolist, the monopolist will maximise its profits by producing where
marginal revenue equals marginal cost.
B) A monopolist will always charge the highest possible price.
C) If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax
to consumers.
D) Because a monopolist faces no competition, the demand for its product is perfectly inelastic.
Answer: A
Diff: 2
Figure 9-11
Figure 9-11 shows the cost and demand curves for a monopolist.
147) Refer to Figure 9-11. Assume the firm maximises its profits. What is the amount of consumer surplus?
A) $21
B) $124
C) $186
D) $332
Answer: C
Diff: 2
148) Refer to Figure 9-11. What is the amount of consumer surplus if, instead of monopoly, the industry was organised as
a perfectly competitive industry?
A) $21
B) $124
C) $186
D) $332
Answer: D
Diff: 3
149) Refer to Figure 9-11. If this industry was organised as a perfectly competitive industry, the market output and market
price would be
A) output = 62; price = $24.
B) output = 83; price = $22.
C) output = 62; price = $18.
D) output = 104; price = $20.80.
Answer: B
Diff: 2
150) Refer to Figure 9-11. If the firm maximises its profits, the deadweight loss to society due to this monopoly is equal to
the area
A) ABF.
B) ABEG.
C) ACE.
D) EFG.
Answer: C
Diff: 3
151) The ability of a firm to charge a price greater than marginal cost is called
A) monopoly power.
B) price-making power.
C) cost-plus pricing.
D) market power.
Answer: D
Diff: 1
Topic: Market Power
152) Whenever a firm can charge a price greater than marginal cost
A) the firm must be a monopolist.
B) there is some loss of economic efficiency.
C) consumers have the ability to choose a close substitute.
D) the firm will earn economic profits.
Answer: B
Diff: 2
Topic: Market Power
153) The only firms that do not have market power are
A) firms in industries with low barriers to entry.
B) firms that do not advertise their products.
C) firms in perfectly competitive markets.
D) firms that sell identical products.
Answer: C
Diff: 1
Topic: Market Power
154) In evaluating the degree of economic efficiency in a market, we can state that the size of the deadweight loss in a
market will be smaller
A) the greater the difference between marginal cost and price.
B) the smaller the difference between marginal cost and average total cost.
C) the smaller the difference between marginal cost and price.
D) the greater the difference between marginal cost and average revenue.
Answer: C
Diff: 2
155) If a per-unit tax on output sold is imposed on a monopoly's product, the monopolist will increase its market price by
the full amount of the tax.
Answer: True False
Diff: 2
156) Suppose a monopoly is producing its profit-maximising output level. Now suppose the government imposes a
lump-sum tax on the monopoly, independent of its output. As a result, the monopoly's profit will fall.
Answer: True False
Diff: 2
157) In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for
nearly every good or service.
Answer: True False
Diff: 1
158) A profit-maximising monopoly produces a lower output level than would be produced if the industry was perfectly
competitive.
Answer: True False
Diff: 2
159) If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in
economic efficiency and a deadweight loss.
Answer: True False
Diff: 2
160) Suppose a monopoly is producing its profit-maximising output level. Now suppose the government imposes a
lump-sum tax on the monopoly, independent of its output. As a result, the monopolist will increase the price of its
product to cover its higher cost.
Answer: True False
Diff: 2
161) Producers in perfect competition receive a smaller producer surplus than a monopoly producer.
Answer: True False
Diff: 2
162) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Answer: A monopolist sells a smaller quantity and charges a price greater than the perfectly competitive price.
Diff: 2
163) Suppose that a perfectly competitive industry becomes a monopoly. What effect will this have on consumer surplus,
producer surplus, and deadweight loss?
Answer: If a perfectly competitive industry is monopolised, consumer surplus will decrease, producer surplus will
increase, and there will be a deadweight loss.
Diff: 2
164) Equilibrium in a perfectly competitive market results in the greatest amount of economic surplus, or total benefit to
society, from the production of a good. Why, then, did Joseph Schumpeter argue that an economy may benefit more from
firms that have market power than from firms that are perfectly competitive?
Answer: Schumpeter did not deny that perfectly competitive firms produced the greatest amount of consumer surplus,
but this result does not address which type of market structure is best for developing new products. Schumpeter pointed
to the large costs of product development; how can small, perfectly competitive firms afford the monetary cost and the
risk of failure that product development requires? Only large firms in monopoly or oligopoly industries can afford
investments in research and development, and the inevitable failures that accompany research. According to Schumpeter,
the higher prices firms with market power charge are less important than the benefits from new products these firms
introduce to the market.
Diff: 2
165) A merger between the Ford Motor Company and General Motors would be an example of a
A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) trust.
Answer: B
Diff: 1
Topic: Mergers
Learning Obj.: 9.5 Discuss government policies towards monopolies.
166) When a proposed merger between two companies is reviewed by the government, the relevant market is defined by
A) whether or not there are close substitutes for the products of the two firms.
B) how elastic the demand is for each firm's product.
C) counting the number of firms that produce the same product.
D) how much advertising is done in the industry.
Answer: A
Diff: 2
Topic: Mergers
167) Suppose an industry is made up of 25 firms, all with equal market share. The four-firm concentration ratio of this
industry is
A) 16%.
B) 20%.
C) 25%.
D) It cannot be determined from the information given.
Answer: A
Diff: 2
Topic: Market Power
168) Consider an industry that is made up of nine firms, each with a market share (per cent of sales) as follows:
a. Firm A: 30%
b. Firm B: 20%
c. Firms C, D and E: 10% each
d. Firms F, G, H and J: 5% each
What is the value of the four-firm concentration ratio and how is the industry categorised?
A) 50%; monopolistic competition
B) 70%; oligopoly
C) 75%; oligopoly
D) 80%; strongly oligopolistic
Answer: B
Diff: 2
Topic: Market Power
169) A possible advantage of a horizontal merger for the economy is that

A) the merging firms could avoid losses.
B) the merged firm might reap economies of scale which could translate into lower prices.
C) the degree of competition in the industry will be intensified.
D) the government stands to collect more corporate income tax revenue.
Answer: B
Diff: 2
Topic: Mergers
170) If a natural monopoly regulatory commission sets a price where marginal cost is equal to demand,
A) the firm would earn monopoly profits.
B) economic efficiency would not be achieved.
C) the firm would incur a loss.
D) the firm would break even.
Answer: C
Diff: 2
Figure 9-12
Figure 9-12 shows the cost and demand curves for the ETSA.
171) Refer to Figure 9-12. ETSA Power is a natural monopoly because

A) it is a power company and all power companies are natural monopolies.
B) average total cost is still declining when it intersects demand.
C) of its continually declining marginal revenue curve as output rises.
D) its marginal cost lies entirely below its long-run average cost.
Answer: B
Diff: 2
172) Refer to Figure 9-12. Why won't regulators require that ETSA Power produce the economically efficient output level?
A) because there is insufficient demand at that output level
B) because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the
consumers' marginal value for that last unit
C) because Erickson Power will earn zero profit
D) because Erickson Power will sustain persistent losses and will not continue in business in the long run
Answer: D
Diff: 2
Topic: Government Policy toward Monopoly
173) Economic efficiency requires that a natural monopoly's price be

A) equal to average total cost where it intersects the demand curve.
B) equal to marginal cost where it intersects the demand curve.
C) equal to average variable cost where it intersects the demand curve.
D) equal to the lowest price the firm can charge and still make a normal profit.
Answer: B
Diff: 2
174) In regulating a natural monopoly, the price strategy that ensures the highest possible output and zero profit is one
that sets price
A) equal to average total cost where it intersects the demand curve.
B) equal to marginal cost where it intersects the demand curve.
C) equal to average variable cost where it intersects the demand curve.
D) corresponding to the demand curve where marginal revenue equals zero.
Answer: A
Diff: 2
Figure 9-13
Figure 9-13 shows the market demand and cost curves facing a natural monopoly.
175) Refer to Figure 9-13. Suppose the government regulates this industry in order to remove the inefficiency implied by
the behaviour of the profit-maximising owners. If regulators require that the firm produces the economically efficient
output level, what is this level and what price will be charged?
A) Q4 units; P4
B) Q1 units; P4
C) Q1 units; P1
D) Q3 units; P3
Answer: A
Diff: 2
176) Refer to Figure 9-13. Which of the following would be true if government regulators require the natural monopoly to
produce at the economically efficient output level?
A) This results in a misallocation of resources.
B) The marginal cost of producing the last unit sold exceeds the marginal benefit.
C) The firm will sustain persistent losses and will not continue in business in the long run.
D) The firm will break even.
Answer: C
Diff: 2
177) Refer to Figure 9-13. If the regulators of the natural monopoly allow the owners of the firm to break even on their
investment, the firm will produce an output of ________ and charge a price of ________.
A) Q1 units; P4
B) Q1 units; P1
C) Q5 units; P3
D) Q3 units; P3
Answer: D
Diff: 2
178) Refer to figure 9-13. In the absence of any government regulation, the profit-maximising owners of this firm will
produce ________ units and charge a price of ________.
A) Q0; P0
B) Q1; P1
C) Q1; P4
D) Q3; P3
Answer: B
Diff: 2
179) A product's price approaches its marginal cost as market concentration increases.
Answer: True False
Diff: 2
Topic: Market Power
180) A vertical merger is one that takes place between two companies producing different goods or services for one
specific finished product.
Answer: True False
Diff: 1
Topic: Mergers
181) Holding everything else constant, government approval of horizontal mergers is more likely to be granted if the
'market' that firms are in are broadly defined rather than narrowly defined.
Answer: True False
Diff: 2
Topic: Mergers
182) The term 'trust' in antitrust refers to a board of trustees that has collusive control over different companies.
Answer: True False
Diff: 1
Topic: Antitrust Law and Enforcement
183) Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal
revenue equals marginal cost.
Answer: True False
Diff: 2
184) Identify two ways by which the government controls monopolies?
Answer: The government control monopolies by enforcing antitrust laws and through economic regulation of natural
monopolies.
Diff: 2
Topic: Government Policy toward Monopoly
185) a. What is the difference between a horizontal merger and a vertical merger?
b. Give an example of each type of merger.
c. Could a horizontal merger be welfare improving?
Answer: a. A horizontal merger is a merger between firms in the same industry. A vertical merger is a merger
between firms at different stages of production of a good.
b. Students can offer many different examples.
c. Yes, if there are economies of scale so that the merged firm can produce output at a lower average total cost.
Diff: 2
Topic: Mergers
186) a. What is the defining characteristic of a natural monopoly?

b. Should the government break up a natural monopoly into two or more firms to make the industry more competitive?
c. Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to
consumers. To achieve this goal, it requires that the natural monopoly set its price equal to marginal cost. Is this a feasible
goal? Explain.
d. What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining
average total cost?
Answer: a. The defining characteristic is the presence of significant economies of scale such that the average total cost
of production declines over the relevant range of market demand.
b. No, given the importance of economies of scale, society is better off with one big firm producing the output rather
than several small firms.
c. Setting price equal to marginal cost is not feasible because the natural monopoly will incur persistent losses and will
not continue to produce in the long run.
d. An alternative solution is to require average total cost pricing; that is, price is set equal to the average cost of
production (where the average cost includes the opportunity cost of funds invested in the firm by its owners). This will
allow the monopolist to break even on its investment and stay in business.
Diff: 3
Figure 9-14
187) Refer to Figure 9-14 to answer the following questions.

a. What quantity will this monopoly produce and what price will it charge?
b. Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, what price should
it require the monopoly to charge?
c. To achieve economic efficiency, what quantity will the regulated monopoly produce?
d. Will the regulated monopoly make a profit if it charges the price that will achieve economic efficiency?
e. Suppose the government decides to regulate the monopoly by imposing a price ceiling of $35. What quantity will the
monopoly produce and what price will the monopoly charge?
f. With the price ceiling of $35, what profit will the monopoly earn?
Answer: a. Quantity = 835 units and Price = $59.
b. To achieve economic efficiency, the price = $20.
c. The quantity produced = 2204 units.
d. No, the regulated monopoly will make a loss.
e. If the ceiling price is set at $35, the monopoly will produce a quantity of 1740 units and charge the ceiling price of $35.
f. The monopoly will break even.
Diff: 2
188) If a firm charges different consumers different prices for the same product and the difference cannot be attributed to
cost variations, then it is engaging in
A) odd pricing.
B) cost-plus pricing.
C) price discrimination.
D) markup pricing.
Answer: C
Diff: 2
Topic: Price Discrimination
Learning Obj.: Appendix: Explain how a firm can increase its profits through price discrimination.
189) Why is price discrimination legal but not discrimination based on race or gender?
A) because price discrimination increases profits and therefore tax revenues for the government, but discrimination based
on race or gender reduces tax revenues
B) because price discrimination reduces deadweight loss, but discrimination based on race or gender increases
deadweight loss
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on
the basis of arbitrary characteristics
D) because price discrimination enables firms to increase output and employment, but race- or gender-based
discrimination reduces employment
Answer: C
Diff: 2
190) Firms price discriminate

A) to reduce the quantity sold so as to reduce production costs.
B) to increase profits.
C) to take advantage of customers.
D) to increase total economic surplus.
Answer: B
Diff: 2
191) Which of the following is not a way by which price-discriminating firms can segment a market?
A) on the basis of time of purchase, for example long-distance calling
B) by requiring an advance purchase, for example air tickets
C) on basis of the buyer's location, for example requiring out-of-state students to pay higher tuition
D) on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for
customising options
Answer: D
Diff: 2
192) Which of the following products allows the seller to identify different groups of consumers (segment the market) at
virtually no cost?
A) early bird dinner specials
B) books sold online
C) a pair of Bose speakers
D) iPhones
Answer: A
Diff: 2
193) Which of the following are necessary condition(s) for successful price discrimination?
a. zero transactions cost
b. a perfectly competitive market structure
c. an imperfectly competitive market structure
d. at least two different markets with different price elasticities of demand
e. at least two different markets with different price elasticities of supply
A) a, b, and d only
B) c and d only
C) a, c, d and, e only
D) a and c only
Answer: B
Diff: 2
194) Most movie theatres charge different prices to different groups of customers for movie admission but not for movie
popcorn. Which of the following is a reason for this?
A) because the markup on movie popcorn is very high and movie theatres do not want to forego this source of revenue
B) because the demand for popcorn is very high relative to the demand for movie admissions
C) because it is easier to limit resale in movie admissions but not in popcorn
D) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a
movie
Answer: C
Diff: 2
195) Which of the following is a necessary condition for successful price discrimination?
A) The seller must possess market power.
B) The buyer must possess market power.
C) Transactions costs must be zero.
D) Buyers must have identical inelastic demands.
Answer: A
Diff: 2
196) Successful price discrimination cannot take place if

A) the market is perfectly competitive.
B) the market can be segmented into different buyer groups.
C) customers are not able to resell the product.
D) the demand curve facing the firm is downward sloping.
Answer: A
Diff: 2
197) Consider the following actions undertaken by a firm:

a. charging the same price for products of different quality
b. charging different prices to different consumers for the same product when the variation cannot be explained by cost
differences
c. charging different prices for products of different qualities
d. charging a lower price to match a competitor's price
Which of the above will be considered price discrimination?

A) a, b, c, and d
B) a, b, and d only
C) b and d only
D) a and b only
Answer: D
Diff: 2
198) Price discrimination is possible in which of the following market structures?

a. perfect competition
b. monopoly
c. oligopoly
d. monopolistic competition
A) a, b, c, and d
B) c and d only
C) b and c only
D) b, c, and d only
Answer: D
Diff: 2
199) Which of the following undermines a firm's ability to engage in price discrimination?
A) the seller's market power
B) the inability to prevent resale of the product from one market segment to another
C) buyers having different elasticities of demand for the product
D) the seller's ability to segment the total market
Answer: B
Diff: 2
200) A firm that can effectively price discriminate will charge a higher price to
A) customers who have the more elastic demand for the product.
B) customers who have the more inelastic demand for the product.
C) buyers who belong to the largest market segment.
D) buyers who are members of the smallest market segment.
Answer: B
Diff: 2
201) For a firm that can effectively price discriminate, who will be charged a lower price?
A) customers who have an elastic demand for the product
B) customers who have an inelastic demand for the product
C) buyers that are members of the largest market segment
D) buyers that are members of the smallest market segment
Answer: A
Diff: 2
202) Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why
is this the case?
A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labour
costs down.
B) The cost of making long-distance connections is higher during the day than in the evenings.
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an
inelastic demand during the workday compared to after-work hours.
D) Increasingly, businesses who must call suppliers or customers during business hours resort to the Internet, thereby
reducing demand for long-distance calls. To make up for this fall in demand, telephone companies charge higher rates.
Answer: C
Diff: 3
203) From an economic perspective, price discrimination is desirable because

A) the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic
surplus.
B) it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with
incentives to engage in beneficial product innovation.
C) the increase in profits results in higher corporate tax revenues received by the government, which could be used to
subsidise consumption for low-income individuals.
D) it redistributes wealth from wealthy consumers to highly innovative firms.
Answer: B
Diff: 2
204) Yield management and price discrimination have enabled firms to increase profits and, at the same time,
A) reduce the cost of production.
B) capture some consumer surplus.
C) reduce transactions costs.
D) transfer some producer surplus to consumers.
Answer: B
Diff: 2
Topic: Yield Management
205) Which of the following is a reason why airline yield management is an effective method to increase revenue?
A) because airlines have invested heavily in developing computer models that identify optimal pricing strategies in the
various market segments
B) because airlines have successfully induced customers to reveal their resources and preferences by offering them
different versions of the product such as business class and coach plane tickets
C) because a ticket is a contract to transport a specific person, and is not transferable
D) because airlines have a monopoly in long-distance carriage
Answer: C
Diff: 2
206) If a firm could practice perfect price discrimination, it would
A) allow resale of its product.
B) charge every buyer a different price.
C) charge a price based on the quantity of a product bought.
D) use odd pricing.
Answer: B
Diff: 2
Topic: Perfect Price Discrimination
207) With perfect price discrimination there is

A) no deadweight loss.
B) no producer surplus.
C) one single price.
D) an increase in consumer surplus.
Answer: A
Diff: 2
208) Which of the following does not arise from price discrimination?
A) an increase in producer surplus
B) an increase in consumer surplus
C) an increase in quantity sold
D) an increase in profits
Answer: B
Diff: 2
209) Joss is a marketing consultant. Iris and Daphne are potential customers interested in commissioning Joss to
undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is
willing to pay $800. Suppose that the opportunity cost of Joss's time is $1200. Assume that Iris and Daphne do not know
each other. If Joss charges the same price per copy to both Iris and Daphne,
A) the report will not get written.
B) only Daphne will commission the job and the report will be written.
C) both Iris and Daphne will commission the job and the report will be written.
D) No conclusion can be drawn without information on the price.
Answer: A
Diff: 2
each other. If the price is $500 per copy,
A) only Iris will purchase Joss's services, and Joss will undertake the job for her.
B) only Daphne will purchase Joss's services, and Joss will undertake the job for her.
C) both Iris and Daphne will purchase Joss's services, and Joss will undertake the job.
D) both Iris and Daphne will want to purchase Joss's services, but Joss will not be willing to undertake the job.
Answer: D
Diff: 2
each other. If the price is $800 per copy,
A) both Iris and Daphne will purchase Joss's services, and Joss will undertake the job.
B) only Daphne will purchase Joss's services, and Joss will undertake the job for her.
C) only Daphne will want to purchase Joss's services, but Joss will not be willing to do the work.
D) neither Iris nor Daphne will commission the work.
Answer: C
Diff: 2
each other. Which of the following statements is true?
A) Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and
Daphne.
B) Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss
in economic surplus.
C) Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximised.
D) Joss should charge Iris $500, but charging Daphne $800 is unfair because it allows Joss to earn more than his
opportunity cost.
Answer: C
Diff: 2
213) Online companies gather personal information about the customers who shop on their websites, and some of those
companies will use the data to estimate price elasticities of the customers. Doing this is a way that these companies might
be able to charge a higher price for a product to those customers who have a ________ price elasticity of demand.
A) high
B) low
C) negative
D) unitary
Answer: B
Diff: 2
214) Some consumer electronic products such as plasma TVs, DVD players and digital cameras are introduced at very
high prices, but over time, their prices start falling (beyond what could be attributed to falling costs as companies take
advantage of economies of scale and cheaper technologies). Which of the following is the best explanation for this
observation?
A) More firms are likely to enter the consumer electronic market over time, forcing market prices down.
B) Early adopters of these new products typically have a higher demand and higher income compared to those who are
willing to wait.
C) Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods.
D) After satisfying the demand for early adopters, firms lower price to attract the more price sensitive consumers.
Answer: D
Diff: 2
Topic: Price Discrimination Across Time
215) When a monopolist engages in perfect price discrimination, the quantity produced and sold
A) is lower than the quantity produced and sold if it adopted a single price.
B) is larger than the quantity produced and sold if it adopted a single price.
C) is the same level as that produced and sold if it adopted a single price.
D) could be lower, higher or the same as that produced and sold if it adopted a single price.
Answer: B
Diff: 2
216) With perfect price discrimination, the marginal revenue curve

A) is below the demand curve.
B) is above the demand curve.
C) is equal to the demand curve.
D) is horizontal.
Answer: C
Diff: 2
Figure 9-15
217) Refer to Figure 9-15. With perfect price discrimination, the firm will produce and sell
A) Q1 units.
B) Q2 units.
C) Q3 units.
D) Q4 units.
Answer: C
Diff: 2
218) Refer to Figure 9-15. What is the price charged under perfect price discrimination?
A) P3
B) P4
C) a range of prices corresponding to the demand curve from P3 and above
D) a range of prices corresponding to the demand curve from P4 and above
Answer: C
Diff: 2
219) Refer to Figure 9-15. What is the consumer surplus received under perfect price discrimination?
A) the area under the demand curve above P1
B) the area under the demand curve above P3
C) the area under the demand curve above P4
D) zero
Answer: D
Diff: 2
220) Refer to Figure 9-15. What is the economically efficient output level?
A) Q1 units
B) Q2 units
C) Q3 units
D) Q4 units
Answer: C
Diff: 2
221) Consider the following pricing strategies:

a. perfect price discrimination
b. charging different prices to different groups of customers
c. optimal two-part tariff
d. single-price monopoly pricing
Which of the pricing strategies allows a producer to capture the entire consumer surplus that would have gone to
consumers under perfect competitive pricing?
A) a, b, c, and d
B) a, b, and c only
C) a and b only
D) a and c only
Answer: D
Diff: 3
222) Consider the following pricing strategies:

a. perfect price discrimination
b. charging different prices to different groups of customers
c. optimal two-part tariff
d. single-price monopoly pricing
Which of the pricing strategies leads to the economically efficient output level?
A) a only
B) a and b only
C) a and c only
D) a, b, and c only
Answer: C
Diff: 3
223) If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would
consider this an example of
A) price gouging.
B) rational ignorance.
C) arbitrage.
D) price discrimination.
Answer: D
Diff: 1
224) Price discrimination is the practice of

A) charging different prices for the same good when the price differences are not due to differences in cost.
B) charging different prices for the same good when the price differences arise because of differences in cost.
C) charging different prices for different qualities of a product.
D) charging higher prices for brand named goods and lower prices for generic versions of the goods.
Answer: A
Diff: 1
225) Which of the following is necessary in order for a firm to successfully practice price discrimination?
A) The firm must practice product differentiation.
B) The demand for the firm's product is inelastic.
C) The firm must be able to segment the market for the product.
D) The firm's transactions costs must be zero.
Answer: C
Diff: 2
226) Which of the following is not a requirement for a successful price discrimination strategy?
A) A firm must have the ability to charge a price greater than marginal cost.
B) Some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be
able to know what prices consumers are willing to pay.
C) The firm must be able to prevent arbitrage.
D) Transactions costs must be the same for all consumers.
Answer: D
Diff: 2
227) Which of the following is not a requirement for a successful price discrimination strategy?
A) A firm must have market power.
B) The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a
high price.
C) Managers must practice yield management.
D) Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able
to know what prices consumers are willing to pay.
Answer: C
Diff: 2
228) Which of the following is a reason why a firm would not engage in price discrimination?
A) Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal
prosecution if they engage in price discrimination.
B) Some firms are not able to segment the market for the products they sell.
C) Some firms do not want to violate the law of one price.
D) The transactions costs associated with selling the product exceed the price of the product.
Answer: B
Diff: 2
229) Insurance companies typically charge women lower prices than men for automobile insurance. Is this an example of
price discrimination?
A) No, because, on average, women have better driving records than men and the costs of insuring men are greater than
the costs of insuring women.
B) Yes, because the costs of selling insurance to men and women are the same.
C) Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to
men.
D) No, because there are too many insurance companies for any one company to have market power. A firm must possess
market power in order to practice price discrimination.
Answer: A
Diff: 2
230) Price discrimination is a rational strategy for a profit-maximising firm when

A) it is possible to engage in arbitrage across market segments.
B) it is not possible to segment consumers into identifiable markets.
C) there is no opportunity for arbitrage across market segments.
D) firms want to increase the amount of consumer surplus received by their customers.
Answer: C
Diff: 2
231) One reason why airlines charge business travelers and leisure travelers different prices is
A) business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their
tickets at the last minute.
B) business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they
have a more inelastic demand for airline tickets than business travelers.
C) business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with
airlines for lower fares than leisure travelers pay.
D) business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure
travelers.
Answer: D
Diff: 1
232) Perfect price discrimination is also known as

A) monopoly.
B) first-degree price discrimination.
C) third-degree price discrimination.
D) yield management.
Answer: B
Diff: 1
233) Many universities practice yield management to maximise the revenue they receive from tuition and
A) to maximise the amount of aid they receive from the federal government.
B) to maximise the amount of their student loans.
C) to maximise the size of their endowments.
D) to increase the academic quality of the students who enroll in their schools.
Answer: D
Diff: 1
234) Many universities practice yield management. As a result, they offer different financial aid packages to different
students. One result of yield management is that universities often
A) offer a less generous financial aid package to students who apply for an early admission decision.
B) offer a more generous financial aid package to students who apply for an early admission decision.
C) offer a less generous financial aid package to students with relatively high family incomes.
D) offer a less generous financial aid package to students who don't participate in many extracurricular activities when
they are in high school.
Answer: A
Diff: 2
235) If a firm knew every consumer's willingness to pay and could prevent arbitrage, it could charge every consumer a
different price. This practice is known as
A) first-degree exploitation, or perfect price discrimination.
B) maximisation of producer surplus, or perfect price discrimination.
C) first-degree price discrimination, or perfect price discrimination.
D) first-degree transfer of consumer surplus, or perfect price discrimination.
Answer: C
Diff: 2
236) A price-discriminating firm charges the highest price to

A) the group with the largest demand.
B) the group with the most elastic demand.
C) the group with the least elastic demand.
D) the group with demand that is unit-elastic.
Answer: C
Diff: 2
237) In which market structure is it not possible to practice price discrimination?

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Answer: A
Diff: 1
238) Which of the following is not an example of price discrimination?

A) Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels.
B) Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor.
C) Senior citizens may purchase special fare tickets for public transportation that are not available to others.
D) Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its
customers some of the lower average cost for producing large quantities.
Answer: D
Diff: 2
239) Which of the following products allows the seller to identify different groups of consumers (segment the market) and
practice price discrimination?
A) clothing items sold through Macy's Department Store
B) a hamburger sold at Burger King
C) a cafe latte sold at Starbucks
D) tickets to matinee shows at a movie theatre
Answer: D
Diff: 2
240) Why might a producer practice price discrimination?

A) to make its products more affordable to those with low incomes
B) to maximise economic efficiency
C) to maximise profits
D) to maximise quantity demanded
Answer: C
Diff: 1
241) Which of the following pricing strategies allows a firm to earn economic profit?
A) price discrimination
B) charging a price equal to marginal cost
C) charging a price equal to the average total cost of production
D) charging a price equal to the average variable cost of production
Answer: A
Diff: 2
242) Assume that a monopolist practices perfect price discrimination. The firm's marginal revenue curve will
A) be perfectly elastic.
B) be equal to its demand curve.
C) will be perfectly inelastic.
D) will lie below its demand curve.
Answer: B
Diff: 2
243) Assume that a monopolist practices perfect price discrimination. The firm will produce an output rate
A) that is less than the efficient level of output.
B) that is greater than the efficient level of output.
C) that is equal to the efficient level of output.
D) that converts consumer surplus into a deadweight loss.
Answer: C
Diff: 3
244) If a monopolist practices perfect price discrimination,

A) the firm will break even in the long run.
B) consumer surplus will be equal to the deadweight loss.
C) producer surplus will equal consumer surplus.
D) consumer surplus will be zero.
Answer: D
Diff: 2
245) Which of the following statements about perfect price discrimination is false?
A) There is no consumer surplus if a firm engages in perfect price discrimination.
B) Perfect price discrimination occurs when the seller charges the highest price each consumer would be willing to pay for
the product.
C) A condition for perfect price discrimination is that it must be costlier to service some customers than others.
D) For the price-discriminating firm, its marginal revenue curve coincides with its demand curve.
Answer: C
Diff: 2
246) Suppose that a price-discriminating producer divides its market into two segments. If the firm sells its product at a
price of $34 in the market segment with relatively less-elastic customer demand, the price in the market segment with
more-elastic customer demand will be
A) greater than $34.
B) less than $34.
C) less than marginal revenue in that market segment.
D) equal to marginal revenue in that market segment.
Answer: B
Diff: 2
247) Publishers practice price discrimination when they sell books at high prices to
A) early adopters.
B) local bookstores.
C) large chain bookstores.
D) online book sellers.
Answer: A
Diff: 1
248) The term 'early adopters' refers to

A) firms that are the first to implement a new technology that is used to produce new goods or services.
B) book clubs that are first to recommend best-selling books to their members.
C) consumers who respond quickly to fads, seasonal changes, etc.
D) consumers who are willing to pay high prices to be among the first to own new products.
Answer: D
Diff: 1
249) Consumers who will pay high prices to be among the first to own certain new products are called
A) savvy consumers.
B) naïve consumers.
C) gullible.
D) early adopters.
Answer: D
Diff: 1
Table 9-3
Potential Willingness to Pay
Customer (dollars per hour)
Arun $8
Bernice 9
Cara 10
Dawn 12
Julie plans to start a pet-sitting service. She surveyed her neighbourhood to determine the demand for this service.
Assume that each person surveyed demands only one hour of pet sitting services per period. Table 9-3 above shows a
portion of her survey results.
250) Refer to Table 9-3. If Julie charges $10 per hour, how many hours of pet sitting services will be purchased and by
whom?
A) 2 hours (1 hour by Cara and 1 hour by Dawn)
B) 1 hour by Cara only
C) 1 hour by Dawn only
D) 3 hours (1 hour each by Arun, Bernice and Cara)
Answer: A
Diff: 2
251) Refer to Table 9-3. If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?
A) $2
B) $10
C) $12
D) $22
Answer: A
Diff: 2
252) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7. How
many hours will be purchased and what is her total revenue?
A) 5 hours; total revenue = $35
B) 4 hours; total revenue = $28
C) 3 hours; total revenue = $21
D) 2 hours; total revenue = $14
Answer: B
Diff: 2
253) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7 per
hour. What is her marginal revenue?
A) It is $7 for the first hour and starts declining thereafter.
B) It is $7 for the first hour and starts increasing thereafter.
C) It is constant at $7.
D) It coincides with the figures in the table; $12 for the first hour, $10 for the second, $9 for the third and $8 for the fourth.
Answer: C
Diff: 2
254) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7. What
is the value of the consumer surplus enjoyed by her customers?
A) $39
B) $28
C) $11
D) $0
Answer: C
Diff: 2
255) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge
each customer according to his or her willingness to pay. What is Julie's total revenue and how many hours of service will
be purchased?
A) 4 hours and her total revenue = $39
B) 4 hours and her total revenue = $28
C) 1 hour and her total revenue = $7
D) 5 hours and her total revenue = $35
Answer: A
Diff: 3
256) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge
each customer according to his or her willingness to pay. What is the value of consumer surplus by her customers?
A) $39
B) $28
C) $11
D) $0
Answer: D
Diff: 2
257) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each
customer according to his or her willingness to pay instead of a uniform price of $7. Which of the following statements is
true?
A) Julie is worse off because the demand for her services is reduced.
B) Julie has converted the consumer surplus (from a uniform price) into economic profit.
C) Julie's customers are better off because their consumer surplus has increased.
D) Julie's has converted the producer surplus (from a uniform price) into consumer surplus.
Answer: B
Diff: 2
258) One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its
product. This means that
A) the firm must set different prices for different regions where the product is sold.
B) the firm must be willing to offer price discounts for senior citizens and children.
C) the firm must be able to divide the market in a way that makes arbitrage impossible.
D) the firm must choose a marketing strategy that appeals to different segments of the economy.
Answer: C
Diff: 2
259) A perfectly competitive firm cannot practice price discrimination because

A) a firm that breaks even in the long run cannot afford to engage in yield management.
B) it does not advertise; this prevents the firm from marketing its product to different segments of the market.
C) each consumer in a perfectly competitive market has the same willingness to pay.
D) the firm can only charge the market price.
Answer: D
Diff: 2
260) If price discrimination occurs in a market,

A) the law of one price does not hold.
B) the firm earns arbitrage profits.
C) consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less
elastic.
D) the marginal cost of production is constant.
Answer: A
Diff: 2
261) To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage.
Answer: True False
Diff: 1
262) If a monopolist engages in first-degree price discrimination, it will produce the same output level as a perfectly
competitive industry.
Answer: True False
Diff: 2
263) Because each customer pays according to her willingness to pay, a consumer maximises her consumer surplus under
first-degree price discrimination.
Answer: True False
Diff: 2
264) One reason why McDonald's charges a single price for its products is that it is difficult and costly for the company to
determine each individual consumer's willingness to pay.
Answer: True False
Diff: 2
265) Both first-degree price discrimination and optimal two-part tariff pricing maximise economic surplus.
Answer: True False
Diff: 2
266) Early adopters are consumers who will pay a high price to be among the first to own new products.
Answer: True False
Diff: 2
267) A successful strategy of price discrimination requires that a firm be a price-taker.

Answer: True False
Diff: 1
268) The airline industry routinely engages in price discrimination across time.
Answer: True False
Diff: 2
269) A firm that engages in price discrimination must be able to identify the preferences of every customer it serves.
Answer: True False
Diff: 2
270) Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient
level of output.
Answer: True False
Diff: 2
271) What is the difference between price discrimination and other forms of discrimination?
Answer: Discrimination based on race or gender and other arbitrary characteristics is illegal under civil rights laws.
Price discrimination generally is legal, although it could be illegal under the Robinson-Patman Act if its effect is to reduce
competition in an industry. Price discrimination involves charging people different prices based on differences in their
willingness to pay, when these differences are not due to differences in costs.
Diff: 2
272) Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?
Answer: A price taker has no market power and therefore cannot influence market price. A price maker, on the other
hand, is able to influence market price. As long as a seller cannot influence market price, it will not be able to engage in
price discrimination.
Diff: 2
273) What three conditions must hold for a firm to successfully price discriminate?
Answer: Successful price discrimination has three requirements:
1. A firm must possess market power.
2. Some consumers must have a greater willingness to pay for the product than others; the firm must know the prices
consumers are willing to pay.
3. The firm must be able to segment the market so consumers who buy at a low price cannot resell at a higher price.
Diff: 2
274) What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price
discrimination?
Answer: Perfect price discrimination, also known as first-degree price discrimination, occurs when a firm knows every
consumer's willingness to pay and is able to charge every consumer a different price—the maximum price each is willing
to pay. The firm's marginal revenue curve in this situation is the same as its demand curve, and the firm converts all
potential consumer surplus into profits. It is highly unlikely that any firm would be able to use yield management to
determine each consumer's maximum willingness to pay. It is also unlikely that if the firm charged each consumer a
different price it would prevent arbitrage, where a consumer who bought the product at a low price could sell the product
to another consumer with a higher willingness to pay.
Diff: 2
275) What is yield management? How is yield management being used in the airline industry?
Answer: Yield management is the use of sophisticated models of demand and pricing strategies to maximise revenue
and profits. Yield management is used in the airline industry when airlines vary ticket prices based on the season, length
of route, day of the week, time of day, and type of passengers on the flight.
Diff: 2
276) Are restaurant coupons a form of price discrimination? Why or why not?
Answer: Yes, coupons are a form of price discrimination. People who are willing to take the time to clip coupons have a
higher price elasticity of demand than people who are not. Coupons are a way for firms to cut the price paid by higher
price elasticity consumers—without having to cut the price for everyone else.
Diff: 2
277) Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the
form used by airlines and other industries. Explain.
Answer: Some consumers in some markets are willing to pay a high price to be among the first to buy a new product.
These consumers are called 'early adopters.' Book publishers offer new novels at high prices knowing that some
consumers do not want to wait for a lower price before reading the book. Other consumers who are not early adopters
will buy the novel in hardcover after time has elapsed and the novel's price is lower. Consumers who are content to wait
for a paperback version of the book to be published will pay an even lower price. Publishers achieve higher profits from
the books they sell by segmenting the market over time and charging a higher price to the segment with an inelastic
demand (early adopters) and a lower price to the segment with a more elastic demand (paperback buyers).
Diff: 2
278) Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment
to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a. Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination?
Briefly explain.
b. What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different
price? What happens to consumer surplus in this situation?
Answer: a. This is an example of price discrimination, since it references charging different prices to different
customers for the same product, and the price differences are not due to differences in costs. Determining different
customers' willingness to pay is one of the requirements for successful price discrimination, and this is accomplished by
asking the customers how much they want to pay for the chili.
b. When a firm knows every consumer's willingness to pay, and can charge every consumer a different price, this is
known as perfect price discrimination, or first-degree price discrimination. With perfect price discrimination, there is no
consumer surplus.
Diff: 2
279) Draw a graph that shows producer surplus, consumer surplus, and deadweight loss in a market where the seller
practices perfect price discrimination. Be sure to identify the demand curve, the marginal revenue curve, the marginal
cost curve, and the profit-maximising quantity on the graph.
Answer: The perfect price discriminator sells Q3 units and charges a range of prices along the demand curve—P1 to the
person who is willing to pay P1 for unit Q1, P2 to the person who is willing to pay P2 for unit Q2, and P3 to the person
buying unit Q3, for example. Producer surplus is the entire area of triangle A between the demand and marginal cost
curves. There is no deadweight loss and there is no consumer surplus. The marginal revenue curve equals the demand
curve.
Diff: 2
Figure 9-16
280) Refer to Figure 9-16. Graph (a) represents a monopolist who cannot price discriminate and graph (b) represents a
monopolist practicing perfect price discrimination. On each graph, identify the monopoly price, the monopoly output, the
efficient output, and the areas representing profit, consumer surplus, and deadweight loss.
Answer: In graph (b), the monopoly output is equal to the efficient output, and the consumer surplus and deadweight
loss shown in graph (a) are converted to profit. In graph (a), the monopoly price occurs where demand is equal to the
output where marginal revenue equals marginal cost. In graph (b), a monopolist who practices perfect price
discrimination charges each consumer the price that he or she is willing to pay, so there is not one set monopoly price.
Diff: 2
281) Arnold's Airport Transport provides passenger transportation to and from the local airport. Arnold charges a flat
rate of $30 per person for round-trip service, and he gives a $5 discount to senior citizens. Assume Arnold's marginal cost
is $3.00 per person. Draw two graphs, one showing demand and marginal cost for his $30 customers, of which he has 300
per month, and the other graph showing demand and marginal cost for his senior citizen customers, of which he has 100
per month. If Arnold charged all of his customers $30, he would have 325 customers per month.
Answer:
Diff: 2
1) B
2) C
3) A
4) B
5) C
6) D
7) B
8) C
9) C
10) D
11) D
12) D
13) C
14) D
15) A
16) FALSE
17) FALSE
18) FALSE
19) TRUE
20) TRUE
21) A monopoly is the only seller of a good or service that does not have a close substitute. The firm can't be a monopoly
if a close substitute for its product exists.
22) Because consumers in your town could buy books on the Internet or by driving to another town that has a bookstore,
you would not have a monopoly under the narrow definition of the term. However, because competition from online
sellers and stores in other towns may not be sufficient to eliminate your economic profits in the long run, you may have a
monopoly in the broader sense of the term.
23) B
24) C
25) C
26) C
27) C
28) A
29) A
30) C
31) B
32) D
33) C
34) C
35) C
36) A
37) D
38) C
39) B
40) D
41) C
42) A
43) C
44) C
45) D
46) C
47) C
48) A
49) D
50) B
51) A
52) D
53) B
54) B
55) TRUE
56) TRUE
57) FALSE
58) TRUE
59) FALSE
60) FALSE
61) A network externality exists where the usefulness of the product increases with the number of people who use it. It
can serve as an entry barrier because the popularity of the product attracts more and more consumers, thereby increasing
the supplier's dominance in the market. However, this barrier is not insurmountable. If a rival enters the market with a
superior product, then it is possible that customers will switch to the superior product.
62) A natural monopoly arises when the production function exhibits economies of scale over the relevant range of
market demand. The average cost of production is lower as the output produced increases. Consumers benefit from
having one supplier because the supplier will be able to pass some of the cost savings to consumers.
63) A public franchise is a firm which the government designates as the only legal provider of a good or service. It is
doubtful that most public franchises are natural monopolies. If they were, they wouldn't need the government to restrict
their competitors.
64) 1. Economies of scale. This occurs when a firm faces declining average total cost over the entire range of output that
consumers are willing to buy. When this happens, the larger the firm's output, the smaller its per-unit costs, making it
difficult for small firms to enter the market since the small firms face much higher average costs. Thus, only a single firm
will survive.
2. Government can block entry via legal barriers such as public franchise, government license, patent, or copyright. A
public franchise is a firm the government designates will be the only legal provider of a good or service. A government
license controls entry into particular occupations, professions, and industries. Patents and copyrights grant exclusive
rights to a product that is invented or created.
3. Control over a key resource. If one firm owns the entire (or a great percentage of the) resource needed to produce a
final good, it creates a barrier to entry because it limits other producers' access to that resource.
4. Network externalities in supplying the good or service. If a product becomes more valuable when more people use it,
then firms with larger outputs (networks) may have advantages over smaller firms.
65) A
66) C
67) B
68) C
69) B
70) D
71) C
72) B
73) C
74) C
75) B
76) A
77) C
78) C
79) C
80) B
81) A
82) B
83) A
84) C
85) A
86) B
87) A
88) D
89) B
90) B
91) A
92) C
93) A
94) C
95) B
96) D
97) A
98) A
99) B
100) D
101) A
102) B
103) B
104) C
105) A
106) A
107) C
108) D
109) C
110) TRUE
111) TRUE
112) FALSE
113) TRUE
114) FALSE
115) FALSE
116) FALSE
117) Average revenue is equal to price for any firm but for a monopolist, marginal revenue is always less than price, and
therefore marginal revenue is less than average revenue. For a perfect competitor, marginal revenue is equal to price.
118) The monopolist must lower its price to sell more. Two things happen when a monopolist lowers its price. First,
revenue will tend to rise as the monopolist sells more units and second, revenue will tend to fall because less revenue is
received from each unit than the amount received at the higher price. The total effect on total revenue could be an
increase, a decrease, or no change in total revenue.
119) A supply curve shows the relationship between the price of a product and the quantity that suppliers are willing and
able to supply. The monopolist selects its profit maximising output by equating marginal revenue to marginal cost and
takes the price dictated by the demand curve. Thus, there is no array of prices and quantities supplied.
120) A monopoly's marginal revenue curve lies entirely below its market demand curve and is downward sloping, but a
perfect competitor's marginal revenue curve is the same as its demand curve, which is horizontal at the prevailing market
price.
121) The statement is false. The monopolist cannot choose both the price and quantity. The monopolist has some market
power and therefore has some ability to affect market price but it does not control the demand curve. If the monopolist
sets a price, the quantity sold will be indicated by the demand curve.
122) Profit maximisation is not the same thing as revenue maximisation. To maximise revenue, the firm would produce
up to the point where marginal revenue is zero. Unless marginal cost is zero, this is a larger quantity than the quantity
where marginal revenue equals marginal cost. Maximising production could mean producing the physical maximum
possible. This is likely to be far beyond the profit-maximising level of output.
123) a. Quantity = 50; price = 32
b. Total revenue = 50 × $32 = $1600
c. Total cost = 50 × $20 = $1000
d. Profit = $1600 - $1000 = $600
e. Profit per unit = $32 - $20 = $12
f. If purely competitive, quantity = 80; price = $22
124) a. A = Demand curve; B = Marginal revenue curve; The curve which contains both points Y and Z = Marginal cost
curve; The curve which contains both points V and W = Average total cost curve.
b. Quantity = Q2 units; Price = P3
c. Area 0P3XQ2
d. Area 0P0VQ2
e. Area P0P3XV
f. P3 - P0
g. Quantity = Q4 and Price = P2
h. The triangle XYZ
125) C
126) C
127) C
128) C
129) B
130) C
131) B
132) A
133) C
134) A
135) C
136) C
137) A
138) D
139) A
140) C
141) B
142) B
143) D
144) C
145) B
146) A
147) C
148) D
149) B
150) C
151) D
152) B
153) C
154) C
155) FALSE
156) TRUE
157) TRUE
158) TRUE
159) TRUE
160) FALSE
161) TRUE
162) A monopolist sells a smaller quantity and charges a price greater than the perfectly competitive price.
163) If a perfectly competitive industry is monopolised, consumer surplus will decrease, producer surplus will increase,
and there will be a deadweight loss.
164) Schumpeter did not deny that perfectly competitive firms produced the greatest amount of consumer surplus, but
this result does not address which type of market structure is best for developing new products. Schumpeter pointed to
the large costs of product development; how can small, perfectly competitive firms afford the monetary cost and the risk
of failure that product development requires? Only large firms in monopoly or oligopoly industries can afford
investments in research and development, and the inevitable failures that accompany research. According to Schumpeter,
the higher prices firms with market power charge are less important than the benefits from new products these firms
introduce to the market.
165) B
166) A
167) A
168) B
169) B
170) C
171) B
172) D
173) B
174) A
175) A
176) C
177) D
178) B
179) FALSE
180) TRUE
181) TRUE
182) TRUE
183) FALSE
184) The government control monopolies by enforcing antitrust laws and through economic regulation of natural
monopolies.
185) a. A horizontal merger is a merger between firms in the same industry. A vertical merger is a merger between firms
at different stages of production of a good.
b. Students can offer many different examples.
c. Yes, if there are economies of scale so that the merged firm can produce output at a lower average total cost.
186) a. The defining characteristic is the presence of significant economies of scale such that the average total cost of
production declines over the relevant range of market demand.
b. No, given the importance of economies of scale, society is better off with one big firm producing the output rather
than several small firms.
c. Setting price equal to marginal cost is not feasible because the natural monopoly will incur persistent losses and will
not continue to produce in the long run.
d. An alternative solution is to require average total cost pricing; that is, price is set equal to the average cost of
production (where the average cost includes the opportunity cost of funds invested in the firm by its owners). This will
allow the monopolist to break even on its investment and stay in business.
187) a. Quantity = 835 units and Price = $59.
b. To achieve economic efficiency, the price = $20.
c. The quantity produced = 2204 units.
d. No, the regulated monopoly will make a loss.
e. If the ceiling price is set at $35, the monopoly will produce a quantity of 1740 units and charge the ceiling price of $35.
f. The monopoly will break even.
188) C
189) C
190) B
191) D
192) A
193) B
194) C
195) A
196) A
197) D
198) D
199) B
200) B
201) A
202) C
203) B
204) B
205) C
206) B
207) A
208) B
209) A
210) D
211) C
212) C
213) B
214) D
215) B
216) C
217) C
218) C
219) D
220) C
221) D
222) C
223) D
224) A
225) C
226) D
227) C
228) B
229) A
230) C
231) D
232) B
233) D
234) A
235) C
236) C
237) A
238) D
239) D
240) C
241) A
242) B
243) C
244) D
245) C
246) B
247) A
248) D
249) D
250) A
251) A
252) B
253) C
254) C
255) A
256) D
257) B
258) C
259) D
260) A
261) TRUE
262) TRUE
263) FALSE
264) TRUE
265) TRUE
266) TRUE
267) FALSE
268) FALSE
269) FALSE
270) TRUE
271) Discrimination based on race or gender and other arbitrary characteristics is illegal under civil rights laws. Price
discrimination generally is legal, although it could be illegal under the Robinson-Patman Act if its effect is to reduce
competition in an industry. Price discrimination involves charging people different prices based on differences in their
willingness to pay, when these differences are not due to differences in costs.
272) A price taker has no market power and therefore cannot influence market price. A price maker, on the other hand, is
able to influence market price. As long as a seller cannot influence market price, it will not be able to engage in price
discrimination.
273) Successful price discrimination has three requirements:
1. A firm must possess market power.
2. Some consumers must have a greater willingness to pay for the product than others; the firm must know the prices
consumers are willing to pay.
3. The firm must be able to segment the market so consumers who buy at a low price cannot resell at a higher price.
274) Perfect price discrimination, also known as first-degree price discrimination, occurs when a firm knows every
consumer's willingness to pay and is able to charge every consumer a different price—the maximum price each is willing
to pay. The firm's marginal revenue curve in this situation is the same as its demand curve, and the firm converts all
potential consumer surplus into profits. It is highly unlikely that any firm would be able to use yield management to
determine each consumer's maximum willingness to pay. It is also unlikely that if the firm charged each consumer a
different price it would prevent arbitrage, where a consumer who bought the product at a low price could sell the product
to another consumer with a higher willingness to pay.
275) Yield management is the use of sophisticated models of demand and pricing strategies to maximise revenue and
profits. Yield management is used in the airline industry when airlines vary ticket prices based on the season, length of
route, day of the week, time of day, and type of passengers on the flight.
276) Yes, coupons are a form of price discrimination. People who are willing to take the time to clip coupons have a
higher price elasticity of demand than people who are not. Coupons are a way for firms to cut the price paid by higher
price elasticity consumers—without having to cut the price for everyone else.
277) Some consumers in some markets are willing to pay a high price to be among the first to buy a new product. These
consumers are called 'early adopters.' Book publishers offer new novels at high prices knowing that some consumers do
not want to wait for a lower price before reading the book. Other consumers who are not early adopters will buy the
novel in hardcover after time has elapsed and the novel's price is lower. Consumers who are content to wait for a
paperback version of the book to be published will pay an even lower price. Publishers achieve higher profits from the
books they sell by segmenting the market over time and charging a higher price to the segment with an inelastic demand
(early adopters) and a lower price to the segment with a more elastic demand (paperback buyers).
278) a. This is an example of price discrimination, since it references charging different prices to different customers for
the same product, and the price differences are not due to differences in costs. Determining different customers'
willingness to pay is one of the requirements for successful price discrimination, and this is accomplished by asking the
customers how much they want to pay for the chili.
b. When a firm knows every consumer's willingness to pay, and can charge every consumer a different price, this is
known as perfect price discrimination, or first-degree price discrimination. With perfect price discrimination, there is no
consumer surplus.
279) The perfect price discriminator sells Q3 units and charges a range of prices along the demand curve—P1 to the
person who is willing to pay P1 for unit Q1, P2 to the person who is willing to pay P2 for unit Q2, and P3 to the person
buying unit Q3, for example. Producer surplus is the entire area of triangle A between the demand and marginal cost
curves. There is no deadweight loss and there is no consumer surplus. The marginal revenue curve equals the demand
curve.
280) In graph (b), the monopoly output is equal to the efficient output, and the consumer surplus and deadweight loss
shown in graph (a) are converted to profit. In graph (a), the monopoly price occurs where demand is equal to the output
where marginal revenue equals marginal cost. In graph (b), a monopolist who practices perfect price discrimination
charges each consumer the price that he or she is willing to pay, so there is not one set monopoly price.
281)
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2) If we use a narrow definition of monopoly, then a monopoly is defined as a firm

3) A monopoly is characterised by all of the following except

7) Compared to a monopolistic competitor, a monopolist faces

8) A monopoly differs from monopolistic competition in that

10) Consider the following characteristics:

12) A narrow definition of monopoly is that a firm is a monopoly if it can ignore

13) Using a broad definition, a firm would have a monopoly if

14) A monopoly firm is the only seller of a good or service that

24) Which one of the following about a monopoly is false?

26) A patent or copyright is a barrier to entry based on

27) A public franchise

28) Governments grant patents to encourage

29) Governments grant patents to

31) One reason patent protection is vitally important to pharmaceutical firms is

33) What is a network externality?

34) For a natural monopoly to exist

35) In a natural monopoly, throughout the range of market demand

36) To have a monopoly in an industry there must be

46) Network externalities

50) To be a natural monopoly a firm must

53) If a restaurant was a natural monopoly, its

73) Refer to Figure 9-2. The firm's profit-maximising price is

87) Refer to Figure 9-4. What is the profit-maximising/loss-minimising output level?

93) A monopoly firm's demand curve

94) Which of the following is true for a monopolist?

95) A price maker is

102) Refer to Figure 9-6. The monopolist's total revenue is

103) Refer to Figure 9-6. The monopolist's total cost is

104) Refer to Figure 9-6. The monopolist earns a profit of

105) To maximise profit a monopolist will produce where

108) Which of the following statements is true?

109) The demand curve for a monopoly firm

119) Explain why the monopolist has no supply curve?

126) A profit-maximising monopoly's price is

131) Compared to perfect competition, the consumer surplus in a monopoly

132) Why does a monopoly cause a deadweight loss?

133) Relative to a perfectly competitive market, a monopoly results in

138) Market power refers to

141) A market economy benefits from market power

146) Which of the following statements is true?

169) A possible advantage of a horizontal merger for the economy is that

171) Refer to Figure 9-12. ETSA Power is a natural monopoly because

173) Economic efficiency requires that a natural monopoly's price be

186) a. What is the defining characteristic of a natural monopoly?

187) Refer to Figure 9-14 to answer the following questions.

190) Firms price discriminate

196) Successful price discrimination cannot take place if

197) Consider the following actions undertaken by a firm:

Which of the above will be considered price discrimination?

198) Price discrimination is possible in which of the following market structures?

203) From an economic perspective, price discrimination is desirable because

207) With perfect price discrimination there is

216) With perfect price discrimination, the marginal revenue curve

221) Consider the following pricing strategies:

222) Consider the following pricing strategies:

224) Price discrimination is the practice of

230) Price discrimination is a rational strategy for a profit-maximising firm when

232) Perfect price discrimination is also known as

236) A price-discriminating firm charges the highest price to