TBChap 012

Chapter 12
Pure Monopoly
Multiple Choice Questions
1. One feature of pure monopoly is that the firm is:
A. A producer of products with close substitutes

B. One of several producers of a product
C. A price taker
D. A price maker
2. One defining characteristic of pure monopoly is that:
A. The monopolist is a price taker

B. The monopolist uses advertising
C. The monopolist produces a product with no close substitutes
D. There is relatively easy entry into the industry, but exit is difficult
3. Which phrase would be most characteristic of pure monopoly?
A. Close substitutes
B. Efficient advertiser
C. Price taker
D. Sole seller
4. The classic example of a private unregulated monopoly is:
A. Coca Cola
B. Wham-O (Frisbee)
C. General Motors
D. General Electric
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5. One major barrier to entry under pure monopoly arises from:
A. The availability of close substitutes for a product

B. Ownership of essential resources
C. The price taking ability of the firm
D. Diseconomies of scale
6. Barriers to entry:
A. Usually result in pure competition

B. Can result from government regulation
C. Exist in economic theory but not in the real world
D. Are typically the result of wrongdoing on the part of a firm
7. Which of the following is a barrier to entry?
A. Patents and licenses

B. Buyers' incomes
C. Close substitutes
D. Diminishing marginal returns
8. A monopoly is most likely to emerge and be sustained when:
A. Output demand is relatively elastic

B. Firms have U-shaped, average-total-cost curves
C. Fixed capital costs are small relative to total costs
D. Economies of scale are large relative to market demand
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9.
A firm that has the long-run cost curves shown in the graph above would be able to do or
have the following, except:
A. Exploit economies of scale

B. Have an entry barrier protecting it from new entrants into the market
C. Serve an increasing share of the market at lower and lower unit costs
D. Attain lower unit costs by reducing its output level
10. Natural monopolies result from:
A. Patents and copyrights

B. Pricing strategies
C. Extensive economies of scale in production
D. Control over an essential natural resource
11. Which of the following is not a barrier to entry in an industry?
A. Economies of scale
B. Profit maximization
C. Strategic pricing
D. Government licensing
12. In many large U.S. cities, taxicab companies operate as near monopolies because of:
A. Patents
B. Licenses
C. Economies of scale
D. Strategic pricing
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13. An exclusive legal right as sole producer for 20 years granted to an inventor of a product
is called a:
A. Copyright
B. Franchise
C. Patent
D. License
14. One feature of pure monopoly is that the demand curve:
A. Is vertical
B. Is horizontal
C. Slopes upward
D. Slopes downward
15. The non-discriminating pure monopolist must decrease price on all units of a product
sold in order to sell more units. This explains why:
A. There are barriers to entry in pure monopoly

B. A monopoly has a perfectly elastic demand curve
C. Marginal revenue is less than average revenue
D. Total revenues are greater than total costs at the profit maximizing level of output
16. The demand curve confronting a non-discriminating pure monopolist is:
A. Horizontal
B. The same as the industry's demand curve
C. More elastic than the demand curve confronting a competitive firm
D. Derived by vertically summing the individual demand curves for the buyers
17. Under pure monopoly, a profit-maximizing firm will produce:
A. In the inelastic range of its demand curve

B. In the elastic range of its demand curve
C. Only where marginal costs are decreasing
D. Only where marginal revenue is increasing
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18. Given a downward-sloping linear demand curve, if total revenue decreases as quantity
rises, marginal revenue must be:
A. Positive and demand is elastic

B. Negative and demand is elastic
C. Positive and demand is inelastic
D. Negative and demand is inelastic
19. Given a linear demand curve, at which combination of price and marginal revenue (P,
MR) is the price elasticity of demand greater than 1?
A. P = 15, MR = 8
B. P = 12, MR = 0
C. P = 8, MR = -2
D. P = 4, MR = -4
20. A non-discriminating monopolist will find that marginal revenue:
A. Exceeds average revenue or price

B. Is identical to price
C. Is sometimes greater and sometimes less than price
D. Is less than average revenue or price
21. Assume that a monopolist faces a linear demand curve. If the firm is operating at an
output level where marginal revenue is positive, the firm:
A. Has maximized total revenues

B. Could raise revenues by raising prices
C. Can always increase profits by lowering its price
D. Is operating on the elastic portion of its demand curve
22. Assume that a monopolist faces a linear demand curve and that it produces the output
quantity where total revenue is maximized. At that output, the price elasticity of demand
for the product is:
A. Greater or equal to one

B. Less than one
C. Equal to one
D. Impossible to determine
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23. A pure monopoly firm will never charge a price in the inelastic range of its demand curve
because lowering price to get into this region will:
A. Increase total revenue, increase total cost, and decrease profit

B. Decrease total revenue, increase total cost, and decrease profit
C. Increase total revenue, decrease total cost, and decrease profit
D. Decrease total revenue, total cost, and profit
24. The region of demand in which the monopolist will choose a price-output combination
will be:
A. Inelastic because as price declines and output increases, total revenue will increase
B. Inelastic because as price declines and output increases, total revenue will decrease
C. Elastic because as price declines and output increases, total revenue will decrease
D. Elastic because as price declines and output increases, total revenue will increase
25. In the inelastic portion of a monopolist's demand curve, an increase in price will:
A. Reduce output quantity, increase total revenue, and increase total cost
B. Reduce output quantity, increase total revenue, and decrease total cost
C. Raise output quantity, decrease total revenue, and increase total cost
D. Reduce output quantity, decrease total revenue, and decrease total cost
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26.
Refer to the above graph showing the revenue curves for a monopolist. What price should
be charged in order to maximize total revenue?
A. P1
B. P2
C. P3
D. P4
27.
Refer to the above graph showing the revenue curves for a monopolist. Total revenue will
be greatest at what output level?
A. Q1
B. Q2
C. Q3
D. Q4
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28.
Refer to the above graph showing the revenue curves for a monopolist. The elastic
portion of the demand curve ranges from quantity:
A. 0 to Q4
B. Q2 to Q4
C. 0 to Q3
D. Q3 to Q4
29.
Refer to the above graph showing the revenue curves for a monopolist. At what output
level is demand inelastic?
A. Q1
B. Q2
C. Q3
D. Q4
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30.
Refer to the above graph showing the revenue curves for a monopolist. If it wants to sell
quantity Q1, it must charge a price:
A. P1
B. P2
C. 0
D. Not labeled on the graph
31. The following graph shows a total revenue curve for a monopolist.
Refer to the above graph. The firm's marginal revenue curve must be:
A. Downsloping
B. Constant
C. Upsloping
D. U-shaped
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Refer to the above graph. When the total revenue curve reaches a maximum, marginal
revenue is:
A. Positive
B. Negative
C. Zero
D. Greater than price at that level of output
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Refer to the above graph. When total revenue declines as output expands, demand is:
A. Elastic
B. Inelastic
C. Perfectly inelastic
D. Perfectly elastic
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Refer to the above graph. When total revenue falls as output expands, marginal revenue
is:
A. Positive
B. Negative
C. Zero
D. Greater than demand at that output level
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Refer to the above graph. The profit-maximizing firm will produce in that output level
where total revenue is:
A. Rising
B. Falling
C. Rising and falling
D. Zero
36.
Refer to the above graph showing a linear demand curve for a monopolist. Which of the
following statements is correct?
A. The area 0QVS is greater than the area 0RWT

B. The demand curve has unit price elasticity at W
C. The price elasticity of demand is less at U than at V
D. The price elasticity of demand is greater at W than at V
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37.
Refer to the above graph showing a linear demand curve for a monopolist. In which range
of the demand curve (or output quantity) will the firm operate?
A. To the right of point W

B. Between V and W
C. Between S and T
D. Between quantity 0 and S
38.
Refer to the above graphs of D and MR for a monopolist. Which of the following
statements is true?
A. Demand is elastic at a price of P1

B. Demand is inelastic at a price of P2
C. The price elasticity of demand is constant over the entire demand curve
D. Demand is unitary-elastic over the entire demand curve
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39.
statements is true?
A. A price cut from P1 to P2 would lead to a decrease in consumer spending on the

product
B. A price cut from P1 to P2 would lead to an increase in consumer spending on the
product
C. A price cut from P2 to P3 would lead to no change in consumer spending on the
product
D. A price cut from P2 to P3 would lead to an increase in consumer spending on the
product
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40.
Refer to the above graphs of D and MR for a monopolist. We know that to maximize
profits the firm will set a price:
A. Above P1
B. Below P2
C. Above P2
D. Below P3
41. The table shows the demand schedule facing Nina, a monopolist selling baskets.
Refer to the above table for Nina. What is the change in total revenue if she lowers the
price from $20 to $18?
A. $10
B. $20
C. $30
D. $40
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Refer to the above table for Nina. What is the change in total revenue if she raises the
A. -$300
B. +$300
C. +$120
D. -$120
43.
Which of the above shows the correct relationship between demand and marginal
revenue?
A. A
B. B
C. C
D. D
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44. A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price
must be cut to $7.00. The marginal revenue of the 21st toy is:
A. -$10
B. -$13
C. +$7
D. +$21
45. A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers price to
$14, its total revenue increases by $22. This implies that its sales quantity increases by:
A. 4 units per day

B. 3 units per day
C. 2 units per day
D. 1 unit per day
46. For a monopolist to sell an output level of 10 units, the price must be $8. MR at this
output level will be:
A. > $8 and < $16

B. < $8
C. = $8
D. > $16
47. Answer the question below on the basis of the following demand and cost data for a pure
monopolist.
Refer to the above table. The profit-maximizing price for the monopolist will be:
A. $2.50
B. $2.25
C. $2.00
D. $1.75
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48. Answer the question below on the basis of the following demand and cost data for a pure
monopolist.
Refer to the above table. At equilibrium, the monopolist will realize a:
A. Profit of $10.00
B. Profit of $6.50
C. Profit of $4.50
D. Loss of $7.25
49. At the profit-maximizing level of output for a monopolist:
A. Price is greater than marginal cost

B. Price is greater than average revenue
C. Average total cost equals marginal cost
D. Total revenue is greater than total cost
50. Suppose that a monopolist calculates that at present its output level, marginal revenue is
$1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses
by:
A. Decreasing price and increasing output

B. Increasing price and decreasing output
C. Decreasing price and leaving output unchanged
D. Decreasing output and leaving price unchanged
51. Many people believe that monopolies charge any price they want to without affecting
sales. Instead, the output level for a profit-maximizing monopoly is determined by:
A. Marginal cost = average revenue

B. Marginal revenue = average cost
C. Average total cost = average revenue
D. Marginal cost = marginal revenue
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52. Suppose that a monopolist calculates that at its present output level, marginal cost is
$4.00 and marginal revenue is $5.00. The firm could increase profits by:

D. Decreasing output and leaving prices unchanged
53. The data below relate to a pure monopolist and the product it produces. What is the
profit-maximizing output and price for this monopolist?
A. P = $12; Q = 5
B. P = $14; Q = 4
C. P = $15; Q = 3
D. P = $18; Q = 2
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54.
Refer to the above graph for a profit-maximizing monopolist. The firm will set its price
at:
A. 0J
B. 0G
C. 0K
D. 0H
55.
Refer to the above graph for a profit-maximizing monopolist. The firm will produce the
quantity:
A. 0V
B. 0Y
C. 0T
D. 0X
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56.
Refer to the above graph for a profit-maximizing monopolist. At equilibrium, the firm
will be earning:
A. Positive profits
B. Negative profits
C. Zero profits
D. Profits that cannot be determined from the given graph
57. Pure monopolists:
A. Maximize MR
B. Are price takers
C. Operate where P > MC
D. Face demand curves that are perfectly inelastic
58. A firm will earn economic profits whenever:
A. Marginal revenue exceeds marginal costs

B. Marginal revenue exceeds variable costs
C. Average revenue exceeds average total costs
D. Average revenue exceeds average variable costs
59. The supply curve for a monopoly is:
A. The portion of the marginal cost curve that lies above the average variable cost curve
B. The portion of the marginal cost curve that lies above the average total cost curve
C. The portion of the marginal cost curve that lies above the average fixed cost curve
D. Not clearly defined
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60. The following data show the relationship between output, total costs, and total revenue
for a pure monopoly.
Within which of the following ranges of output will the firm earn maximum economic
profits?
A. 50 to 60 units
B. 60 to 70 units
C. 70 to 80 units
D. 80 to 90 units
61. A profit-maximizing firm should shut down in the short run if the average revenue it
receives is less than:
A. Average variable cost

B. Average total cost
C. Average fixed cost
D. Marginal cost
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62.
A profit-maximizing monopolist facing the situation shown in the graph above should:
A. Shut down in the short run

B. Continue producing to minimize losses
C. Continue producing to make economic profits
D. Continue producing as long as price is greater than marginal cost
63.
At equilibrium, the profit-maximizing monopolist facing the situation shown in the graph
will face a negative:
A. Average revenue
B. Total revenue
C. Marginal revenue
D. Profit
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64. In the short run equilibrium, a monopolist's profits:
A. May be positive, negative, or zero

B. Are positive because of the monopolist's market power
C. Are positive if the product's elasticity of demand is less than 1
D. Are positive if the product's elasticity of demand is greater than 1
65. In response to a cost-reducing technological breakthrough in the production of its

product, a profit-maximizing monopolist will normally:
A. Increase price and decrease production

B. Not change its level of output or price
C. Decrease the price it charges for its product
D. Increase its output and practice price discrimination
66. If marginal costs decrease and the MC curve shifts down, a typical monopolist will:
A. Reduce price and reduce quantity of output

B. Reduce price and increase quantity of output
C. Increase price and reduce quantity of output
D. Increase price and increase quantity of output
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67.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist will
charge a price:
A. 0A
B. 0B
C. 0C
68.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist:
A. Has a loss per unit equal to DE

B. Has total fixed costs equal to area BEFC
C. Earns positive economic profit equal to the area of ABED
D. Will cease production since its economic profits are negative
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69.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist has
total cost equal to area:
A. CADF
B. 0ADQ
C. ADFC
D. 0CFQ
70. Which of the following does not necessarily apply to a pure monopoly?
A. The product the firm produces must have no close substitutes

B. The firm must be the sole producer of a product
C. The firm will charge the highest price possible
D. Entry must be blocked
71. Which statement is correct?
A. In the short run the pure monopolist will maximize total profits by producing at that
level of output where the difference between price and average total cost is greatest
B. In the short run the pure monopolist will charge the highest price it can get for its
product
C. Because of its ability to set its own price, the pure monopolist can increase price and
increase its volume of sales simultaneously
D. Pure monopolists do not always realize positive profits, sometimes they suffer losses
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72. Under which of the following conditions would a profit-maximizing monopolist
necessarily raise price?
A. If product demand was price-elastic

B. If marginal revenue is positive
C. If marginal revenue was greater than marginal cost
D. If marginal cost was greater than marginal revenue
73.
Refer to the graph above. What is the profit-maximizing level of output for this pure
monopolist?
A. A
B. B
C. C
D. D
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74.
Refer to the graph above. At its equilibrium level of output, this monopolist earns:
A. Positive economic profits

B. Negative economic profits
C. Zero economic profits
D. Zero revenues
75. Monopolists are said to be allocatively inefficient because:
A. They produce where MR > MC

B. At the profit-maximizing output price is greater than AVC
C. They produce only the type of product they desire and do not consider the consumer
D. At the profit-maximizing output the marginal benefit of the product to society exceeds
its marginal cost
76. Allocative inefficiency happens in a monopoly because at the profit-maximizing output

level:
A. P > ATC
B. P > MR
C. P > MC
D. P > AVC
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77. A monopoly results in productive inefficiency because at the profit-maximizing output
level:
A. MR is not zero
B. ATC is not at its minimum level
C. MC is not at its minimum level
D. P > AVC
78. When compared with the purely competitive industry with identical costs of production, a
monopolist will produce:
A. More output and charge the same price

B. More output and charge a higher price
C. Less output and charge a higher price
D. Less output and charge the same price
79. Which is a major criticism of a monopoly as a source of allocative inefficiency?
A. A monopolist fails to expand output to the level where the consumers' valuation of an
additional unit is just equal to its opportunity cost
B. A monopolist has no incentive to produce efficiently, because even the inefficient
monopolist can be assured of economic profits
C. A monopolist will always earns profits and that means that prices are too high
D. A monopolist has an unfair advantage because it can purchase labor at a lower price
than competitive firms can
80. A non-discriminating pure monopolist is generally viewed as:
A. Productively efficient, but allocatively inefficient

B. Productively inefficient, but allocatively efficient
C. Both productively and allocatively inefficient
D. Both productively and allocatively efficient
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81.
Refer to the graph above. If the industry were purely competitive, then the market price
would be:
A. $25, which is higher than what the price would have been if the industry were a
monopoly
B. $25, which is lower than what the price would have been if the industry were a
monopoly
C. $20, which is higher than what the price would have been if the industry were a
monopoly
D. $20, which is lower than what the price would have been if the industry were a
monopoly
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82.
Based on the graph above, what is the difference between the purely competitive
equilibrium level of output and the pure monopoly equilibrium level of output?
A. 20
B. 70
C. 90
D. 110
83. Compared to the purely competitive industry, a pure monopoly:
A. Is able to use barriers to entry and maintain positive economic profits in the long run
B. Produces an equal amount of output, but charges higher prices to cover all costs in the
market
C. Is often more efficient from society's perspective because it has big plants and it uses
the newest technology
D. Will always become competitive in the long run because positive economic profits
will induce competitors into the market
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84.
Refer to the graph above for an industry. If the industry were purely competitive, the
output quantity would be:
A. 90
B. 160
C. 195
D. A level that is not labeled in the graph
85.
Refer to the graph above for an industry. If the industry operates as a pure monopoly, the
A. 90
B. 160
C. 195
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86.
market price would be:
A. lower than $8
B. $8
C. $14
D. $16
87.
Refer to the graph above for an industry. If the industry were a pure monopoly, the
product price would be:
A. lower than $8
B. $8
C. $14
D. $16
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88.
Refer to the above graph for an industry. If the industry were served by a pure monopoly,
the price and output quantity would be:
A. P3, Q1
B. P1, Q3
C. P2, Q2
D. P1, Q1
89.
Refer to the above graph for an industry. If the industry was initially a monopoly, but the
monopolist was broken up into a large number of small, purely competitive firms and
production costs remained unchanged, then market price and industry output would be:
A. P3, Q1
B. P1, Q3
C. P2, Q2
D. P1, Q1
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90. Marginal costs of a producer may be very small due to its product's ability to satisfy a
large number of consumers at the same time. This characteristic of a product is called:
B. Rent-seeking
C. Simultaneous consumption
D. Consumer sovereignty
91. With non-rivalrous consumption such as in the case of online music and movies, as more
consumers buy the product:
A. The average cost of the output declines because the marginal cost is very small
B. Marginal cost is low, but the average cost of the output will be rising
C. The average cost of the output will be rising because marginal cost is quite high
D. Marginal cost is quite high, but the average cost of the output will be declining
92. When the value of a product to each user, including existing users, increases due to an
increase in the total number of users, we refer to this as:
A. Income transfer
B. Price discrimination
D. Network effects
93. Network effects and simultaneous consumption tend to foster the development of:
A. Pure competition
B. Monopoly power
C. Net social benefits
D. Allocative efficiency
94. X-inefficiency is said to occur when a monopolist's:
A. Average cost is greater than the minimum possible average cost at a given output level
B. Marginal costs are greater than the minimum possible total costs of producing the
output
C. Total costs are greater than the minimum possible average costs at a given output level
D. Short-run costs of producing any output are greater than the long-run costs
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95. Possible reasons for X-inefficiency include the following, except:
A. Managers may have other goals besides maximizing profits

B. Workers may be poorly motivated or poorly supervised
C. Costs of materials may be rising due to tight supply conditions
D. The firm may be lethargic due to the absence of competition
96. Which of the following statements is correct?
A. Monopoly firms tend to be more internally efficient than competitive firms because
they have a single goal of profit maximization
B. Monopoly firms are sheltered from competitive forces and such an environment
makes them subject to X-inefficiency
C. Monopoly firms are in industries with low barriers to entry that tend to lower the cost
of producing products
D. Competitive firms tend to be more efficient than monopolist firms because they
maximize per unit profits, not total profits
97. Any activity designed to transfer income or wealth to a particular individual or firm at
society's expense is called:
A. Patent protection
B. X-inefficiency
C. Price discrimination
D. Rent-seeking
98. Assume that the owners of the only gambling casino in Wisconsin spend large sums of
money lobbying state government officials to protect their gambling monopoly.
Economists refer to these expenditures as:
A. Rent-seeking
C. X-efficiency
D. Network effects
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99. Many economists agree that government should deal with monopolists on a case-by-case
basis. Policy options include the following, except:
A. If the monopoly is attained and maintained through anticompetitive behavior, the

government can file a suit based on antitrust laws
B. If the firm is a natural monopoly, the government may decide to regulate its prices and
operations
C. If the monopoly is maximizing economic profits, the government should subsidize
new firms to enter the industry
D. If the monopoly is subject, and vulnerable, to potential competition, the government
can decide to leave it alone
100. The economic incentive for price discrimination is based upon:
A. Prejudices of business managers

B. Differences among sellers' costs
C. A desire to evade antitrust legislation
D. Differences among buyers' elasticities of demand
101. To practice long-run price discrimination, a monopolist must:
A. Be a natural monopoly
B. Charge one price to all buyers
C. Permit the resale of the product by the original buyers
D. Be able to separate buyers into different markets with different price elasticities
102. Which of the following statements is true of price discrimination?
A. Successful price discrimination will provide the firm with lower total profits than if it
did not discriminate
B. Successful price discrimination will provide the firm with more profit than if it did
not discriminate
C. Successful price discrimination will generally result in a lower level of output than
would be the case under a single-price monopoly
D. Successful price discrimination occurs when there are differences in the costs of
producing for different groups of buyers
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103. Which is not true of price discrimination?
A. Successful price discrimination requires that different segments of the market have
different demand elasticities
B. Successful price discrimination will provide the firm with more profit than if it does
not discriminate
C. Successful price discrimination implies that the producer can separate customers into
easily identifiable groups
D. Successful price discrimination will generally result in a lower level of output than
104. Which would definitely not be an example of price discrimination?
A. A theater charges children less than adults for a movie

B. Universities charge higher tuition for out-of-state residents
C. A doctor charges for services according to the income of patients
D. An electric power company charges less for electricity used during off-peak hours
when production costs are lower
105. Which case below best represents a case of price discrimination?
A. An insurance company offers discounts to safe drivers

B. A major airline sells tickets to senior citizens at lower prices than to other passengers
C. A professional baseball team pays two players with identical batting averages
different salaries
D. A utility company charges less for electricity used during "off-peak" hours, when it
does not have to operate its less-efficient generating plants
106. Which is the best example of price discrimination?
A. An airline company charging lower fares per pound for air freight than for passengers
B. A telephone company charging lower rates to weekend users than weekday users
C. A supermarket charging lower prices in its city stores than its out-of-the-way rural
store
D. A private doctor charging higher fees to patients receiving special services than
patients receiving regular services
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107. Which is true of a price discriminating pure monopolist?
A. P > MR for the last unit sold

B. Profit will be higher than in the nondiscriminating case
C. The average price will be higher than in the nondiscriminating case
D. Allocative inefficiency will be greater than in the nondiscriminating case
108. Price discrimination is more common in service industries because:
A. Low price buyers will find it virtually impossible to resell the products of such
industries to high price buyers
B. The costs of providing such industries' products to different groups of buyers vary
dramatically
C. The price elasticity of demand is the same for all groups of buyers in these industries
D. All firms in these industries have significant monopoly power over price
109. A price-discriminating monopolist will follow a system where:
A. Buyers with inelastic demand are charged higher prices than buyers with elastic
demand
B. Buyers with inelastic demand are charged lower prices than buyers with elastic
demand
C. All buyers are charged the same price regardless of their elasticity of demand
D. The price of the product is held the same even if the demand changes
110. Consumers who clip and redeem discount coupons:
A. Exhibit the same price elasticity of demand for a given product than consumers who
do not clip and redeem coupons
B. Exhibit a higher price elasticity of demand for a given product than consumers who
C. Exhibit a lower price elasticity of demand for a given product than consumers who
D. Cause total revenue to decrease for firms that issue coupons for their products
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111. Electric companies generally practice price discrimination and charge higher prices for
electricity used for illumination and lower prices for electricity used for heat. These
lower prices for electric heating result primarily from:
A. The existence of good heating substitutes

B. Economies of scale in electric heat generation
C. Prices for electric heat being set at the socially optimal level
D. Strict government regulation of the price charged for electric heat
112. If a price-discriminating monopolist sells the same product in two markets but charges a
higher price in market X and a lower price in market Y, the pricing difference indicates
that demand is:
A. More elastic in market X than market Y

B. Less elastic in market X than market Y
C. Less elastic in market Y than market X
D. The same in both market X and Y
113. Price discrimination for concessions at ball parks is not applied to adults and children
because:
A. Children's demand for food is elastic and adults' demand for food is inelastic
B. Adults' demand for food is elastic and children's demand for food is inelastic
C. There can be exchange of the product from children, who buy it at a lower price, to
adults
D. There can be exchange of the product from adults, who buy it at a lower price, to
children
12-41
114.
Refer to the above cost and demand data for a pure monopolist. Suppose that this
monopoly is subjected to a regulatory commission. If the commission seeks to achieve
the most efficient allocation of resources for this industry, it should set the socially
optimal price at:
A. P1
B. P2
C. P3
D. 0
115. One argument for having the government regulate natural monopolies is that without
regulation:
A. These monopolies usually produce things that are potentially harmful to our health
B. These monopolies produce at a level where marginal benefit is greater than marginal
cost
C. These monopolies produce at a level where marginal benefit is less than marginal
cost
D. The industry would become competitive and there would be too many firms in the
market to achieve efficiency
12-42
116. The following question is based on the demand and cost data for a pure monopolist
given in the table below.
Refer to the above table for a monopolist. A non-discriminating monopolist would

maximize profits at a price and quantity of:
A. $250 and 2 units

B. $200 and 3 units
C. $150 and 4 units
D. $100 and 5 units
Refer to the above table for a monopolist. A non-discriminating monopolist would earn
maximum profits of:
A. $600
B. $500
C. $250
D. $100
12-43
Refer to the above table for a monopolist. If the monopolist perfectly price-
discriminated and sold each unit of the product at the maximum price the buyer of that
unit would be willing to pay, and if the monopolist sold 4 units, then total revenue
would be:
A. $600
B. $900
C. $1000
D. $1400
unit would be willing to pay, and if the monopolist sold 4 units, then total profits would
be:
A. $100
B. $900
C. $150
D. $400
12-44
Refer to the above table. If the monopolist were forced to produce the socially optimal
output through the imposition of a ceiling price, the ceiling price would have to be set
at:
A. $100
B. $150
C. $200
D. $250
121.
Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would
set what price and quantity levels in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
12-45
122.
Refer to the above graph for a pure monopoly. If the government regulated the
monopoly and made the firm set a fair-return price, what price and quantity levels would
we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
123.
monopoly and made it produce the level of output that would achieve allocative
efficiency, what price and quantity levels would we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
12-46
124.
monopoly and made it charge the socially optimal price, this price would be:
A. Higher than the profit-maximizing price

B. Higher than the fair-return price
C. Lower than both the fair-return price and the profit-maximizing price
D. Between the fair-return price and the profit-maximizing price
125.
Refer to the above graph for a pure monopoly. Which pricing model would the
monopolist ______ to earn positive economic profits?
A. Profit-maximizing price only

B. Both profit-maximizing price and fair-return price
C. Both fair-return price and the socially optimal price
D. All three: profit-maximizing, fair return, and socially optimal prices
12-47
126. The problem with socially-optimal pricing regulation of a natural monopoly is that:
A. P < MC
B. P < AVC
C. P < ATC
D. P < MR
127. The problem with adopting a fair-return pricing policy for a natural monopoly is that:
A. Economic profits will be positive

B. Economic profits will be negative
C. It is not productively efficient
D. It is not allocatively efficient
128. An argument for making regulated monopolies adopt marginal cost pricing is that this
would:
A. Increase productive efficiency by making price equal average cost

B. Benefit higher income groups by making monopoly products more affordable
C. Increase managerial incentives to reduce employment and production
D. Make the marginal cost equal to society's valuation of the marginal benefit
129. With a natural monopoly, the fair return price:
A. Is allocatively efficient; the socially optimal price is allocatively inefficient

B. Is allocatively inefficient; the socially optimal price is allocatively efficient
C. And the socially optimal price are both allocatively inefficient
D. And the socially optimal price are both allocatively efficient
12-48
130. What is the meaning of the phrase "dilemma of regulation"?
A. Natural monopolies achieve economies of scale, but charge high prices when there is
no government regulation; government regulation reduces prices, but results in
diseconomies of scale
B. Natural monopolies are profitable, but only if the government permits price
discrimination; government regulation to restrict price discrimination reduces
monopoly prices, but the regulation also reduces monopoly output
C. The fair return price achieves allocative efficiency, but may produce economic
losses; the socially optimal price yields a normal profit but may not be allocatively
efficient
D. The socially optimal price achieves allocative efficiency, but may produce economic
losses; the fair return price yields a normal profit but may not be allocatively efficient
131. Google gained its monopoly power in the market for internet-search service because it:
A. Is a licensed natural monopoly

B. Was first to market and gained consumer loyalty
C. Took over the market from older firms through creative destruction
D. Advertised its services very heavily
132. Google and Amazon have enjoyed barriers to entry in their respective markets due to the
following, except:
A. Network effects among users

B. Economies of scale in operations
C. Loyalty and familiarity of consumers
D. Government licensing and regulation
True / False Questions
133. "Price maker" means that a monopoly can decide whatever price it wants to, in order to
sell a specific given quantity of its product.
True False
134. The government may create barriers to entry that serve to foster monopoly power of
firms.
True False
12-49
135. A patent for a new product or a new business process is typically granted for a hundred
years.
True False
136. A monopolist can use its pricing strategy as a barrier to entry by other firms.
True False
137. A firm sells 99 units of output when price equals $10, and 100 units of output when
price equals $9. Its marginal revenue for the 100th unit of output is negative.
True False
138. The monopolist's demand curve is more elastic than the industry demand curve.
True False
139. At the inelastic portion of a monopolist's demand curve, the marginal revenue of each
extra unit of output is positive.
True False
140. As a monopolist lowers the price of its product from a high level, it finds that its total
revenue may at first increase and then, below a certain price, its total revenue begins to
decrease.
True False
141. A monopolist will avoid setting a price in the elastic segment of the demand curve and
prefer to set the price in the inelastic segment.
True False
142. In order to maximize profits, the monopolist will produce the output level where MR =
MC and charge a price equal to MR and MC.
True False
143. A monopolist, being the sole seller in a market, is assured of positive economic profits.
True False
144. If a monopolist finds itself operating in the inelastic portion of its demand curve, then it
should never lower its price because doing so would reduce its profits.
True False
12-50
145. The supply curve for a monopolist is the upward-sloping portion of the marginal cost
curve that lies above the average variable cost curve.
True False
146. For a monopolist maximum profits will occur when the gap between average revenue
(or price) and average cost is biggest.
True False
147. In the long run equilibrium, a monopolist will earn zero economic profits.
True False
148. In a monopoly at equilibrium, price is greater than marginal cost.
True False
149. A monopolist will try to charge the highest price that it can charge.
True False
150. In an unregulated monopoly at equilibrium, the output level is higher than the
economically efficient level.
True False
151. One of the economic effects of monopoly is an income transfer from consumers to the
firm.
True False
152. Price discrimination is not viable if consumers can resell the products they purchase.
True False
153. In most cases, a monopolist practicing price discrimination will end up earning less
economic profits than a non-discriminating monopolist.
True False
154. A price-discriminating monopolist will set a higher price where demand is more elastic
and a lower price where demand is less elastic.
True False
12-51
155. In a natural monopoly case, the socially-optimal pricing policy rule will often yield a
higher price than the fair-return pricing rule.
True False
156. In a natural monopoly case, the socially-optimal pricing policy rule will often result in
negative economic profits for the firm.
True False
12-52
Chapter 12 Pure Monopoly Answer Key
Multiple Choice Questions
1. One feature of pure monopoly is that the firm is:
A. A producer of products with close substitutes

B. One of several producers of a product
C. A price taker
D. A price maker
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 List the characteristics of pure monopoly.
Topic: An Introduction to Pure Monopoly
2. One defining characteristic of pure monopoly is that:
A. The monopolist is a price taker

B. The monopolist uses advertising
C. The monopolist produces a product with no close substitutes
D. There is relatively easy entry into the industry, but exit is difficult
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
3. Which phrase would be most characteristic of pure monopoly?
A. Close substitutes
B. Efficient advertiser
C. Price taker
D. Sole seller
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-53
4. The classic example of a private unregulated monopoly is:
A. Coca Cola
B. Wham-O (Frisbee)
C. General Motors
D. General Electric
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
5. One major barrier to entry under pure monopoly arises from:
A. The availability of close substitutes for a product

B. Ownership of essential resources
C. The price taking ability of the firm
D. Diseconomies of scale
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-02 List and explain the barriers to entry that shield pure monopolies from competition.
Topic: Barriers to Entry
6. Barriers to entry:
A. Usually result in pure competition

B. Can result from government regulation
C. Exist in economic theory but not in the real world
D. Are typically the result of wrongdoing on the part of a firm
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-54
7. Which of the following is a barrier to entry?
A. Patents and licenses

B. Buyers' incomes
C. Close substitutes
D. Diminishing marginal returns
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
8. A monopoly is most likely to emerge and be sustained when:
A. Output demand is relatively elastic

B. Firms have U-shaped, average-total-cost curves
C. Fixed capital costs are small relative to total costs
D. Economies of scale are large relative to market demand
AACSB: Analytic
Blooms: Understand
12-55
9.
A firm that has the long-run cost curves shown in the graph above would be able to do
or have the following, except:
A. Exploit economies of scale

B. Have an entry barrier protecting it from new entrants into the market
C. Serve an increasing share of the market at lower and lower unit costs
D. Attain lower unit costs by reducing its output level
AACSB: Analytic
Blooms: Understand
10. Natural monopolies result from:
A. Patents and copyrights

B. Pricing strategies
C. Extensive economies of scale in production
D. Control over an essential natural resource
AACSB: Analytic
Blooms: Understand
12-56
11. Which of the following is not a barrier to entry in an industry?
B. Profit maximization
C. Strategic pricing
D. Government licensing
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12. In many large U.S. cities, taxicab companies operate as near monopolies because of:
A. Patents
B. Licenses
C. Economies of scale
D. Strategic pricing
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
13. An exclusive legal right as sole producer for 20 years granted to an inventor of a
product is called a:
A. Copyright
B. Franchise
C. Patent
D. License
AACSB: Analytic
AACSB: Communication
Blooms: Remember
Difficulty: 1 Easy
12-57
14. One feature of pure monopoly is that the demand curve:
A. Is vertical
B. Is horizontal
C. Slopes upward
D. Slopes downward
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain how demand is seen by a pure monopoly.
Topic: Monopoly Demand
15. The non-discriminating pure monopolist must decrease price on all units of a product
sold in order to sell more units. This explains why:
A. There are barriers to entry in pure monopoly

B. A monopoly has a perfectly elastic demand curve
C. Marginal revenue is less than average revenue
D. Total revenues are greater than total costs at the profit maximizing level of output
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
16. The demand curve confronting a non-discriminating pure monopolist is:
A. Horizontal
B. The same as the industry's demand curve
C. More elastic than the demand curve confronting a competitive firm
D. Derived by vertically summing the individual demand curves for the buyers
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-58
17. Under pure monopoly, a profit-maximizing firm will produce:
A. In the inelastic range of its demand curve

B. In the elastic range of its demand curve
C. Only where marginal costs are decreasing
D. Only where marginal revenue is increasing
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
18. Given a downward-sloping linear demand curve, if total revenue decreases as quantity
rises, marginal revenue must be:
A. Positive and demand is elastic

B. Negative and demand is elastic
C. Positive and demand is inelastic
D. Negative and demand is inelastic
AACSB: Analytic
Blooms: Understand
19. Given a linear demand curve, at which combination of price and marginal revenue (P,
MR) is the price elasticity of demand greater than 1?
A. P = 15, MR = 8
B. P = 12, MR = 0
C. P = 8, MR = -2
D. P = 4, MR = -4
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
12-59
20. A non-discriminating monopolist will find that marginal revenue:
A. Exceeds average revenue or price

B. Is identical to price
C. Is sometimes greater and sometimes less than price
D. Is less than average revenue or price
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
21. Assume that a monopolist faces a linear demand curve. If the firm is operating at an
output level where marginal revenue is positive, the firm:
A. Has maximized total revenues

B. Could raise revenues by raising prices
C. Can always increase profits by lowering its price
D. Is operating on the elastic portion of its demand curve
AACSB: Analytic
Blooms: Apply
22. Assume that a monopolist faces a linear demand curve and that it produces the output
quantity where total revenue is maximized. At that output, the price elasticity of
demand for the product is:
A. Greater or equal to one

B. Less than one
C. Equal to one
D. Impossible to determine
AACSB: Analytic
Blooms: Apply
12-60
23. A pure monopoly firm will never charge a price in the inelastic range of its demand
curve because lowering price to get into this region will:
A. Increase total revenue, increase total cost, and decrease profit

B. Decrease total revenue, increase total cost, and decrease profit
C. Increase total revenue, decrease total cost, and decrease profit
D. Decrease total revenue, total cost, and profit
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
24. The region of demand in which the monopolist will choose a price-output combination
will be:
A. Inelastic because as price declines and output increases, total revenue will increase
B. Inelastic because as price declines and output increases, total revenue will decrease
C. Elastic because as price declines and output increases, total revenue will decrease
D. Elastic because as price declines and output increases, total revenue will increase
AACSB: Analytic
Blooms: Remember
25. In the inelastic portion of a monopolist's demand curve, an increase in price will:
A. Reduce output quantity, increase total revenue, and increase total cost
B. Reduce output quantity, increase total revenue, and decrease total cost
C. Raise output quantity, decrease total revenue, and increase total cost
D. Reduce output quantity, decrease total revenue, and decrease total cost
Blooms: Understand
Difficulty: 3 Hard
12-61
26.
Refer to the above graph showing the revenue curves for a monopolist. What price
should be charged in order to maximize total revenue?
A. P1
B. P2
C. P3
D. P4
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-62
27.
Refer to the above graph showing the revenue curves for a monopolist. Total revenue
will be greatest at what output level?
A. Q1
B. Q2
C. Q3
D. Q4
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-63
28.
Refer to the above graph showing the revenue curves for a monopolist. The elastic
portion of the demand curve ranges from quantity:
A. 0 to Q4
B. Q2 to Q4
C. 0 to Q3
D. Q3 to Q4
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-64
29.
Refer to the above graph showing the revenue curves for a monopolist. At what output
level is demand inelastic?
A. Q1
B. Q2
C. Q3
D. Q4
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-65
30.
Refer to the above graph showing the revenue curves for a monopolist. If it wants to
sell quantity Q1, it must charge a price:
A. P1
B. P2
C. 0
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-66
Refer to the above graph. The firm's marginal revenue curve must be:
A. Downsloping
B. Constant
C. Upsloping
D. U-shaped
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-67
Refer to the above graph. When the total revenue curve reaches a maximum, marginal
revenue is:
A. Positive
B. Negative
C. Zero
D. Greater than price at that level of output
AACSB: Analytic
Blooms: Apply
12-68
Refer to the above graph. When total revenue declines as output expands, demand is:
A. Elastic
B. Inelastic
C. Perfectly inelastic
D. Perfectly elastic
AACSB: Analytic
Blooms: Apply
12-69
Refer to the above graph. When total revenue falls as output expands, marginal
revenue is:
A. Positive
B. Negative
C. Zero
D. Greater than demand at that output level
AACSB: Analytic
Blooms: Apply
12-70
Refer to the above graph. The profit-maximizing firm will produce in that output level
where total revenue is:
A. Rising
B. Falling
C. Rising and falling
D. Zero
AACSB: Analytic
Blooms: Apply
12-71
36.
Refer to the above graph showing a linear demand curve for a monopolist. Which of
the following statements is correct?
A. The area 0QVS is greater than the area 0RWT

B. The demand curve has unit price elasticity at W
C. The price elasticity of demand is less at U than at V
D. The price elasticity of demand is greater at W than at V
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-72
37.
Refer to the above graph showing a linear demand curve for a monopolist. In which
range of the demand curve (or output quantity) will the firm operate?
A. To the right of point W

B. Between V and W
C. Between S and T
D. Between quantity 0 and S
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-73
38.
statements is true?
A. Demand is elastic at a price of P1

B. Demand is inelastic at a price of P2
C. The price elasticity of demand is constant over the entire demand curve
D. Demand is unitary-elastic over the entire demand curve
AACSB: Analytic
Blooms: Apply
12-74
39.
statements is true?
A. A price cut from P1 to P2 would lead to a decrease in consumer spending on the

product
B. A price cut from P1 to P2 would lead to an increase in consumer spending on the
product
C. A price cut from P2 to P3 would lead to no change in consumer spending on the
product
D. A price cut from P2 to P3 would lead to an increase in consumer spending on the
product
AACSB: Analytic
Blooms: Apply
12-75
40.
Refer to the above graphs of D and MR for a monopolist. We know that to maximize
profits the firm will set a price:
A. Above P1
B. Below P2
C. Above P2
D. Below P3
AACSB: Analytic
Blooms: Apply
12-76
Refer to the above table for Nina. What is the change in total revenue if she lowers the
A. $10
B. $20
C. $30
D. $40
AACSB: Analytic
Blooms: Apply
Refer to the above table for Nina. What is the change in total revenue if she raises the
A. -$300
B. +$300
C. +$120
D. -$120
AACSB: Analytic
Blooms: Apply
12-77
43.
Which of the above shows the correct relationship between demand and marginal
revenue?
A. A
B. B
C. C
D. D
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
44. A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price
must be cut to $7.00. The marginal revenue of the 21st toy is:
A. -$10
B. -$13
C. +$7
D. +$21
AACSB: Analytic
Blooms: Apply
12-78
45. A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers price
to $14, its total revenue increases by $22. This implies that its sales quantity increases
by:
A. 4 units per day

B. 3 units per day
C. 2 units per day
D. 1 unit per day
AACSB: Analytic
Blooms: Apply
46. For a monopolist to sell an output level of 10 units, the price must be $8. MR at this
output level will be:
A. > $8 and < $16

B. < $8
C. = $8
D. > $16
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-79
47. Answer the question below on the basis of the following demand and cost data for a
pure monopolist.
Refer to the above table. The profit-maximizing price for the monopolist will be:
A. $2.50
B. $2.25
C. $2.00
D. $1.75
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 12-04 Explain how a pure monopoly sets its profit-maximizing output and price.
Topic: Output and Price Determination
48. Answer the question below on the basis of the following demand and cost data for a
pure monopolist.
Refer to the above table. At equilibrium, the monopolist will realize a:
A. Profit of $10.00
B. Profit of $6.50
C. Profit of $4.50
D. Loss of $7.25
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
12-80
49. At the profit-maximizing level of output for a monopolist:
A. Price is greater than marginal cost

B. Price is greater than average revenue
C. Average total cost equals marginal cost
D. Total revenue is greater than total cost
AACSB: Analytic
Blooms: Remember
Difficulty: 3 Hard
50. Suppose that a monopolist calculates that at present its output level, marginal revenue
is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize
losses by:

D. Decreasing output and leaving price unchanged
AACSB: Analytic
Blooms: Understand
51. Many people believe that monopolies charge any price they want to without affecting
sales. Instead, the output level for a profit-maximizing monopoly is determined by:
A. Marginal cost = average revenue

B. Marginal revenue = average cost
C. Average total cost = average revenue
D. Marginal cost = marginal revenue
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-81
52. Suppose that a monopolist calculates that at its present output level, marginal cost is
$4.00 and marginal revenue is $5.00. The firm could increase profits by:

D. Decreasing output and leaving prices unchanged
AACSB: Analytic
Blooms: Apply
53. The data below relate to a pure monopolist and the product it produces. What is the
profit-maximizing output and price for this monopolist?
A. P = $12; Q = 5
B. P = $14; Q = 4
C. P = $15; Q = 3
D. P = $18; Q = 2
AACSB: Analytic
Blooms: Apply
12-82
54.
Refer to the above graph for a profit-maximizing monopolist. The firm will set its
price at:
A. 0J
B. 0G
C. 0K
D. 0H
AACSB: Analytic
Blooms: Apply
12-83
55.
Refer to the above graph for a profit-maximizing monopolist. The firm will produce
the quantity:
A. 0V
B. 0Y
C. 0T
D. 0X
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-84
56.
Refer to the above graph for a profit-maximizing monopolist. At equilibrium, the firm
will be earning:
A. Positive profits
B. Negative profits
C. Zero profits
D. Profits that cannot be determined from the given graph
AACSB: Analytic
Blooms: Apply
57. Pure monopolists:
A. Maximize MR
B. Are price takers
C. Operate where P > MC
D. Face demand curves that are perfectly inelastic
AACSB: Analytic
Blooms: Remember
12-85
58. A firm will earn economic profits whenever:
A. Marginal revenue exceeds marginal costs

B. Marginal revenue exceeds variable costs
C. Average revenue exceeds average total costs
D. Average revenue exceeds average variable costs
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
59. The supply curve for a monopoly is:
A. The portion of the marginal cost curve that lies above the average variable cost
curve
B. The portion of the marginal cost curve that lies above the average total cost curve
C. The portion of the marginal cost curve that lies above the average fixed cost curve
D. Not clearly defined
AACSB: Analytic
Blooms: Understand
60. The following data show the relationship between output, total costs, and total revenue
for a pure monopoly.
Within which of the following ranges of output will the firm earn maximum economic
profits?
A. 50 to 60 units
B. 60 to 70 units
C. 70 to 80 units
D. 80 to 90 units
AACSB: Analytic
12-86
Blooms: Apply
61. A profit-maximizing firm should shut down in the short run if the average revenue it
receives is less than:
A. Average variable cost

B. Average total cost
C. Average fixed cost
D. Marginal cost
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
62.
A profit-maximizing monopolist facing the situation shown in the graph above

should:
A. Shut down in the short run

B. Continue producing to minimize losses
C. Continue producing to make economic profits
D. Continue producing as long as price is greater than marginal cost
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
12-87
63.
At equilibrium, the profit-maximizing monopolist facing the situation shown in the

graph will face a negative:
A. Average revenue
B. Total revenue
C. Marginal revenue
D. Profit
AACSB: Analytic
Blooms: Apply
64. In the short run equilibrium, a monopolist's profits:
A. May be positive, negative, or zero

B. Are positive because of the monopolist's market power
C. Are positive if the product's elasticity of demand is less than 1
D. Are positive if the product's elasticity of demand is greater than 1
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-88
65. In response to a cost-reducing technological breakthrough in the production of its
product, a profit-maximizing monopolist will normally:
A. Increase price and decrease production

B. Not change its level of output or price
C. Decrease the price it charges for its product
D. Increase its output and practice price discrimination
Blooms: Apply
Difficulty: 3 Hard
66. If marginal costs decrease and the MC curve shifts down, a typical monopolist will:
A. Reduce price and reduce quantity of output

B. Reduce price and increase quantity of output
C. Increase price and reduce quantity of output
D. Increase price and increase quantity of output
Blooms: Apply
12-89
67.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist
will charge a price:
A. 0A
B. 0B
C. 0C
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-90
68.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist:
A. Has a loss per unit equal to DE

B. Has total fixed costs equal to area BEFC
C. Earns positive economic profit equal to the area of ABED
D. Will cease production since its economic profits are negative
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
12-91
69.
Refer to the above graph for a monopolist in short-run equilibrium. This monopolist
has total cost equal to area:
A. CADF
B. 0ADQ
C. ADFC
D. 0CFQ
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
70. Which of the following does not necessarily apply to a pure monopoly?
A. The product the firm produces must have no close substitutes

B. The firm must be the sole producer of a product
C. The firm will charge the highest price possible
D. Entry must be blocked
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-92
71. Which statement is correct?
A. In the short run the pure monopolist will maximize total profits by producing at that
level of output where the difference between price and average total cost is greatest
B. In the short run the pure monopolist will charge the highest price it can get for its
product
C. Because of its ability to set its own price, the pure monopolist can increase price
and increase its volume of sales simultaneously
D. Pure monopolists do not always realize positive profits, sometimes they suffer
losses
AACSB: Analytic
Blooms: Understand
72. Under which of the following conditions would a profit-maximizing monopolist

necessarily raise price?
A. If product demand was price-elastic

B. If marginal revenue is positive
C. If marginal revenue was greater than marginal cost
D. If marginal cost was greater than marginal revenue
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-93
73.
Refer to the graph above. What is the profit-maximizing level of output for this pure
monopolist?
A. A
B. B
C. C
D. D
AACSB: Analytic
Blooms: Apply
12-94
74.
Refer to the graph above. At its equilibrium level of output, this monopolist earns:
A. Positive economic profits

B. Negative economic profits
C. Zero economic profits
D. Zero revenues
AACSB: Analytic
Blooms: Apply
75. Monopolists are said to be allocatively inefficient because:
A. They produce where MR > MC

B. At the profit-maximizing output price is greater than AVC
C. They produce only the type of product they desire and do not consider the
consumer
D. At the profit-maximizing output the marginal benefit of the product to society
exceeds its marginal cost
AACSB: Analytic
Blooms: Understand
Learning Objective: 12-05 Discuss the economic effects of monopoly.
Topic: Economic Effects of Monopoly
12-95
76. Allocative inefficiency happens in a monopoly because at the profit-maximizing
output level:
A. P > ATC
B. P > MR
C. P > MC
D. P > AVC
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
77. A monopoly results in productive inefficiency because at the profit-maximizing output

level:
A. MR is not zero
B. ATC is not at its minimum level
C. MC is not at its minimum level
D. P > AVC
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
78. When compared with the purely competitive industry with identical costs of
production, a monopolist will produce:
A. More output and charge the same price

B. More output and charge a higher price
C. Less output and charge a higher price
D. Less output and charge the same price
AACSB: Analytic
Blooms: Remember
12-96
79. Which is a major criticism of a monopoly as a source of allocative inefficiency?
A. A monopolist fails to expand output to the level where the consumers' valuation of
an additional unit is just equal to its opportunity cost
B. A monopolist has no incentive to produce efficiently, because even the inefficient
monopolist can be assured of economic profits
C. A monopolist will always earns profits and that means that prices are too high
D. A monopolist has an unfair advantage because it can purchase labor at a lower
price than competitive firms can
AACSB: Analytic
Blooms: Understand
80. A non-discriminating pure monopolist is generally viewed as:
A. Productively efficient, but allocatively inefficient

B. Productively inefficient, but allocatively efficient
C. Both productively and allocatively inefficient
D. Both productively and allocatively efficient
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-97
81.
Refer to the graph above. If the industry were purely competitive, then the market
price would be:
A. $25, which is higher than what the price would have been if the industry were a
monopoly
B. $25, which is lower than what the price would have been if the industry were a
monopoly
C. $20, which is higher than what the price would have been if the industry were a
monopoly
D. $20, which is lower than what the price would have been if the industry were a
monopoly
AACSB: Analytic
Blooms: Apply
12-98
82.
Based on the graph above, what is the difference between the purely competitive
equilibrium level of output and the pure monopoly equilibrium level of output?
A. 20
B. 70
C. 90
D. 110
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
83. Compared to the purely competitive industry, a pure monopoly:
A. Is able to use barriers to entry and maintain positive economic profits in the long
run
B. Produces an equal amount of output, but charges higher prices to cover all costs in
the market
C. Is often more efficient from society's perspective because it has big plants and it
uses the newest technology
D. Will always become competitive in the long run because positive economic profits
will induce competitors into the market
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-99
84.
A. 90
B. 160
C. 195
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-100
85.
Refer to the graph above for an industry. If the industry operates as a pure monopoly,
the output quantity would be:
A. 90
B. 160
C. 195
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-101
86.
market price would be:
A. lower than $8
B. $8
C. $14
D. $16
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-102
87.
Refer to the graph above for an industry. If the industry were a pure monopoly, the
product price would be:
A. lower than $8
B. $8
C. $14
D. $16
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12-103
88.
Refer to the above graph for an industry. If the industry were served by a pure
monopoly, the price and output quantity would be:
A. P3, Q1
B. P1, Q3
C. P2, Q2
D. P1, Q1
AACSB: Analytic
Blooms: Apply
12-104
89.
Refer to the above graph for an industry. If the industry was initially a monopoly, but
the monopolist was broken up into a large number of small, purely competitive firms
and production costs remained unchanged, then market price and industry output
would be:
A. P3, Q1
B. P1, Q3
C. P2, Q2
D. P1, Q1
AACSB: Analytic
Blooms: Apply
90. Marginal costs of a producer may be very small due to its product's ability to satisfy a
large number of consumers at the same time. This characteristic of a product is called:
B. Rent-seeking
D. Consumer sovereignty
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-105
91. With non-rivalrous consumption such as in the case of online music and movies, as
more consumers buy the product:
A. The average cost of the output declines because the marginal cost is very small
B. Marginal cost is low, but the average cost of the output will be rising
C. The average cost of the output will be rising because marginal cost is quite high
D. Marginal cost is quite high, but the average cost of the output will be declining
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
92. When the value of a product to each user, including existing users, increases due to an
increase in the total number of users, we refer to this as:
A. Income transfer
D. Network effects
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
93. Network effects and simultaneous consumption tend to foster the development of:
A. Pure competition
B. Monopoly power
C. Net social benefits
D. Allocative efficiency
Blooms: Apply
12-106
94. X-inefficiency is said to occur when a monopolist's:
A. Average cost is greater than the minimum possible average cost at a given output
level
B. Marginal costs are greater than the minimum possible total costs of producing the
output
C. Total costs are greater than the minimum possible average costs at a given output
level
D. Short-run costs of producing any output are greater than the long-run costs
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
95. Possible reasons for X-inefficiency include the following, except:
A. Managers may have other goals besides maximizing profits

B. Workers may be poorly motivated or poorly supervised
C. Costs of materials may be rising due to tight supply conditions
D. The firm may be lethargic due to the absence of competition
AACSB: Analytic
Blooms: Understand
96. Which of the following statements is correct?
A. Monopoly firms tend to be more internally efficient than competitive firms because
they have a single goal of profit maximization
B. Monopoly firms are sheltered from competitive forces and such an environment
makes them subject to X-inefficiency
C. Monopoly firms are in industries with low barriers to entry that tend to lower the
cost of producing products
D. Competitive firms tend to be more efficient than monopolist firms because they
maximize per unit profits, not total profits
AACSB: Analytic
Blooms: Understand
12-107
97. Any activity designed to transfer income or wealth to a particular individual or firm at
society's expense is called:
A. Patent protection
B. X-inefficiency
C. Price discrimination
D. Rent-seeking
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
98. Assume that the owners of the only gambling casino in Wisconsin spend large sums of
money lobbying state government officials to protect their gambling monopoly.
Economists refer to these expenditures as:
A. Rent-seeking
C. X-efficiency
D. Network effects
AACSB: Analytic
Blooms: Apply
99. Many economists agree that government should deal with monopolists on a case-by-
case basis. Policy options include the following, except:
A. If the monopoly is attained and maintained through anticompetitive behavior, the

government can file a suit based on antitrust laws
B. If the firm is a natural monopoly, the government may decide to regulate its prices
and operations
C. If the monopoly is maximizing economic profits, the government should subsidize
new firms to enter the industry
D. If the monopoly is subject, and vulnerable, to potential competition, the
government can decide to leave it alone
AACSB: Analytic
Blooms: Understand
12-108
100. The economic incentive for price discrimination is based upon:
A. Prejudices of business managers

B. Differences among sellers' costs
C. A desire to evade antitrust legislation
D. Differences among buyers' elasticities of demand
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-06 Describe why a monopolist might prefer to charge different prices in different markets.
Topic: Price Discrimination
101. To practice long-run price discrimination, a monopolist must:
A. Be a natural monopoly
B. Charge one price to all buyers
C. Permit the resale of the product by the original buyers
D. Be able to separate buyers into different markets with different price elasticities
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
102. Which of the following statements is true of price discrimination?
A. Successful price discrimination will provide the firm with lower total profits than if
it did not discriminate
B. Successful price discrimination will provide the firm with more profit than if it did
not discriminate
C. Successful price discrimination will generally result in a lower level of output than
D. Successful price discrimination occurs when there are differences in the costs of
producing for different groups of buyers
AACSB: Analytic
Blooms: Understand
12-109
103. Which is not true of price discrimination?
A. Successful price discrimination requires that different segments of the market have
different demand elasticities
B. Successful price discrimination will provide the firm with more profit than if it
does not discriminate
C. Successful price discrimination implies that the producer can separate customers
into easily identifiable groups
D. Successful price discrimination will generally result in a lower level of output than
AACSB: Analytic
Blooms: Remember
104. Which would definitely not be an example of price discrimination?
A. A theater charges children less than adults for a movie

B. Universities charge higher tuition for out-of-state residents
C. A doctor charges for services according to the income of patients
D. An electric power company charges less for electricity used during off-peak hours
when production costs are lower
Blooms: Apply
105. Which case below best represents a case of price discrimination?
A. An insurance company offers discounts to safe drivers

B. A major airline sells tickets to senior citizens at lower prices than to other
passengers
C. A professional baseball team pays two players with identical batting averages
different salaries
D. A utility company charges less for electricity used during "off-peak" hours, when it
does not have to operate its less-efficient generating plants
Blooms: Apply
12-110
106. Which is the best example of price discrimination?
A. An airline company charging lower fares per pound for air freight than for
passengers
B. A telephone company charging lower rates to weekend users than weekday users
C. A supermarket charging lower prices in its city stores than its out-of-the-way rural
store
D. A private doctor charging higher fees to patients receiving special services than
patients receiving regular services
Blooms: Apply
107. Which is true of a price discriminating pure monopolist?
A. P > MR for the last unit sold

B. Profit will be higher than in the nondiscriminating case
C. The average price will be higher than in the nondiscriminating case
D. Allocative inefficiency will be greater than in the nondiscriminating case
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
108. Price discrimination is more common in service industries because:
A. Low price buyers will find it virtually impossible to resell the products of such
industries to high price buyers
B. The costs of providing such industries' products to different groups of buyers vary
dramatically
C. The price elasticity of demand is the same for all groups of buyers in these
industries
D. All firms in these industries have significant monopoly power over price
AACSB: Analytic
Blooms: Apply
12-111
109. A price-discriminating monopolist will follow a system where:
A. Buyers with inelastic demand are charged higher prices than buyers with elastic
demand
B. Buyers with inelastic demand are charged lower prices than buyers with elastic
demand
C. All buyers are charged the same price regardless of their elasticity of demand
D. The price of the product is held the same even if the demand changes
AACSB: Analytic
Blooms: Remember
110. Consumers who clip and redeem discount coupons:
A. Exhibit the same price elasticity of demand for a given product than consumers
who do not clip and redeem coupons
B. Exhibit a higher price elasticity of demand for a given product than consumers who
C. Exhibit a lower price elasticity of demand for a given product than consumers who
D. Cause total revenue to decrease for firms that issue coupons for their products
Blooms: Understand
111. Electric companies generally practice price discrimination and charge higher prices for
electricity used for illumination and lower prices for electricity used for heat. These
lower prices for electric heating result primarily from:
A. The existence of good heating substitutes

B. Economies of scale in electric heat generation
C. Prices for electric heat being set at the socially optimal level
D. Strict government regulation of the price charged for electric heat
Blooms: Apply
Difficulty: 3 Hard
12-112
112. If a price-discriminating monopolist sells the same product in two markets but charges
a higher price in market X and a lower price in market Y, the pricing difference
indicates that demand is:
A. More elastic in market X than market Y

B. Less elastic in market X than market Y
C. Less elastic in market Y than market X
D. The same in both market X and Y
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
113. Price discrimination for concessions at ball parks is not applied to adults and children
because:
A. Children's demand for food is elastic and adults' demand for food is inelastic
B. Adults' demand for food is elastic and children's demand for food is inelastic
C. There can be exchange of the product from children, who buy it at a lower price, to
adults
D. There can be exchange of the product from adults, who buy it at a lower price, to
children
Blooms: Apply
12-113
114.
Refer to the above cost and demand data for a pure monopolist. Suppose that this
monopoly is subjected to a regulatory commission. If the commission seeks to achieve
the most efficient allocation of resources for this industry, it should set the socially
optimal price at:
A. P1
B. P2
C. P3
D. 0
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-07 Distinguish between the monopoly price; the socially optimal price; and the fair-return price of a government-
regulated monopoly.
Topic: Regulated Monopoly
115. One argument for having the government regulate natural monopolies is that without
regulation:
A. These monopolies usually produce things that are potentially harmful to our health
B. These monopolies produce at a level where marginal benefit is greater than
marginal cost
C. These monopolies produce at a level where marginal benefit is less than marginal
cost
D. The industry would become competitive and there would be too many firms in the
market to achieve efficiency
AACSB: Analytic
Blooms: Remember
regulated monopoly.
12-114

maximize profits at a price and quantity of:
A. $250 and 2 units

B. $200 and 3 units
C. $150 and 4 units
D. $100 and 5 units
AACSB: Analytic
Blooms: Apply
regulated monopoly.

earn maximum profits of:
A. $600
B. $500
C. $250
D. $100
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
12-115
regulated monopoly.
unit would be willing to pay, and if the monopolist sold 4 units, then total revenue
would be:
A. $600
B. $900
C. $1000
D. $1400
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
regulated monopoly.
12-116
unit would be willing to pay, and if the monopolist sold 4 units, then total profits
would be:
A. $100
B. $900
C. $150
D. $400
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
regulated monopoly.
12-117
Refer to the above table. If the monopolist were forced to produce the socially optimal
output through the imposition of a ceiling price, the ceiling price would have to be set
at:
A. $100
B. $150
C. $200
D. $250
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
regulated monopoly.
12-118
121.
Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would
set what price and quantity levels in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
AACSB: Analytic
Blooms: Apply
regulated monopoly.
12-119
122.
monopoly and made the firm set a fair-return price, what price and quantity levels
would we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
AACSB: Analytic
Blooms: Apply
regulated monopoly.
12-120
123.
monopoly and made it produce the level of output that would achieve allocative
efficiency, what price and quantity levels would we observe in the short run?
A. P1 and Q1
B. P2 and Q3
C. P3 and Q2
D. P4 and Q1
AACSB: Analytic
Blooms: Apply
regulated monopoly.
12-121
124.
monopoly and made it charge the socially optimal price, this price would be:
A. Higher than the profit-maximizing price

B. Higher than the fair-return price
C. Lower than both the fair-return price and the profit-maximizing price
D. Between the fair-return price and the profit-maximizing price
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
regulated monopoly.
12-122
125.
Refer to the above graph for a pure monopoly. Which pricing model would the
monopolist ______ to earn positive economic profits?
A. Profit-maximizing price only

B. Both profit-maximizing price and fair-return price
C. Both fair-return price and the socially optimal price
D. All three: profit-maximizing, fair return, and socially optimal prices
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
regulated monopoly.
126. The problem with socially-optimal pricing regulation of a natural monopoly is that:
A. P < MC
B. P < AVC
C. P < ATC
D. P < MR
Blooms: Understand
Difficulty: 3 Hard
regulated monopoly.
12-123
127. The problem with adopting a fair-return pricing policy for a natural monopoly is that:
A. Economic profits will be positive

B. Economic profits will be negative
C. It is not productively efficient
D. It is not allocatively efficient
Blooms: Understand
regulated monopoly.
128. An argument for making regulated monopolies adopt marginal cost pricing is that this
would:
A. Increase productive efficiency by making price equal average cost

B. Benefit higher income groups by making monopoly products more affordable
C. Increase managerial incentives to reduce employment and production
D. Make the marginal cost equal to society's valuation of the marginal benefit
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
regulated monopoly.
129. With a natural monopoly, the fair return price:
A. Is allocatively efficient; the socially optimal price is allocatively inefficient

B. Is allocatively inefficient; the socially optimal price is allocatively efficient
C. And the socially optimal price are both allocatively inefficient
D. And the socially optimal price are both allocatively efficient
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
regulated monopoly.
12-124
130. What is the meaning of the phrase "dilemma of regulation"?
A. Natural monopolies achieve economies of scale, but charge high prices when there
is no government regulation; government regulation reduces prices, but results in
diseconomies of scale
B. Natural monopolies are profitable, but only if the government permits price
discrimination; government regulation to restrict price discrimination reduces
monopoly prices, but the regulation also reduces monopoly output
C. The fair return price achieves allocative efficiency, but may produce economic
losses; the socially optimal price yields a normal profit but may not be allocatively
efficient
D. The socially optimal price achieves allocative efficiency, but may produce
economic losses; the fair return price yields a normal profit but may not be
allocatively efficient
AACSB: Analytic
Blooms: Remember
regulated monopoly.
131. Google gained its monopoly power in the market for internet-search service because
it:
A. Is a licensed natural monopoly

B. Was first to market and gained consumer loyalty
C. Took over the market from older firms through creative destruction
D. Advertised its services very heavily
Blooms: Apply
132. Google and Amazon have enjoyed barriers to entry in their respective markets due to
the following, except:
A. Network effects among users

B. Economies of scale in operations
C. Loyalty and familiarity of consumers
D. Government licensing and regulation
Blooms: Apply
12-125
True / False Questions
133. "Price maker" means that a monopoly can decide whatever price it wants to, in order
to sell a specific given quantity of its product.
FALSE
AACSB: Analytic
Blooms: Understand
134. The government may create barriers to entry that serve to foster monopoly power of
firms.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
135. A patent for a new product or a new business process is typically granted for a hundred
years.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
136. A monopolist can use its pricing strategy as a barrier to entry by other firms.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-126
137. A firm sells 99 units of output when price equals $10, and 100 units of output when
price equals $9. Its marginal revenue for the 100th unit of output is negative.
TRUE
AACSB: Analytic
Blooms: Apply
138. The monopolist's demand curve is more elastic than the industry demand curve.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
139. At the inelastic portion of a monopolist's demand curve, the marginal revenue of each
extra unit of output is positive.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
140. As a monopolist lowers the price of its product from a high level, it finds that its total
revenue may at first increase and then, below a certain price, its total revenue begins to
decrease.
TRUE
AACSB: Analytic
Blooms: Apply
141. A monopolist will avoid setting a price in the elastic segment of the demand curve and
prefer to set the price in the inelastic segment.
FALSE
AACSB: Analytic
Blooms: Understand
12-127
142. In order to maximize profits, the monopolist will produce the output level where MR =
MC and charge a price equal to MR and MC.
FALSE
AACSB: Analytic
Blooms: Understand
143. A monopolist, being the sole seller in a market, is assured of positive economic
profits.
FALSE
AACSB: Analytic
Blooms: Understand
144. If a monopolist finds itself operating in the inelastic portion of its demand curve, then
it should never lower its price because doing so would reduce its profits.
TRUE
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
145. The supply curve for a monopolist is the upward-sloping portion of the marginal cost
curve that lies above the average variable cost curve.
FALSE
AACSB: Analytic
Blooms: Remember
12-128
146. For a monopolist maximum profits will occur when the gap between average revenue
(or price) and average cost is biggest.
FALSE
AACSB: Analytic
Blooms: Understand
147. In the long run equilibrium, a monopolist will earn zero economic profits.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
148. In a monopoly at equilibrium, price is greater than marginal cost.
TRUE
AACSB: Analytic
Blooms: Remember
149. A monopolist will try to charge the highest price that it can charge.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 3 Hard
150. In an unregulated monopoly at equilibrium, the output level is higher than the
economically efficient level.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12-129
151. One of the economic effects of monopoly is an income transfer from consumers to the
firm.
TRUE
AACSB: Analytic
Blooms: Understand
152. Price discrimination is not viable if consumers can resell the products they purchase.
TRUE
AACSB: Analytic
Blooms: Remember
153. In most cases, a monopolist practicing price discrimination will end up earning less
economic profits than a non-discriminating monopolist.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 3 Hard
154. A price-discriminating monopolist will set a higher price where demand is more elastic
and a lower price where demand is less elastic.
FALSE
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
155. In a natural monopoly case, the socially-optimal pricing policy rule will often yield a
higher price than the fair-return pricing rule.
FALSE
AACSB: Analytic
Blooms: Understand
12-130
regulated monopoly.
156. In a natural monopoly case, the socially-optimal pricing policy rule will often result in
negative economic profits for the firm.
TRUE
AACSB: Analytic
Blooms: Understand
regulated monopoly.
12-131

TBChap 012

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TBChap 012

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Chapter 12

Multiple Choice Questions

1. One feature of pure monopoly is that the firm is:

A. A producer of products with close substitutes

2. One defining characteristic of pure monopoly is that:

A. The monopolist is a price taker

3. Which phrase would be most characteristic of pure monopoly?

4. The classic example of a private unregulated monopoly is:

A. The availability of close substitutes for a product

A. Usually result in pure competition

7. Which of the following is a barrier to entry?

A. Patents and licenses

8. A monopoly is most likely to emerge and be sustained when:

A. Output demand is relatively elastic

A. Exploit economies of scale

10. Natural monopolies result from:

A. Patents and copyrights

11. Which of the following is not a barrier to entry in an industry?

14. One feature of pure monopoly is that the demand curve:

A. There are barriers to entry in pure monopoly

16. The demand curve confronting a non-discriminating pure monopolist is:

17. Under pure monopoly, a profit-maximizing firm will produce:

A. In the inelastic range of its demand curve

A. Positive and demand is elastic

20. A non-discriminating monopolist will find that marginal revenue:

A. Exceeds average revenue or price

A. Has maximized total revenues

A. Greater or equal to one

A. Increase total revenue, increase total cost, and decrease profit

A. The area 0QVS is greater than the area 0RWT

A. To the right of point W

A. Demand is elastic at a price of P1

A. A price cut from P1 to P2 would lead to a decrease in consumer spending on the

A. 4 units per day

A. > $8 and < $16

Refer to the above table. At equilibrium, the monopolist will realize a:

49. At the profit-maximizing level of output for a monopolist:

A. Price is greater than marginal cost

A. Decreasing price and increasing output

A. Marginal cost = average revenue

A. Decreasing price and increasing output

57. Pure monopolists:

58. A firm will earn economic profits whenever:

A. Marginal revenue exceeds marginal costs

59. The supply curve for a monopoly is:

A. Average variable cost

A. Shut down in the short run

A. May be positive, negative, or zero

65. In response to a cost-reducing technological breakthrough in the production of its

A. Increase price and decrease production

A. Reduce price and reduce quantity of output

A. Has a loss per unit equal to DE

A. The product the firm produces must have no close substitutes

71. Which statement is correct?

A. If product demand was price-elastic

A. Positive economic profits

75. Monopolists are said to be allocatively inefficient because:

A. They produce where MR > MC

76. Allocative inefficiency happens in a monopoly because at the profit-maximizing output

A. More output and charge the same price

79. Which is a major criticism of a monopoly as a source of allocative inefficiency?

80. A non-discriminating pure monopolist is generally viewed as:

A. Productively efficient, but allocatively inefficient