Chapter 15

Chapter 15 Monopoly
TRUE/FALSE 1. Monopolists can achieve any level of profit they desire because they have unlimited market power. ANS: F D F: ! "#F: 1$%& NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive !. #ven with market power, monopolists cannot achieve any level of profit they desire because they will sell lower -uantities at hi.her prices. ANS: ' D F: ! "#F: 1$%& NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive /. )ne characteristic of a monopoly market is that the product is virtually identical to products produced by competin. firms. ANS: F D F: ! "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: Definitional 0. 'he fundamental cause of monopolies is barriers to entry. ANS: ' D F: ! "#F: 1$%1 ()*: Monopoly ')+: Monopoly MS*: nterpretive $. NA': Analytic
'he De 1eers Diamond company advertises heavily to promote the sale of all diamonds, not 2ust its own. 'his is evidence that it has a monopoly position to some de.ree. ANS: ' D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive 3. 'he De 1eers Diamond company is not worried about differentiatin. its product from all other .emstones. ANS: F D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive 4. 'he amount of power that a monopoly has depends on whether there are close substitutes for its product. ANS: ' D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive 5. f the A1* company owns the e6clusive ri.hts to mine land in Af.hanistan for (apis (a7uli, a rare stone used in 2ewelry which is found only in Af.hanistan, the company benefits from a barrier to entry. ANS: ' D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: Applicative 8. *opyri.hts and patents are e6amples of barriers to entry that afford firms monopoly pricin. powers. ANS: ' D F: ! "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: +atents MS*: nterpretive 1&. f the .overnment deems a newly invented dru. to be truly ori.inal, the pharmaceutical company is .iven the e6clusive ri.ht to manufacture and sell the dru. for $& years. ANS: F D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: +atents MS*: nterpretive 11. A natural monopoly has economies of scale for most if not all of its ran.e of output. ANS: ' D F: ! "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Natural monopoly MS*: Applicative 1!. Declinin. avera.e total cost with increased production is one of the definin. characteristics of a natural monopoly. ANS: ' D F: 1 "#F: 1$%1 NA': Analytic ()*: Monopoly ')+: Natural monopoly MS*: Definitional
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!/$
*hapter 1$9Monopoly
1/. A monopolist ma6imi7es profit by producin. an output level where mar.inal cost e-uals price. ANS: F D F: ! "#F: 1$%! NA': Analytic ()*: Monopoly ')+: +rofit ma6imi7ation MS*: nterpretive 10. A monopolist produces an output level where mar.inal revenue e-uals mar.inal cost and char.es a price where mar.inal cost e-uals avera.e total cost. ANS: F D F: ! "#F: 1$%! NA': Analytic ()*: Monopoly ')+: +rofit ma6imi7ation MS*: Applicative 1$. Avera.e revenue for a monopoly is the total revenue divided by the -uantity produced. ANS: ' D F: 1 "#F: 1$%! NA': Analytic ()*: Monopoly ')+: Avera.e revenue MS*: Definitional 13. For a monopoly, mar.inal revenue is often .reater than the price they char.e for their .ood. ANS: F D F: 1 "#F: 1$%! NA': Analytic ()*: Monopoly ')+: Mar.inal revenue MS*: nterpretive 14. (ike competitive firms, monopolies choose to produce a -uantity in which mar.inal revenue e-uals mar.inal cost. ANS: ' D F: ! "#F: 1$%! NA': Analytic ()*: Monopoly ')+: +rofit ma6imi7ation MS*: nterpretive 15. (ike competitive firms, monopolies char.e a price e-ual to mar.inal cost. ANS: F D F: ! "#F: 1$%! NA': Analytic ()*: Monopoly ')+: +rofit ma6imi7ation MS*: nterpretive 18. A monopolist produces where + : M* ; M". ANS: ' D F: ! "#F: ()*: Monopoly ')+: +rofit ma6imi7ation !&. A monopolist produces where + ; M* ; M". ANS: F D F: ! "#F: ()*: Monopoly ')+: +rofit ma6imi7ation !1. 1$%! NA': Analytic MS*: nterpretive NA': Analytic MS*: nterpretive
1$%!
A monopolist does not have a supply curve because the firm<s decision about how much to supply is impossible to separate from the demand curve it faces. ANS: ' D F: ! "#F: 1$%! NA': Analytic ()*: Monopoly ')+: Supply curve MS*: nterpretive !!. A monopolist<s supply curve is vertical. ANS: F D F: 1 ()*: Monopoly ')+: Supply curve "#F: 1$%! NA': Analytic MS*: Applicative NA': Analytic MS*: Applicative
!/. A monopolist<s supply curve is hori7ontal. ANS: F D F: 1 "#F: ()*: Monopoly ')+: Supply curve !0.
1$%!
Durin. the life of a dru. patent, the monopoly pharmaceutical firm ma6imi7es profit by producin. the -uantity at which mar.inal revenue e-uals mar.inal cost. ANS: ' D F: 1 "#F: 1$%! NA': Analytic ()*: Monopoly ')+: +rofit ma6imi7ation MS*: nterpretive !$. 'he socially efficient -uantity is found where the demand curve intersects the mar.inal cost curve. ANS: ' D F: ! "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: nterpretive !3. 'he deadwei.ht loss for a monopolist e-uals one%half of its profits for any .iven level of output. ANS: F D F: ! "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: nterpretive
*hapter 1$9Monopoly
!4. A monopoly creates a deadwei.ht loss to society because it earns both short%run and lon.%run positive economic profits. ANS: F D F: ! "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: nterpretive !5. A monopoly creates a deadwei.ht loss to society because it produces less output than the socially efficient level. ANS: ' D F: ! "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: nterpretive !8.
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Suppose a profit%ma6imi7in. monopolist faces a constant mar.inal cost of =1&, produces an output level of 1&& units, and char.es a price of =$&. 'he socially efficient level of output is !&& units. Assume that the demand curve and mar.inal revenue curve are the typical downward%slopin. strai.ht lines. 'he monopoly deadwei.ht loss e-uals =0,&&&. ANS: F D F: / "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: Analytical /&. Suppose a profit%ma6imi7in. monopolist faces a constant mar.inal cost of =1&, produces an output level of 1&& units, and char.es a price of =$&. 'he socially efficient level of output is !&& units. Assume that the demand curve and mar.inal revenue curve are the typical downward%slopin. strai.ht lines. 'he monopoly deadwei.ht loss e-uals =!,&&&. ANS: ' D F: / "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: Analytical /1. Suppose a profit%ma6imi7in. monopolist faces a constant mar.inal cost of =!&, produces an output level of 1&& units, and char.es a price of =$&. 'he socially efficient level of output is !&& units. Assume that the demand curve and mar.inal revenue curve are the typical downward%slopin. strai.ht lines. 'he monopoly deadwei.ht loss e-uals =1,$&&. ANS: ' D F: / "#F: 1$%/ NA': Analytic ()*: Monopoly ')+: Deadwei.ht loss MS*: Analytical /!. n order for a firm to ma6imi7e profits throu.h price discrimination, the firm must have some market power and be able to prevent arbitra.e. ANS: ' D F: ! "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive //. +rice discrimination is prohibited by antitrust laws. ANS: F D F: ! "#F: 1$%0 ()*: Monopoly ')+: +rice discrimination NA': Analytic MS*: nterpretive
/0. A monopolist earns hi.her profits by char.in. one price than by practicin. price discrimination. ANS: F D F: / "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive /$. A monopolist that can practice perfect price discrimination will not impose a deadwei.ht loss on society. ANS: ' D F: / "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +erfect price discrimination MS*: nterpretive /3. 1y sellin. hardcover books to die%hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profits. ANS: ' D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive /4. Movie theatres char.e different prices to different .roups of people based on the differin. mar.inal costs that e6ist from .roup to .roup. ANS: F D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive
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/5.
*hapter 1$9Monopoly
Airlines often separate their customers into business travelers and personal travelers by .ivin. a discount to those travelers who stay over a Saturday ni.ht. ANS: ' D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive /8. >niversity financial aid can be viewed as a type of price discrimination. ANS: ' D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive 0&. 1y offerin. lower prices to customers who buy a lar.e -uantity, a monopoly is price discriminatin.. ANS: ' D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: +rice discrimination MS*: nterpretive 01. ?oods that do not have close substitutes have downward%slopin. demand curves. ANS: ' D F: 1 "#F: 1$%0 NA': Analytic ()*: Monopoly ')+: Demand curve MS*: nterpretive 0!. f the .overnment re.ulates the price a natural monopolist can char.e to be e-ual to the firm<s avera.e total cost, the firm has no incentive to reduce costs. ANS: ' D F: ! "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: "e.ulation MS*: nterpretive 0/. f the .overnment re.ulates the price a natural monopolist can char.e to be e-ual to the firm<s mar.inal cost, the .overnment will likely need to subsidi7e the firm. ANS: ' D F: ! "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: "e.ulation MS*: nterpretive 00. Antitrust laws .ive the @ustice Department the authority to challen.e potential mer.ers between companies in an effort to safe.uard society from monopoly power. ANS: ' D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: Antitrust MS*: nterpretive 0$. Some companies mer.e in order to lower costs throu.h efficient 2oint production. ANS: ' D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: Antitrust MS*: nterpretive 03. A common solution to monopoly in #uropean countries is public ownership. ANS: ' D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive 04. 'he proper level of .overnment intervention is unclear when dealin. with a monopoly. ANS: ' D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: "e.ulation MS*: nterpretive 05. 'he .overnment may choose to do nothin. to reduce monopoly inefficiency because the Afi6B may be worse than the problem. ANS: ' D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: Do nothin. MS*: nterpretive 08. ?overnment intervention always reduces monopoly deadwei.ht loss. ANS: F D F: 1 "#F: 1$%$ NA': Analytic ()*: Monopoly ')+: Do nothin. MS*: nterpretive $&. Firms with substantial monopoly power are -uite common because many .oods are truly uni-ue. ANS: F D F: 1 "#F: 1$%3 NA': Analytic ()*: Monopoly ')+: Monopoly MS*: nterpretive
*hapter 1$9Monopoly
SHORT ANSWER 1.
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Describe how .overnment is involved in creatin. a monopoly. Chy mi.ht the .overnment create oneD ?ive an e6ample.
ANS: 'he .overnment can create a monopoly by .ivin. a sin.le firm the e6clusive ri.ht to produce some .ood. Monopolies are created for many reasons. Chen an industry is characteri7ed by hi.h fi6ed costs, a sin.le firm can usually supply the entire market at a lower cost than havin. multiple firms in the industry. #6amples include most utility companies. 'he .overnment also .rants sole ownership of inventions throu.h patent laws in order to help eliminate the market failure that is likely to otherwise occur in the markets for those .oods. +atents encoura.e creativity and research and development. D F: ')+: ! "#F: +atents E "e.ulation 1$%1 NA': Analytic MS*: Applicative ()*: Monopoly
!. Chat is the definin. characteristic of a natural monopolyD ?ive an e6ample of a natural monopoly. ANS: 'he definin. characteristic of a natural monopoly is when a firm can supply a .ood or service to an entire market at a lower cost than could two or more firms. 'he e6ample in the te6t is a brid.e. D F: ')+: /. ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional ()*: Monopoly
n the market for Fhome heatin.F consumers typically have several options Ge..., electricity, heatin. fuel, natural .as, propane, etc.H, yet we often think of firms in this industry as behavin. like monopolists. Discuss the conte6t in which your electricity provider is a monopolist. s this characteri7ation universally applicableD #6plain your answer.
ANS: n this case, the firms are monopolists in the short run when consumers are unable to chan.e their Fhome heatin.F systems. n the lon. run, consumers can chan.e from electric appliances to natural .as appliances and thus lessen the monopoly power of utility providers. As lon. as consumers are able to substitute, in the lon. run the monopoly pricin. power is reduced. D F: ')+: 0. / Monopoly "#F: 1$%! MS*: Analytical NA': Analytic ()*: Monopoly
'here has been much discussion of dere.ulatin. electricity and natural .as delivery companies in the >nited States. Discuss the likely effect of dere.ulation on prices in these two industries.
ANS: f dere.ulation leads to increased competition, then production and prices should move toward the competitive e-uilibrium. f dere.ulation does not lead to increased competition, then the monopoly production and price outcome is likely. 'he success of dere.ulation movements hin.es on their ability to use markets to promote competitive market outcomes. f the industry is characteri7ed by economies of scale, dere.ulation may worsen rather than improve the market as costs and prices could rise if more than one firm supplies output to the market. D F: ')+: ! "e.ulation "#F: 1$%! MS*: Analytical NA': Analytic ()*: Monopoly
$. #6plain how a profit%ma6imi7in. monopolist chooses its level of output and the price of its .oods. ANS: A profit%ma6imi7in. monopolist produces the output level where mar.inal revenue e-uals mar.inal cost and char.es the correspondin. price from the market demand curve. Note that a monopolist char.es a price that e6ceeds mar.inal cost, unlike a competitive firm, for which price e-uals mar.inal cost. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical ()*: Monopoly
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3.
*hapter 1$9Monopoly
?raphically depict the deadwei.ht loss caused by a monopoly. Iow is this similar to the deadwei.ht loss from ta6ationD
ANS: A profit%ma6imi7in. monopolist will choose to produce J& units of output and sell at price +&. Iowever, mar.inal cost is M*&. 'his is identical to the deadwei.ht loss of ta6ation when the ta6 forces a wed.e between market price and mar.inal cost.
D F: ')+: 4.
! "#F: Deadwei.ht loss
1$%/
NA': Analytic MS*: Analytical
()*: Monopoly
Chat is the deadwei.ht loss due to profit%ma6imi7in. monopoly pricin. under the followin. conditions: 'he price char.ed for .oods produced is =1&. 'he intersection of the mar.inal revenue and mar.inal cost curves occurs where output is 1&& units and mar.inal revenue is =$. 'he socially efficient level of production is 11& units. 'he demand curve is linear and downward slopin., and the mar.inal cost curve is constant.
ANS: 19!KG11&%1&&HKG=1&%=$H ; =!$ D F: ')+: 5. / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative ()*: Monopoly
Assume that a monopolist decides to ma6imi7e revenue rather than profit. Iow does this operatin. ob2ective chan.e the si7e of the deadwei.ht lossD f you are a FbenevolentF mana.er of a monopoly firm and are interested in reducin. the deadwei.ht loss of monopoly, should you ma6imi7e profits or ma6imi7e revenueD #6plain your answer.
ANS: A revenue ma6imi7er operates where M" ; &. 'his solution moves the monopolist closer to the socially optimal competitive outcome and reduces deadwei.ht loss. "evenue ma6imi7ation is potentially a more FsociallyF optimal ob2ective for monopoly markets than profit ma6imi7ation. D F: ')+: / 'otal revenue "#F: 1$%/ NA': Analytic MS*: Analytical ()*: Monopoly
*hapter 1$9Monopoly
8.
!0&
)ne e6ample of price discrimination occurs in the publishin. industry when a publisher initially releases an e6pensive hardcover edition of a popular novel and later releases a cheaper paperback edition. >se this e6ample to demonstrate the benefits and potential pitfalls of a price discrimination pricin. strate.y.
ANS: 'he answer should address the three basic lessons of price discrimination. First, price discrimination is a rational strate.y that can lead to hi.her monopoly profits. Second, price discrimination re-uires an ability to separate customers accordin. to their willin.ness to pay. 'hird, price discrimination can raise economic welfare. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical ()*: Monopoly
1&. Chat are the four ways that .overnment policymakers can respond to the problem of monopolyD ANS: First, the .overnment can try to make monopoli7ed industries more competitive by usin. the power of antitrust laws. Second, the .overnment can re.ulatin. the behavior of monopolies, which usually occurs with natural monopolies. 'hird, the .overnment can own and run a monopoly. Four, the .overnment can do nothin.. D F: ')+: ! ?overnment "#F: 1$%$ MS*: nterpretive NA': Analytic ()*: Monopoly
11. ?ive some e6amples of the benefits and costs of antitrust laws. ANS: 1enefits include promotin. competition by preventin. mer.ers and breakin.%up companies. *osts are that they may increase cost of operatin. if they restrict syner.y mer.ers. D F: ')+: 1!. ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic ()*: Monopoly
n many countries, the .overnment chooses to Finternali7eF the monopoly by ownin. monopoly providers of .oods and services. G n some cases these firms are Fnationali7ed,F and the .overnment actually buys or confiscates firms that operate in monopoly marketsH. Chat would be the advanta.es and disadvanta.es of such an approach to ensure that the Fbest interest of societyF is promoted in these marketsD #6plain your answer.
ANS: As lon. as the .overnment FownerF pursues a production and pricin. policy that approaches a competitive outcome, social well%bein. can be enhanced. n this case the .overnment ownership would benefit society. Iowever, in most cases, .overnment owners operate much like private sector monopolists. 'he political economy of .overnment institutions does not ensure that .overnment owners will pursue socially optimal policy. Also, .overnments have no incentive to reduce costs or innovate. D F: ')+: / ?overnment "#F: 1$%$ MS*: Analytical NA': Analytic ()*: Monopoly
1/. Chy mi.ht economists prefer private ownership of monopolies over public ownership of monopoliesD ANS: 'he private monopolist is .overned by the market. #ven thou.h the market solution is sub%optimal, it may be better than outcomes .enerated by publicly owned monopolies. +ublicly owned monopolies may restrict output to levels below the private market outcome and thus .enerate an even lower level of social surplus than a private profit% ma6imi7in. monopolist. +rivate owners have an incentive to minimi7e cost as lon. as they reap benefits in the form of hi.her profits. ?overnment bureaucrats have no incentive to reduce costs. 'he losers are customers and ta6payers, whose only recourse is the political system. D F: ')+: ! Monopoly "#F: 1$%$ MS*: Analytical NA': Analytic ()*: Monopoly
!01
10.
*hapter 1$9Monopoly
)ne solution to the problems of mar.inal%cost pricin. of a re.ulated natural monopolist is avera.e cost pricin.. n this model, the monopolist is allowed to price its production at avera.e total cost. Iow does avera.e%cost pricin. differ from mar.inal%cost pricin.D Does this solution ma6imi7e social well%bein.D
ANS: >nder avera.e%cost pricin., the monopolist earns 7ero economic profits, but avera.e%cost pricin. does not ensure a socially optimal market solution. >nder mar.inal%mar.inal cost pricin., the monopolist cannot cover its total costs, so it will earn ne.ative economic profits. G"ecall that for a natural monopoly, A'* is declinin. for all relevant -uantities, and M* is below A'*. D F: ')+: / "e.ulation "#F: 1$%$ MS*: nterpretive NA': Analytic ()*: Monopoly
Sec 00 - Monopoly
MULT !LE CHO CE 1. Chich of the followin. statements is correctD a. 1oth a competitive firm and a monopolist are price takers. b. 1oth a competitive firm and a monopolist are price makers. c. A competitive firm is a price taker, whereas a monopolist is a price maker. d. A competitive firm is a price maker, whereas a monopolist is a price taker. D F: ')+: 1 Monopoly "#F: 1$%& MS*: Definitional NA': Analytic
ANS: * ()*: Monopoly !.
)ne difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where a. mar.inal cost e-uals price, while a monopolist produces where price e6ceeds mar.inal cost. b. mar.inal cost e-uals price, while a monopolist produces where mar.inal cost e6ceeds price. c. price e6ceeds mar.inal cost, while a monopolist produces where mar.inal cost e-uals price. d. mar.inal cost e6ceeds price, while a monopolist produces where mar.inal cost e-uals price. D F: ')+: ! Monopoly "#F: 1$%& MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly /.
A monopoly a. can set the price it char.es for its output and earn unlimited profits. b. takes the market price as .iven and earns small but positive profits. c. can set the price it char.es for its output but faces a downward%slopin. demand curve so it cannot earn unlimited profits. d. can set the price it char.es for its output but faces a hori7ontal demand curve so it can earn unlimited profits. D F: ')+: ! Monopoly "#F: 1$%& MS*: nterpretive NA': Analytic
ANS: * ()*: Monopoly 0.
A perfectly competitive market a. may not be in the best interests of society, whereas a monopoly market promotes .eneral economic well%bein. b. promotes .eneral economic well%bein., whereas a monopoly market may not be in the best interests of society. c. and a monopoly market are e-ually likely to promote .eneral economic well%bein.. d. is less likely to promote .eneral economic well%bein. than a monopoly market. D F: ')+: ! Monopoly "#F: 1$%& MS*: nterpretive NA': Analytic
ANS: 1 ()*: Monopoly $.
1ecause monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to ma6imi7e total economic well%bein.. c. inefficient. d. All of the above are correct.
*hapter 1$9Monopoly
ANS: D ()*: Monopoly D F: ')+: ! Monopoly "#F: 1$%& MS*: nterpretive NA': Analytic
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Sec 01 - Monopoly - Why Monopol"e# Ar"#e

MULT !LE CHO CE 1. Chich of the followin. is not a characteristic of a monopolyD a. barriers to entry b. one seller c. one buyer d. a product without close substitutes D F: ')+: 1 Monopoly "#F: 1$%1 MS*: Definitional NA': Analytic
ANS: * ()*: Monopoly !.
'he fundamental source of monopoly power is a. barriers to entry. b. profit. c. decreasin. avera.e total cost. d. a product without close substitutes. D F: ')+: 1 Monopoly "#F: 1$%1 MS*: Applicative NA': Analytic
A monopoly market is characteri7ed by a. many buyers and sellers. b. AnaturalB products. c. barriers to entry. d. a Nash e-uilibrium. D F: ')+: 1 Monopoly "#F: 1$%1 MS*: Definitional NA': Analytic
A benefit of a monopoly is a. lower prices. b. a wide variety of similar products. c. decreasin. lon.%run avera.e total costs. d. .reater creativity by authors who can copyri.ht their novels. D F: ')+: ! Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: D ()*: Monopoly $. GiH GiiH GiiiH GivH
Chich of the followin. are necessary characteristics of a monopolyD 'he firm is the sole seller of its product. 'he firmLs product does not have close substitutes. 'he firm .enerates a lar.e economic profit. 'he firm is located in a small .eo.raphic market. a. b. c. d. GiH and GiiH only GiH and GiiiH only GiH, GiiH, and GiiiH only GiH, GiiH, GiiiH, and GivH D F: ')+: ! Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly 3.
'he simplest way for a monopoly to arise is for a sin.le firm to a. decrease its price below its competitors< prices. b. decrease production to increase demand for its product. c. make pricin. decisions 2ointly with other firms. d. own a key resource. D F: ')+: 1 Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: D ()*: Monopoly
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4.
*hapter 1$9Monopoly
Suppose most people re.ard emeralds, rubies, and sapphires as close substitutes for diamonds. 'hen De1eers, a lar.e diamond company, has a. less incentive to advertise than it would otherwise have. b. less market power than it would otherwise have. c. more control over the price of diamonds than it would otherwise have. d. hi.her profits than it would otherwise have. D F: ')+: ! Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: 1 ()*: Monopoly 5.
Chich of the followin. is not a reason for the e6istence of a monopolyD a. sole ownership of a key resource b. patents c. copyri.hts d. diseconomies of scale D F: ')+: 1 Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: D ()*: Monopoly 8.
Chich of the followin. would be most likely to have monopoly powerD a. a lon.%distance telephone service provider b. a local cable 'M provider c. a lar.e department store d. a .as station D F: ')+: ! Monopoly "#F: 1$%1 MS*: Applicative NA': Analytic
ANS: 1 ()*: Monopoly 1&.
A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oli.opolist. d. a monopolist. D F: ')+: 1 Monopoly "#F: 1$%1 MS*: Definitional NA': Analytic
Most markets are not monopolies in the real world because a. firms usually face downward%slopin. demand curves. b. supply curves slope upward. c. price is usually set e-ual to mar.inal cost by firms. d. there are reasonable substitutes for most .oods. D F: ')+: 1 Monopoly "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: D ()*: Monopoly 1!.
Chich of the followin. is not an e6ample of a barrier to entryD a. Mi.hty Mitch<s Minin. *ompany owns a uni-ue plot of land in 'an7ania, under which lies the only lar.e deposit of 'an7anite in the world. b. A pharmaceutical company obtains a patent for a specific hi.h blood pressure medication. c. A musician obtains a copyri.ht for her ori.inal son.. d. An entrepreneur opens a popular new restaurant. D F: ')+: ! "#F: 1arriers to entry 1$%1 MS*: NA': Analytic Applicative
ANS: D ()*: Monopoly 1/.
Chich of the followin. is not an e6ample of a barrier to entryD a. Mi.hty Mitch<s Minin. *ompany owns a uni-ue plot of land in 'an7ania, under which lies the only lar.e deposit of 'an7anite in the world. b. A colle.e student starts a part%time tutorin. business. c. A novelist obtains a copyri.ht for her new book. d. A ta6i cab driver in New Nork *ity obtains a license to le.ally provide transportation in New Nork *ity. D F: ')+: ! "#F: 1arriers to entry 1$%1 MS*: NA': Analytic Applicative
ANS: 1 ()*: Monopoly
*hapter 1$9Monopoly
10. Chich of the followin. is an e6ample of a barrier to entryD a. 'om char.es a hi.her price than his competitors for his house%paintin. services. b. Dick obtains a copyri.ht for the new computer .ame that he invented. c. Iarry offers free concerts on Sunday afternoons as a form of advertisin.. d. (arry char.es a lower price than his competitors for his lawn%mowin. services. D F: ')+: ! "#F: 1arriers to entry 1$%1 MS*: NA': Analytic Applicative
!00
ANS: 1 ()*: Monopoly 1$.
Chich of the followin. is an e6ample of a barrier to entryD a. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup. b. Mark char.es a lower price to students than to faculty for his tattoo services. c. (uke char.es a hi.her hourly price to business students than to liberal arts students for his economics tutorin.. d. @ohn obtained a copyri.ht for the son. he wrote and recorded. D F: ')+: ! "#F: 1arriers to entry 1$%1 MS*: NA': Analytic Applicative
13. Chich of the followin. is an e6ample of a barrier to entryD GiH A key resource is owned by a sin.le firm. GiiH 'he costs of production make a sin.le producer more efficient than a lar.e number of producers. GiiiH 'he .overnment has .iven the e6istin. monopolist the e6clusive ri.ht to produce the .ood. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH only GiH, GiiH, and GiiiH D F: ')+: 1 "#F: 1arriers to entry 1$%1 MS*: NA': Analytic nterpretive
A fundamental source of monopoly market power arises from a. perfectly elastic demand. b. perfectly inelastic demand. c. barriers to entry. d. availability of FfreeF natural resources, such as water or air. D F: ')+: ! "#F: 1arriers to entry 1$%1 MS*: NA': Analytic nterpretive
'he fundamental cause of monopoly is a. incompetent mana.ement in competitive firms. b. the 7ero%profit feature of lon.%run e-uilibrium in competitive markets. c. advertisin.. d. barriers to entry. D F: ')+: 1 "#F: 1arriers to entry 1$%1 MS*: NA': Analytic nterpretive
Si7able economic profits can persist over time under monopoly if the monopolist a. produces that output where avera.e total cost is at a ma6imum. b. is protected by barriers to entry. c. operates as a price taker rather than a price maker. d. reali7es revenues that e6ceed variable costs. D F: ')+: 1 "#F: 1arriers to entry 1$%1 MS*: NA': Analytic nterpretive
ANS: 1 ()*: Monopoly !&.
+atent and copyri.ht laws are ma2or sources of a. natural monopolies. b. .overnment%created monopolies. c. resource monopolies. d. antitrust re.ulation.
!0$
*hapter 1$9Monopoly
D F: ')+: 1 "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly !1.
#ncoura.in. firms to invest in research and development and individuals to en.a.e in creative endeavors such as writin. novels is one 2ustification for a. resource monopolies. b. natural monopolies. c. .overnment%created monopolies. d. breakin. up monopolies into smaller firms. D F: ')+: 1 "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly !!.
A .overnment%created monopoly arises when a. .overnment spendin. in a certain industry .ives rise to monopoly power. b. the .overnment e6ercises its market control by encoura.in. competition amon. sellers. c. the .overnment .ives a firm the e6clusive ri.ht to sell some .ood or service. d. 1oth a and c are correct. D F: ')+: ! "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly
!/. Chich of the followin. statements is true about patents and copyri.htsD GiH 'hey have benefits and costs. GiiH 'hey lead to hi.her prices. GiiiH 'hey enhance the ability of monopolists to earn above%avera.e profits. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly !0.
'he laws .overnin. patents and copyri.hts a. promote monopolies. b. are intended to serve private interests, not the public<s interest. c. have costs but not benefits. d. eliminate the need for firms to en.a.e in research and development. D F: ')+: ! "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly !$.
A benefit to society of the patent and copyri.ht laws is that those laws a. help to keep prices down. b. help to prevent a sin.le firm from ac-uirin. ownership of a key resource. c. encoura.e creative activity. d. discoura.e e6cessive amounts of output of certain products. D F: ')+: 1 "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly !3.
+atent and copyri.ht laws encoura.e a. creative activity. b. research and development. c. competition amon. firms. d. 1oth a and b are correct. D F: ')+: 1 "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
*hapter 1$9Monopoly
!4. +atent and copyri.ht laws encoura.e a. creative activity. b. lower prices due to decreasin. avera.e total costs. c. competition amon. firms. d. 1oth a and b are correct. D F: ')+: 1 "#F: +atents E *opyri.hts 1$%1 NA': Analytic MS*: nterpretive
!03
ANS: A ()*: Monopoly
!5. Allowin. an inventor to have the e6clusive ri.hts to market her new invention will lead to GiH a product that is priced hi.her than it would be without the e6clusive ri.hts. GiiH desirable behavior in the sense that inventors are encoura.ed to invent. GiiiH hi.her profits for the inventor. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! +atents "#F: 1$%1 MS*: nterpretive NA': Analytic
!8. ?rantin. a pharmaceutical company a patent for a new medicine will lead to GiH a product that is priced hi.her than it would be without the e6clusive ri.hts. GiiH incentives for pharmaceutical companies to invest in research and development. GiiiH hi.her -uantities of output than without the patent. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! +atents "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly /&.
Dru. companies are allowed to be monopolists in the dru.s they discover in order to a. allow dru. companies to char.e a price that is e-ual to their mar.inal cost. b. discoura.e new firms from enterin. the dru. market. c. encoura.e research. d. allow the .overnment to earn patent revenue. D F: ')+: ! +atents "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: * ()*: Monopoly /1.
Authors are allowed to be monopolists in the sale of their books in order to a. encoura.e authors to write more and better books. b. correct for the ne.ative e6ternalities that the nternet and television impose. c. satisfy literary advocacy .roups that e6ercise their lobbyin. power. d. promote a society in which people think for themselves and learn from whichever books they please. D F: ')+: ! *opyri.hts "#F: 1$%1 MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly /!.
Chich of the followin. is a characteristic of a natural monopolyD a. Mar.inal cost declines over lar.e re.ions of output. b. Avera.e total cost declines over lar.e re.ions of output. c. 'he product sold is a natural resource such as diamonds or water. d. All of the above are correct. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
!04
//.
*hapter 1$9Monopoly
Chich of the followin. is a characteristic of a natural monopolyD a. Avera.e cost e6ceeds mar.inal cost over lar.e re.ions of output. b. ncreasin. the number of firms increases each firm<s avera.e total cost. c. )ne firm can supply output at a lower cost than two firms. d. All of the above are correct. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
ANS: D ()*: Monopoly /0.
A natural monopoly occurs when a. the product is sold in its natural state, such as water or diamonds. b. there are economies of scale over the relevant ran.e of output. c. the firm is characteri7ed by a risin. mar.inal cost curve. d. production re-uires the use of free natural resources, such as water or air. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
/$. An industry is a natural monopoly when GiH the .overnment assists the firm in maintainin. the monopoly. GiiH a sin.le firm owns a key resource. GiiiH a sin.le firm can supply a .ood or service to an entire market at a smaller cost than could two or more firms. a. b. c. d. GiiH only GiiiH only GiH and GiiH only GiiH and GiiiH only D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly /3.
Chen a natural monopoly e6ists, it is a. always cost effective for .overnment%owned firms to produce the product. b. never cost effective for one firm to produce the product. c. always cost effective for two or more private firms to produce the product. d. never cost effective for two or more private firms to produce the product. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
'he definin. characteristic of a natural monopoly is a. constant mar.inal cost over the relevant ran.e of output. b. economies of scale over the relevant ran.e of output. c. constant returns to scale over the relevant ran.e of output. d. diseconomies of scale over the relevant ran.e of output. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
Natural monopolies differ from other forms of monopoly because they a. are not sub2ect to barriers to entry. b. are not re.ulated by .overnment. c. .enerally donLt make a profit. d. are .enerally not worried about competition erodin. their monopoly position in the market. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
Chen a firmLs avera.e total cost curve continually declines, the firm is a a. .overnment%created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct.
*hapter 1$9Monopoly
ANS: 1 ()*: Monopoly 0&. D F: ')+: 1 "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
!05
A natural monopolistLs ability to price its product is a. constrained by the market demand curve. b. constrained by market supply. c. not affected by market demand. d. enhanced by re.ulatory control of the .overnment. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly Figure 15-1

Costs
A'*
Quantity
01.
Re$er to F"%&re 15-1. 'he shape of the avera.e total cost curve reveals information about the nature of the barrier to entry that mi.ht e6ist in a monopoly market. Chich of the followin. monopoly types best coincides with the fi.ureD a. ownership of a key resource by a sin.le firm b. natural monopoly c. .overnment%created monopoly d. a patent or copyri.ht monopoly D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Analytical
ANS: 1 ()*: Monopoly 0!.
Re$er to F"%&re 15-1. 'he shape of the avera.e total cost curve in the fi.ure su..ests an opportunity for a profit%ma6imi7in. monopolist to take advanta.e of a. economies of scale. b. diseconomies of scale. c. diminishin. mar.inal product. d. increasin. mar.inal cost. D F: ')+: 1 "#F: Natural monopoly 1$%1 NA': Analytic MS*: Analytical
ANS: A ()*: Monopoly 0/.
Re$er to F"%&re 15-1' *onsiderin. the relationship between avera.e total cost and mar.inal cost, the mar.inal cost curve for this firm a. must lie entirely above the avera.e total cost curve. b. must lie entirely below the avera.e total cost curve. c. must be upward slopin.. d. does not e6ist. D F: ')+: / "#F: Natural monopoly 1$%1 NA': Analytic MS*: Analytical
!08
00.
*hapter 1$9Monopoly
Chen an industry is a natural monopoly, a. it is characteri7ed by constant returns to scale. b. it is characteri7ed by diseconomies of scale. c. a lar.er number of firms may lead to a lower avera.e cost. d. a lar.er number of firms will lead to a hi.her avera.e cost. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
0$. f the distribution of water is a natural monopoly, then GiH multiple firms would likely each have to pay lar.e fi6ed costs to develop their own network of pipes. GiiH allowin. for competition amon. different firms in the water%distribution industry is efficient. GiiiH a sin.le firm can serve the market at the lowest possible avera.e total cost. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiiiH only D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
A firm that is a natural monopoly a. is not likely to be concerned about new entrants erodin. its monopoly power. b. is takin. advanta.e of economies of scale. c. would e6perience a hi.her avera.e total cost if more firms entered the market. d. All of the above are correct. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
A firm that is a natural monopoly a. is not likely to be concerned about new entrants erodin. its monopoly power. b. is takin. advanta.e of diseconomies of scale. c. would e6perience a lower avera.e total cost if more firms entered the market. d. All of the above are correct. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
Additional firms often do not try to compete with a natural monopoly because a. they fear retaliation in the form of pricin. wars from the natural monopolist. b. they are unsure of the si7e of the market in .eneral. c. they know they cannot achieve the same low costs that the natural monopolist en2oys. d. the natural monopoly doesnLt make a hu.e profit. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
Scenario 15-1 *onsider a transportation corporation named *.". #vans that has 2ust completed the development of a new subway system in a medium%si7ed town in the Northwest. *urrently, there are plenty of seats on the subway, and it is never crowded. ts capacity far e6ceeds the needs of the city. After 2ust a few years of operation, the shareholders of *.". #vans e6perienced incredible rates of return on their investment, due to the profitability of the corporation. 08. Re$er to Scenar"o 15-1. Chich of the followin. statements are most likely to be trueD GiH New entrants to the market know they will have a smaller market share than *.". #vans currently has. GiiH *.". #vans is most likely e6periencin. increasin. avera.e total cost. GiiiH *.". #vans is a natural monopoly.
*hapter 1$9Monopoly
a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
!$&
$&. Re$er to Scenar"o 15-1. Chich of the followin. statements are most likely to be trueD GiH New entrants to the market know they will have a smaller market share than *.". #vans currently has. GiiH *.". #vans is most likely e6periencin. decreasin. avera.e total cost. GiiiH *.". #vans is a natural monopoly. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly $1.
Re$er to Scenar"o 15-1. *.". #vans will continue to be a monopolist in the subway transportation industry only if a. population .rowth leads to an overcrowdin. of the subway cars. b. there are no new entrants to the market. c. demand for transportation services decreases. d. All of the above are correct. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly $!.
Chen a sin.le firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a a. resource industry. b. e6clusive industry. c. .overnment monopoly. d. natural monopoly. D F: ')+: 1 "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
ANS: D ()*: Monopoly $/.
A natural monopoly arises when a. there are constant returns to scale over the relevant ran.e of output. b. there are economies of scale over the relevant ran.e of output. c. one firm owns a key natural resource. d. the .overnment .ives a sin.le firm the e6clusive ri.ht to produce a particular .ood or service. D F: ')+: 1 "#F: Natural monopoly 1$%1 NA': Analytic MS*: Definitional
ANS: 1 ()*: Monopoly $0.
Chen a firm has a natural monopoly, the firmLs a. mar.inal cost always e6ceeds its avera.e total cost. b. total cost curve is hori7ontal. c. avera.e total cost curve is downward slopin.. d. mar.inal cost curve must lie above the firm<s avera.e total cost curve. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
!$1
$$.
*hapter 1$9Monopoly
f .overnment officials break a natural monopoly up into several smaller firms, then a. competition will force firms to attain economic profits rather than accountin. profits. b. competition will force firms to produce surplus output, which drives up price. c. the avera.e costs of production will increase. d. the avera.e costs of production will decrease. D F: ')+: ! "#F: Natural monopoly 1$%1 NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly $3.
Chich of the followin. statements is not correctD a. *onsumers will likely benefit in the form of lower prices from buyin. a product made by a natural monopoly than if the market were served by several firms. b. Monopolists typically char.e hi.her prices than competitive firms. c. Monopolists typically produce lar.er -uantities of output than competitive firms. d. *onsumers may benefit from monopolies if the firms invest their hi.her profits into somethin. that benefits society such as medical research. D F: ')+: ! "#F: 1$%1 Monopoly E Natural monopoly NA': Analytic MS*: Applicative
Sec 0( - Monopoly - Ho) Monopol"e# Ma*e !ro+&ct"on an+ !r"c"n% ,ec"#"on#

MULT !LE CHO CE 1. GiH GiiH GiiiH Chich of the followin. statements is GareH true of a monopolyD A monopoly has the ability to set the price of its product at whatever level it desires. A monopolyLs total revenue will always increase when it increases the price of its product. A monopoly can earn unlimited profits. a. b. c. d. GiH only GiiH only GiH and GiiH only GiiH and GiiiH only D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly !.
Noun. @ohnny inherited the only local cable 'M company in town after his father passed away. 'he company is completely unre.ulated by the .overnment and is therefore free to operate as it wishes. Assume that @ohnny understands the true power of his new monopoly. Chich of the followin. statements is GareH correctD GiH Ie will be able to set the price of cable 'M service at whatever level he wishes. GiiH 'he customers will be forced to purchase cable 'M service at whatever price he wants to set. GiiiH Ie will be able to achieve any profit level that he desires. a. b. c. d. GiH only GiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
'he market demand curve for a monopolist is typically a. unit price elastic. b. downward slopin.. c. hori7ontal. d. vertical. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
*hapter 1$9Monopoly
0. Chen a firm operates under conditions of monopoly, its price is a. not constrained. b. constrained by mar.inal cost. c. constrained by demand. d. constrained only by its social a.enda. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
!$!
ANS: * ()*: Monopoly $.
n order to sell more of its product, a monopolist must a. sell to the .overnment. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
#conomists assume that monopolists behave as a. cost minimi7ers. b. profit ma6imi7ers. c. price ma6imi7ers. d. ma6imi7ers of social welfare. D F: ')+: 1 Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
ANS: 1 ()*: Monopoly 4. GiH GiiH GiiiH
1ecause a monopolist is the sole producer in its market, it can necessarily alter the price of its .ood without affectin. the -uantity sold. without affectin. its avera.e total cost. by ad2ustin. the -uantity it supplies to the market. a. b. c. d. GiiH only GiiiH only GiH and GiiH only GiiH and GiiiH only D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
Chen a monopolist decreases the price of its .ood, consumers a. continue to buy the same amount. b. buy more. c. buy less. d. may buy more or less, dependin. on the price elasticity of demand. D F: ')+: ! Monopoly "#F: 1$%! MS*: Analytical NA': Analytic
Chen a monopolist increases the amount of output that it produces and sells, the price of its output a. stays the same. b. increases. c. decreases. d. may increase or decrease dependin. on the price elasticity of demand. D F: ')+: ! Monopoly "#F: 1$%! MS*: Analytical NA': Analytic
ANS: * ()*: Monopoly 1&.
'he supply curve for the monopolist a. is hori7ontal. b. is vertical. c. is upward slopin.. d. does not e6ist. D F: ')+: 1 Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
!$/
11.
*hapter 1$9Monopoly
Chich of the followin. statements is true of a monopoly firmD a. A monopoly firm is a price taker and has no supply curve. b. A monopoly firm is a price maker and has no supply curve c. A monopoly firm is a price maker and has a downward%slopin. supply curve. d. A monopoly firm is a price maker and has an upward%slopin. supply curve. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
Monopolies use their market power to a. char.e prices that e-ual minimum avera.e total cost. b. increase the -uantity sold as they increase price. c. char.e a price that is hi.her than mar.inal cost. d. dump e6cess supplies of their product on the market. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
ANS: * ()*: Monopoly 1/.
n a market characteri7ed by monopoly, the market demand curve is a. upward slopin.. b. hori7ontal. c. downward slopin.. d. vertical. D F: ')+: 1 "#F: Demand curve
Price
ANS: * ()*: Monopoly Figure 15-2

Price
1$%!
NA': Analytic MS*: Definitional

Price
+anel A D
+anel 1
Price
+anel * D
+anel D D
D
Quantity Quantity Quantity Quantity
10.
Re$er to F"%&re 15-(' Chich of the followin. statements is correctD a. +anel * represents the typical demand curve for a perfectly competitive firm, and +anel 1 represents the typical demand curve for a monopoly. b. +anel 1 represents the typical demand curve for a perfectly competitive firm, and +anel * represents the typical demand curve for a monopoly. c. +anel A represents the typical demand curve for a perfectly competitive firm, and +anel 1 represents the typical demand curve for a monopoly. d. +anel * represents the typical demand curve for a perfectly competitive firm, and +anel D represents the typical demand curve for a monopoly. D F: ')+: ! "#F: 1$%! Monopoly E +erfect *ompetition NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly 1$.
Re$er to F"%&re 15-(' Chich of the followin. statements is correctD a. +anel * represents the typical demand curve for a perfectly competitive firm. b. +anel 1 represents the typical demand curve for a monopoly. c. +anel 1 represents the typical demand curve for a perfectly competitive industry. d. All of the above are correct. D F: ')+: ! "#F: 1$%! Monopoly E +erfect *ompetition NA': Analytic MS*: nterpretive
Re$er to F"%&re 15-(' Chich of the followin. statements is correctD a. +anel * represents the typical demand curve for a perfectly competitive industry. b. +anel 1 represents the typical demand curve for a monopoly. c. +anel 1 represents the typical demand curve for a perfectly competitive firm. d. All of the above are correct.
*hapter 1$9Monopoly
ANS: 1 ()*: Monopoly 14. D F: ')+: ! "#F: 1$%! Monopoly E +erfect *ompetition NA': Analytic MS*: nterpretive
!$0
Chich of the followin. statements is correctD a. 'he demand curve facin. a competitive firm is hori7ontal, as is the demand curve facin. a monopolist. b. 'he demand curve facin. a competitive firm is downward slopin., whereas the demand curve facin. a monopolist is hori7ontal. c. 'he demand curve facin. a competitive firm is hori7ontal, whereas the demand curve facin. a monopolist is downward slopin.. d. 'he demand curve facin. a competitive firm is downward slopin., as is the demand curve facin. a monopolist. D F: ')+: 1 "#F: 1$%! Monopoly E +erfect *ompetition NA': Analytic MS*: Applicative
*ompetitive firms have a. downward%slopin. demand curves, and they can sell as much output as they desire at the market price. b. downward%slopin. demand curves, and they can sell only a limited -uantity of output at each price. c. hori7ontal demand curves, and they can sell as much output as they desire at the market price. d. hori7ontal demand curves, and they can sell only a limited -uantity of output at each price. D F: ')+: ! "#F: +erfect *ompetition 1$%! NA': Analytic MS*: nterpretive
Monopoly firms have a. downward%slopin. demand curves and they can sell as much output as they desire at the market price. b. downward%slopin. demand curves and they can sell only a limited -uantity of output at each price. c. hori7ontal demand curves and they can sell as much output as they desire at the market price. d. hori7ontal demand curves and they can sell only a limited -uantity of output at each price. D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
1ecause many .ood substitutes e6ist for a competitive firmLs product, the demand curve that it faces is a. unit%elastic. b. perfectly inelastic. c. perfectly elastic. d. inelastic only over a certain re.ion. D F: ')+: ! "#F: +erfect *ompetition 1$%! NA': Analytic MS*: Analytical
n a competitive market, a firmLs supply curve dictates the amount it will supply. n a monopoly market the a. same is true. b. supply curve conceptually makes sense, but in practice is never used. c. supply curve will have limited predictive capacity. d. decision about how much to supply is impossible to separate from the demand curve it faces. D F: ')+: ! "#F: 1$%! +erfect *ompetition E Monopoly NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly !!.
As a monopolist increases the -uantity of output it sells, the price consumers are willin. to pay for the .ood a. is unaffected. b. decreases. c. increases. d. 'here is not enou.h information .iven in answer the -uestion. D F: ')+: 1 "#F: Demand curve 1$%! NA': Analytic MS*: nterpretive
!$$
*hapter 1$9Monopoly
!/. *ompetitive firms differ from monopolies in which of the followin. waysD GiH *ompetitive firms do not have to worry about the price effect lowerin. their total revenue. GiiH Mar.inal revenue for a competitive firm e-uals price, while mar.inal revenue for a monopoly is less than the price it is able to char.e. GiiiH Monopolies must lower their price in order to sell more of their product, while competitive firms do not. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: / "#F: 1$%! +erfect *ompetition E Monopoly NA': Analytic MS*: nterpretive
'he profit%ma6imi7ation problem for a monopolist differs from that of a competitive firm in which of the followin. waysD a. A competitive firm ma6imi7es profit at the point where mar.inal revenue e-uals mar.inal costO a monopolist ma6imi7es profit at the point where mar.inal revenue e6ceeds mar.inal cost. b. A competitive firm ma6imi7es profit at the point where avera.e revenue e-uals mar.inal costO a monopolist ma6imi7es profit at the point where avera.e revenue e6ceeds mar.inal cost. c. For a competitive firm, mar.inal revenue at the profit%ma6imi7in. level of output is e-ual to mar.inal revenue at all other levels of outputO for a monopolist, mar.inal revenue at the profit% ma6imi7in. level of output is smaller than it is for lar.er levels of output. d. For a profit%ma6imi7in. competitive firm, thinkin. at the mar.in is much more important than it is for a profit%ma6imi7in. monopolist. D F: ')+: / "#F: 1$%! Monopoly E +erfect *ompetition NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly !$.
An.elo is a wholesale meatball distributor. Ie sells his meatballs to all the finest talian restaurants in town. Nobody can make meatballs like An.elo. As a result, his is the only business in town that sells meatballs to restaurants. Assumin. that An.elo is ma6imi7in. his profit, which of the followin. statements is trueD a. Meatball prices will be less than mar.inal cost. b. Meatball prices will e-ual mar.inal cost. c. Meatball prices will e6ceed mar.inal cost. d. *osts are irrelevant to An.elo because he is a monopolist. D F: ')+: ! +ricin. "#F: 1$%! MS*: nterpretive NA': Analytic
A monopolyLs mar.inal cost will a. be less than its avera.e fi6ed cost. b. be less than the price per unit of its product. c. e6ceed its mar.inal revenue. d. e-ual its avera.e total cost. D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly !4. iH iiH iiiH ivH
Chich of the followin. statements is correct for a monopolistD 'he firm ma6imi7es profits by e-uatin. mar.inal revenue with mar.inal cost. 'he firm ma6imi7es profits by e-uatin. price with mar.inal cost. Demand e-uals mar.inal revenue. Avera.e revenue e-uals price. a. b. c. d. iH, iiiH, and ivH only iH and ivH only iH, iiH, and ivH only iH, iiH, iiiH, and ivH
*hapter 1$9Monopoly
ANS: 1 ()*: Monopoly MS*: nterpretive !5. iH iiH iiiH ivH D F: ')+: / "#F: 1$%! Mar.inal revenue E Avera.e revenue NA': Analytic
!$3
Chich of the followin. statements is correct for both a monopolist and a perfectly competitive firmD 'he firm ma6imi7es profits by e-uatin. mar.inal revenue with mar.inal cost. 'he firm ma6imi7es profits by e-uatin. price with mar.inal cost. Demand e-uals mar.inal revenue. Avera.e revenue e-uals price. a. b. c. d. iH, iiiH, and ivH only iH and ivH only iH, iiH, and ivH only iH, iiH, iiiH, and ivH D F: ')+: / "#F: 1$%! Mar.inal revenue E Avera.e revenue NA': Analytic
ANS: 1 ()*: Monopoly MS*: nterpretive !8.
1ecause a monopolist must lower its price in order to sell another unit of output, a. mar.inal revenue is less than price. b. lon.%term economic profits will be 7ero. c. total revenue increases as price increases. d. avera.e revenue is less than price. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly /&.
Chat is the shape of the monopolist<s mar.inal revenue curveD a. a downward%slopin. line that is identical to the demand curve b. a downward%slopin. line that lies below the demand curve c. a hori7ontal line that is identical to the demand curve d. a hori7ontal line that lies below the demand curve D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
For a monopolist, mar.inal revenue is a. e-ual to price, as it is for a perfectly competitive firm. b. less than price, as it is for a perfectly competitive firm. c. e-ual to price, whereas mar.inal revenue is less than price for a perfectly competitive firm. d. less than price, whereas mar.inal revenue is e-ual to price for a perfectly competitive firm. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly /!.
A monopolistLs avera.e revenue is always a. e-ual to mar.inal revenue. b. .reater than the price of its product. c. e-ual to the price of its product. d. less than the price of its product. D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: Definitional
ANS: * ()*: Monopoly //.
f a profit%ma6imi7in. monopolist faces a downward%slopin. market demand curve, its a. avera.e revenue is less than the price of the product. b. avera.e revenue is less than mar.inal revenue. c. mar.inal revenue is less than the price of the product. d. mar.inal revenue is .reater than the price of the product. D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: Analytical
!$4
/0.
*hapter 1$9Monopoly
Chen a monopolist increases the number of units it sells, there are two effects on revenue. 'hey are the a. demand effect and the supply effect. b. competition effect and the cost effect. c. competitive effect and the monopoly effect. d. output effect and the price effect. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly /$.
For a monopolist, mar.inal revenue is a. positive when the demand effect is .reater than the supply effect. b. positive when the monopoly effect is .reater than the competitive effect. c. ne.ative when the price effect is .reater than the output effect. d. ne.ative when the output effect is .reater than the price effect. D F: ')+: / "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
For a monopolist, when the price effect is .reater than the output effect, mar.inal revenue is a. positive. b. ne.ative. c. 7ero. d. ma6imi7ed. D F: ')+: / "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
For a monopolist, when the output effect is .reater than the price effect, mar.inal revenue is a. positive. b. ne.ative. c. 7ero. d. ma6imi7ed. D F: ')+: / "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
ANS: A ()*: Monopoly /5.
Chen a monopoly increases its output and sales, a. both the output effect and the price effect work to increase total revenue. b. the output effect works to increase total revenue, and the price effect works to decrease total revenue. c. the output effect works to decrease total revenue, and the price effect works to increase total revenue. d. both the output effect and the price effect work to decrease total revenue. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
Chen a monopolist increases the amount of output that it produces and sells, avera.e revenue a. increases, and mar.inal revenue increases. b. increases, and mar.inal revenue decreases. c. decreases, and mar.inal revenue increases. d. decreases, and mar.inal revenue decreases. D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: Analytical
ANS: D ()*: Monopoly 0&.
Mar.inal revenue for a monopolist is computed as a. avera.e revenue divided by -uantity sold. b. avera.e revenue times -uantity divided by price. c. total revenue divided by -uantity sold. d. chan.e in total revenue per one unit increase in -uantity sold. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Definitional
*hapter 1$9Monopoly
01. Chich of the followin. statements is trueD GiH Chen a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. GiiH Chen a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. GiiiH Avera.e revenue is the same as price for both competitive and monopoly firms. a. b. c. d. GiiH only GiiiH only GiH and GiiH only GiiH and GiiiH only D F: ')+: / "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
!$5
For a monopoly firm, which of the followin. e-ualities is always trueD a. price ; mar.inal revenue b. price ; avera.e revenue c. price ; total revenue d. mar.inal revenue ; mar.inal cost D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: nterpretive
0/. 'he mar.inal revenue curve for a monopoly firm starts at the same point on the vertical a6is as the GiH avera.e revenue curve. GiiH mar.inal cost curve. GiiiH demand curve. a. b. c. d. GiH only GiH and GiiH only GiH and GiiiH only GiiiH only D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
Mar.inal revenue can become ne.ative for a. both competitive and monopoly firms. b. competitive firms but not for monopoly firms. c. monopoly firms but not for competitive firms. d. neither competitive nor monopoly firms. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
0$. For a monopoly firm, the shape and position of the demand curve play a role in determinin. GiH the profit%ma6imi7in. price. GiiH the shape and position of the mar.inal cost curve. GiiiH the shape and position of the mar.inal revenue curve. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: 1$%! Demand curve E Mar.inal revenue NA': Analytic MS*: nterpretive
For a monopolist, when does mar.inal revenue e6ceed avera.e revenueD a. never b. when output is less than the profit%ma6imi7in. level of output c. when output is .reater than the profit%ma6imi7in. level of output d. for all levels of output .reater than 7ero
!$8
*hapter 1$9Monopoly
D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
Suppose a firm has a monopoly on the sale of wid.ets and faces a downward%slopin. demand curve. Chen sellin. the 1&&th wid.et, the firm will always receive a. less mar.inal revenue on the 1&&th wid.et than it received on the 88th wid.et. b. more avera.e revenue on the 1&&th wid.et than it received on the 88th wid.et. c. more total revenue on the 1&& wid.ets than it received on the first 88 wid.ets. d. a lower avera.e cost per unit at 1&& units output than at 88 units of output. D F: ')+: ! "#F: Demand curve 1$%! NA': Analytic MS*: Analytical
For a monopoly, the level of output at which mar.inal revenue e-uals 7ero is also the level of output at which a. avera.e revenue is 7ero. b. profit is ma6imi7ed. c. total revenue is ma6imi7ed. d. mar.inal cost is 7ero. D F: ')+: / 'otal revenue "#F: 1$%! NA': Analytic MS*: Analytical
For a monopolist, a. avera.e revenue is always .reater than the price of the .ood. b. mar.inal revenue is always less than the price of the .ood. c. mar.inal cost is always .reater than avera.e total cost. d. mar.inal revenue e-uals mar.inal cost at the point where total revenue is ma6imi7ed. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly $&.
For a monopoly, a. avera.e revenue e6ceeds mar.inal revenue. b. avera.e revenue e-uals mar.inal revenue. c. avera.e revenue is less than mar.inal revenue. d. price e-uals mar.inal revenue. D F: ')+: 1 "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Definitional
ANS: A ()*: Monopoly $1.
f a monopoly lowers its price, its a. total revenue must increase. b. total revenue must decrease. c. mar.inal revenue must increase. d. mar.inal revenue must decrease. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly $!.
Cith no price discrimination, the monopolist sells every unit at the same price. 'herefore a. mar.inal revenue is e-ual to price. b. mar.inal revenue is e-ual to avera.e revenue. c. price is .reater than mar.inal revenue. d. 1oth a and b are correct. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly $/.
f a monopolistLs mar.inal costs increase by =1 for all levels of output, then a. the monopoly price will rise by =1. b. the monopoly price will rise by more than =1. c. the monopoly price will rise by less than =1. d. there is no chan.e in the monopoly price and profits fall. D F: ')+: ! +ricin. "#F: 1$%! MS*: nterpretive NA': Analytic
*hapter 1$9Monopoly
$0. f a monopolist has 7ero mar.inal costs, it will produce a. the output at which total revenue is ma6imi7ed. b. in the ran.e in which mar.inal revenue is still increasin.. c. at the point at which mar.inal revenue is at a ma6imum. d. in the ran.e in which mar.inal revenue is ne.ative. D F: ')+: / +ricin. "#F: 1$%! MS*: Analytical NA': Analytic
!3&
ANS: A ()*: Monopoly $$.
A monopolist ma6imi7es profits by a. producin. an output level where mar.inal revenue e-uals mar.inal cost. b. char.in. a price e-ual to mar.inal revenue and mar.inal cost. c. char.in. a price where mar.inal cost e-uals avera.e total cost. d. 1oth a and b are correct. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
A monopolist ma6imi7es profits by a. producin. an output level where mar.inal revenue e-uals mar.inal cost. b. char.in. a price that is .reater than mar.inal revenue. c. earnin. a profit of G+ % M*H 6 J. d. 1oth a and b are correct. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
A profit%ma6imi7in. monopolist will produce the level of output at which a. avera.e revenue is e-ual to avera.e total cost. b. avera.e revenue is e-ual to mar.inal cost. c. mar.inal revenue is e-ual to mar.inal cost. d. total revenue is e-ual to opportunity cost. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
For a profit%ma6imi7in. monopolist, a. + : M" ; M*. b. + ; M" ; M*. c. + : M" : M*. d. M" P M* P +. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
'he monopolistLs profit%ma6imi7in. -uantity of output is determined by the intersection of which of the followin. two curvesD a. mar.inal cost and demand b. mar.inal cost and mar.inal revenue c. avera.e total cost and mar.inal revenue d. avera.e variable cost and avera.e revenue D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
A monopolist will choose to increase output when a. market price increases. b. at all levels of output, mar.inal cost increases. c. at the present level of output, mar.inal revenue e6ceeds mar.inal cost. d. the demand curve shifts to the left. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
!31
31.
*hapter 1$9Monopoly
Chich of the followin. statements is not correctD a. 'he competitive firm produces where + ; M*. b. 'he monopolist produces where + ; M*. c. 'he competitive firm produces where M" ; M*. d. 'he monopolist produces where M" ; M*. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Definitional
Chich of the followin. statements is correctD a. f the monopolistLs mar.inal revenue is .reater than its mar.inal cost, the monopolist can increase profit by sellin. more units at a lower price per unit. b. f the monopolistLs mar.inal revenue is .reater than its mar.inal cost, the monopolist can increase profit by sellin. fewer units at a hi.her price per unit. c. Chen a monopolist produces where price e-uals the minimum of avera.e total cost, it earns a positive economic profit. d. f the monopolist is earnin. a positive economic profit, it must be producin. where M" ; M*. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly 3/.
A reduction in a monopolistLs fi6ed costs would a. decrease the profit%ma6imi7in. price and increase the profit%ma6imi7in. -uantity produced. b. increase the profit%ma6imi7in. price and decrease the profit%ma6imi7in. -uantity produced. c. not effect the profit%ma6imi7in. price or -uantity. d. possibly increase, decrease or not effect profit%ma6imi7in. price and -uantity, dependin. on the elasticity of demand. D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
A monopolist a. has a supply curve that is upward%slopin., 2ust like a competitive firm. b. does not have a supply curve because the monopolist sets its price at the same time it chooses the -uantity to supply. c. has a hori7ontal supply curve, 2ust like a competitive firm. d. does not have a supply curve because mar.inal revenue e6ceeds the price it char.es for its products. D F: ')+: ! Supply curve "#F: 1$%! NA': Analytic MS*: nterpretive
*hapter 1$9Monopoly
Figure 15-3
Price
!3!
M*
A 1 * F ? I D ) @ Q (
Quantity
A'*
M"
3$.
Re$er to F"%&re 15--' Chat price will the monopolist char.eD a. A b. 1 c. * d. F D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
Re$er to F"%&re 15--' Iow much output will the monopolist produceD a. ) b. @ c. Q d. ( D F: ')+: ! Monopoly "#F: 1$%! MS*: nterpretive NA': Analytic
Re$er to F"%&re 15--' Chat area measures the monopolist<s profitD a. G1%FHKQ b. GA%IHK@ c. G1%?HKQ d. &.$RG1%FHKG(%QHS D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: nterpretive
!3/
*hapter 1$9Monopoly
Price
Figure 15-4
*urve * *urve D
+0 +/ +! +1 +&
*urve 1 J& J! J/ J0 J1
*urve A Quantity
35.
Re$er to F"%&re 15-.. 'he demand curve for a monopoly firm is depicted by curve a. A. b. 1. c. *. d. D. D F: ')+: 1 "#F: Demand curve 1$%! NA': Analytic MS*: nterpretive
Re$er to F"%&re 15-.. 'he mar.inal revenue curve for a monopoly firm is depicted by curve a. A. b. 1. c. *. d. D. D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: nterpretive
Re$er to F"%&re 15-.. 'he mar.inal cost curve for a monopoly firm is depicted by curve a. A. b. 1. c. *. d. D. D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: nterpretive
Re$er to F"%&re 15-.. 'he avera.e total cost curve for a monopoly firm is depicted by curve a. A. b. 1. c. *. d. D. D F: ')+: ! "#F: Avera.e total cost 1$%! NA': Analytic MS*: nterpretive
Re$er to F"%&re 15-.. f the monopoly firm is currently producin. J/ units of output, then a decrease in output will necessarily cause profit to a. remain unchan.ed. b. decrease. c. increase as lon. as the new level of output is at least J!. d. increase as lon. as the new level of output is at least J1.
*hapter 1$9Monopoly
ANS: * ()*: Monopoly 4/. GiH GiiH GiiiH GivH D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
!30
Re$er to F"%&re 15-.. +rofit can always be increased by increasin. the level of output by one unit if the monopolist is currently operatin. at J&. J1. J!. J/. a. b. c. d. GiiH only GiH or GiiH only GiH only GiH, GiiH, or GiiiH only D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
Re$er to F"%&re 15-.. f the monopoly firm wants to ma6imi7e its profit, it should operate at a level of output e-ual to a. J1. b. J!. c. J/. d. J0. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
Re$er to F"%&re 15-.. +rofit will be ma6imi7ed by char.in. a price e-ual to a. +1. b. +!. c. +/. d. +0. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
Re$er to F"%&re 15-.. A profit%ma6imi7in. monopolyLs total revenue is e-ual to a. +0 6 J!. b. +/ 6 J0. c. G+0%+!H 6 J!. d. G+0%+/H 6 J!. D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Analytical
!3$
*hapter 1$9Monopoly
Price *urve * *urve D
Figure 15-5
+$ +0 +/
+!
+1 +&
*urve 1
*urve A
J1 J! J/ J0
Quantity
44.
Re$er to F"%&re 15-5. A profit%ma6imi7in. monopoly will produce an output level of a. J1. b. J!. c. J/. d. J0. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
Re$er to F"%&re 15-5. A profit%ma6imi7in. monopoly will char.e a price of a. +$. b. +0. c. +/. d. +!. D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
Re$er to F"%&re 15-5. A profit%ma6imi7in. monopolyLs total revenue is e-ual to a. +0 6 J/. b. +$ 6 J1. c. +/ 6 J0. d. G+0%+!H 6 J/. D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Analytical
ANS: A ()*: Monopoly 5&.
Re$er to F"%&re 15-5. A profit%ma6imi7in. monopolyLs total cost is e-ual to a. +0 6 J/. b. +! 6 J/. c. +1 6 J/. d. G+0%+1H 6 J/. D F: ')+: ! 'otal cost "#F: 1$%! MS*: Analytical NA': Analytic
*hapter 1$9Monopoly
51. Re$er to F"%&re 15-5. A profit%ma6imi7in. monopolyLs profit is e-ual to a. +0 6 J/. b. G+0%+!H 6 J/. c. G+0%+1H 6 J/. d. G+$%+&H 6 J1. D F: ')+: ! +rofit "#F: 1$%! MS*: Analytical NA': Analytic
!33
ANS: * ()*: Monopoly 5!.
Re$er to F"%&re 15-5. +rofit on a typical unit sold for a profit%ma6imi7in. monopoly would e-ual a. +$%+&. b. +0%+!. c. +0%+1. d. +0%+/. D F: ')+: ! +rofit "#F: 1$%! MS*: Analytical NA': Analytic
Re$er to F"%&re 15-5. At the profit%ma6imi7in. level of output, a. mar.inal revenue is e-ual to +/. b. mar.inal cost is e-ual to +/. c. avera.e revenue is e-ual to +0. d. avera.e total cost is e-ual to +&. D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: nterpretive
Scenario 15-2 A monopoly firm ma6imi7es its profit by producin. J ; $&& units of output. At that level of output, its mar.inal revenue is =/&, its avera.e revenue is =3&, and its avera.e total cost is =/0. 50. Re$er to Scenar"o 15-(. 'he firmLs profit%ma6imi7in. price is a. =/&. b. between =/& and =/0. c. between =/0 and =3&. d. =3&. D F: ')+: ! +ricin. "#F: 1$%! MS*: Analytical NA': Analytic
ANS: D ()*: Monopoly 5$.
Re$er to Scenar"o 15-(. At J ; $&&, the firmLs total revenue is a. =1/,&&&. b. =1$,&&&. c. =14,&&&. d. =/&,&&&. D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Scenar"o 15-(' At J ; $&&, the firmLs profit is a. =1/,&&&. b. =1$,&&&. c. =14,&&&. d. =/&,&&&. D F: ')+: ! +rofit "#F: 1$%! MS*: Applicative NA': Analytic
Re$er to Scenar"o 15-(. At J ; $&&, the firmLs mar.inal cost is a. less than =/&. b. =/&. c. =/0. d. .reater than =/0. D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: Analytical
!34
*hapter 1$9Monopoly
Total Re0en&e =/$ =30 A0era%e Re0en&e =/! Mar%"nal Re0en&e =!8 =14 =11 =1!& =14 =88 =5& =11 =5 =%1 =%4 =%1/
Table 15-1 /&ant"ty 1 ! / 0 $ 3 4 5 8 1& 55. !r"ce =/$ =!8 =!/
Re$er to Ta1le 15-1. f the monopolist sells 5 units of its product, how much total revenue will it receive from the saleD a. 10 b. 0& c. 11! d. 130 D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-1. f the monopolist wants to ma6imi7e its revenue, how many units of its product should it sellD a. 0 b. $ c. 3 d. 5 D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-1. Chen 0 units of output are produced and sold, what is avera.e revenueD a. 14 b. !1 c. !/ d. !3 D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-1. Chat is the mar.inal revenue for the monopolist for the si6th unit soldD a. / b. $ c. 11 d. 14 D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-1. Assume this monopolistLs mar.inal cost is constant at =1!. Chat -uantity of output GJH will it produce and what price G+H will it char.eD a. J ; 0, + ; =!8 b. J ; 0, + ; =!3 c. J ; $, + ; =!/ d. J ; 4, + ; =14 D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
*hapter 1$9Monopoly
Table 15-2 DreherLs Desi.ner Shirt *ompany, a monopolist, has the followin. cost and revenue information. COSTS Total Co#t 345 1&& 10& 150 !/& !5& //$ /8$ 04$ $3$ RE2ENUES !r"ce Total 34/&n"t5 Re0en&e 14& 13& 1$& 10& 1/& 1!& 11& 1&& 8&
!35
/&ant"ty !ro+&ce+ & 1 ! / 0 $ 3 4 5 8/.
Mar%"nal Co#t %%
/&ant"ty ,e6an+e+ & 1 ! / 0 $ 3 4 5
Mar%"nal Re0en&e %%
Re$er to Ta1le 15-(. Chat is the mar.inal cost of the 3th shirtD a. =00 b. =03 c. =$$ d. =3& D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-(. Chat is the mar.inal cost of the 5th shirtD a. =$& b. =3& c. =8& d. =11& D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: Applicative
ANS: * ()*: Monopoly 8$.
Re$er to Ta1le 15-(. Chat is the total revenue from sellin. 3 shirtsD a. =1&& b. =3&& c. =3!$ d. =33& D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-(. Chat is the total revenue from sellin. 5 shirtsD a. =8& b. =38$ c. =4!& d. =5&& D F: ')+: ! 'otal revenue "#F: 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-(. Chat is the mar.inal revenue from sellin. the !nd shirtD a. =10& b. =1$& c. =13& d. =14& D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
!38
85.
*hapter 1$9Monopoly
Re$er to Ta1le 15-(. Chat is the mar.inal revenue from sellin. the 5th shirtD a. =1& b. =!& c. =0& d. =8& D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
Re$er to Ta1le 15-(. Chat is the avera.e revenue when 4 shirts are soldD a. =0& b. =8& c. =1&& d. =4&& D F: ')+: ! "#F: Avera.e revenue 1$%! NA': Analytic MS*: Applicative
1&&. Re$er to Ta1le 15-(. Chich of the followin. -uantities will achieve the ma6imum profitD a. / b. 0 c. 3 d. 4 ANS: * ()*: Monopoly D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
1&1. Re$er to Ta1le 15-(. Chat is total profit at the profit%ma6imi7in. -uantityD a. =1&& b. =!0$ c. =!3$ d. =/8$ ANS: * ()*: Monopoly D F: ')+: ! +rofit "#F: 1$%! MS*: Applicative NA': Analytic
1&!. Re$er to Ta1le 15-(. Chat are DreherLs Desi.ner Shirt *ompanyLs fi6ed costsD a. =& b. =1&& c. =3&& d. =40$ ANS: 1 ()*: Monopoly D F: ')+: ! Fi6ed cost "#F: 1$%! MS*: Applicative NA': Analytic
1&/. Re$er to Ta1le 15-(. Chat is the total variable cost of production when si6 units are producedD a. =1&& b. =!8$ c. =3&& d. =3!& ANS: 1 ()*: Monopoly D F: ')+: ! "#F: Mariable costs 1$%! NA': Analytic MS*: Applicative
Table 15-3 ?eor.e has the followin. demand curve for sellin. ve.emite sandwiches. Assume that ?eor.e has a mar.inal cost of =/ per unit. !r"ce =1& =5 =3 =0 =! /&ant"ty 1 ! / 0 $
*hapter 1$9Monopoly
1&0. Re$er to Ta1le 15--. Chat is ?eor.eLs profit%ma6imi7in. level of outputD a. 1 b. ! c. / d. 0 ANS: 1 ()*: Monopoly D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
!4&
1&$. Re$er to Ta1le 15--. Chat is ?eor.eLs profit%ma6imi7in. priceD a. =! b. =0 c. =3 d. =5 ANS: D ()*: Monopoly D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
Table 15-4 *onsider the followin. demand and cost information for a monopoly. /&ant"ty & 1 ! / 0 !r"ce =/& =!$ =!& =1$ =1& Total Co#t =/ =4 =1! =15 =!$
1&3. Re$er to Ta1le 15-.. 'he mar.inal revenue of the second unit is a. =1&. b. =1$. c. =!&. d. =!$. ANS: 1 ()*: Monopoly D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
1&4. Re$er to Ta1le 15-.. 'he mar.inal cost of the fourth unit is a. =4. b. =1!. c. =!$. d. =3&. ANS: A ()*: Monopoly D F: ')+: ! Mar.inal cost "#F: 1$%! NA': Analytic MS*: Applicative
1&5. Re$er to Ta1le 15-.. 'he ma6imum profit this monopolist can earn is a. =$. b. =1$. c. =13. d. =!5. ANS: D ()*: Monopoly D F: ')+: ! +rofit "#F: 1$%! MS*: Applicative NA': Analytic
1&8. Re$er to Ta1le 15-.. 'o ma6imi7e profit, the monopolist sets price at a. =1&. b. =1$. c. =!&. d. =!$. ANS: * ()*: Monopoly D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
!41
*hapter 1$9Monopoly
11&. A monopolist faces the followin. demand curve: !r"ce =$1 =04 =0! =/3 =!8 =!1 =1! /&ant"ty 1 ! / 0 $ 3 4
'he monopolist has total fi6ed costs of =3& and has a constant mar.inal cost of =1$. Chat is the profit%ma6imi7in. level of productionD a. ! units b. / units c. 0 units d. $ units ANS: * ()*: Monopoly D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
111. A monopolist faces the followin. demand curve: !r"ce =$1 =04 =0! =/3 =!8 =!1 =1! /&ant"ty 1 ! / 0 $ 3 4
'he monopolist has total fi6ed costs of =3& and has a constant mar.inal cost of =1$. Chat is the profit%ma6imi7in. priceD a. =0 b. =/8 c. =/3 d. =0! ANS: * ()*: Monopoly D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
11!. A monopolist faces the followin. demand curve: !r"ce =1& =8 =5 =4 =3 =$ =0 =/ /&ant"ty $ 1& 13 !/ /1 0$ $! 3&
*hapter 1$9Monopoly
!4!
'he monopolist has total fi6ed costs of =0& and a constant mar.inal cost of =$. Chat is the profit%ma6imi7in. level of outputD a. 4 units b. 13 units c. !/ units d. /1 units ANS: 1 ()*: Monopoly D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Applicative
11/. A monopolist faces the followin. demand curve: !r"ce =1& =8 =5 =4 =3 =$ =0 =/ /&ant"ty $ 1& 13 !/ /1 0$ $! 3&
'he monopolist has total fi6ed costs of =0& and a constant mar.inal cost of =$. At the profit%ma6imi7in. level of output, the monopolistLs avera.e total cost is a. =8.&&. b. =4.$&. c. =3.40. d. =$.5!. ANS: 1 ()*: Monopoly D F: ')+: / "#F: Avera.e total cost 1$%! NA': Analytic MS*: Applicative
110. A monopolist faces the followin. demand curve: !r"ce =1& =8 =5 =4 =3 =$ =0 =/ /&ant"ty $ 1& 13 !/ /1 0$ $! 3&
'he monopolist has total fi6ed costs of =0& and a constant mar.inal cost of =$. At the profit%ma6imi7in. level of output, the monopolistLs profit is a. =55. b. =5. c. =3. d. Ce do not have enou.h information to determine profit. ANS: 1 ()*: Monopoly D F: ')+: / +rofit "#F: 1$%! MS*: Applicative NA': Analytic
!4/
*hapter 1$9Monopoly
11$. 'he followin. table shows -uantity, price, and mar.inal cost information for a monopoly. Chat price should the firm char.e to ma6imi7e its profitD O&tp&t & 1 ! / 0 $ 3 a. b. c. d. =0 =$ =3 =4 D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical !r"ce =1& =8 =5 =4 =3 =$ =0 MC %% =/ =0 =$ =3 =4 =5
113. 'he followin. table provides information on the price, -uantity, and avera.e cost for a monopoly. At what price will the firm ma6imi7e its profitD !r"ce =$ =0 =/ =! =1 =& a. b. c. d. =1 =! =/ =0 D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical O&tp&t & 0 5 1! 13 !& ATC %% =1.&& =&.4$ =&.4$ =&.51 =&.8&
114. 'he followin. table .ives information on the price, -uantity, and total cost of production for a monopolist. Iow much profit will the firm earn at the profit%ma6imi7in. priceD !r"ce =$ =0 =/ =! =1 =& a. b. c. d. =8 =1! =1$ =15 D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical O&tp&t & $ 1& 1$ !& !$ Total Co#t# =/ =5 =15 =// =$/ =45
*hapter 1$9Monopoly
115. 'he followin. table .ives information on the price, -uantity, and total cost of production for a monopolist. Chat is the profit%ma6imi7in. priceD !r"ce =$ =0 =/ =! =1 =& a. b. c. d. =$ =0 =/ =! D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical O&tp&t & $ 1& 1$ !& !$ Total Co#t# =/ =5 =15 =// =$/ =45
!40
118. A profit%ma6imi7in. monopolist char.es a price of =1!. 'he intersection of the mar.inal revenue and mar.inal cost curves occurs where output is 1& units and mar.inal cost is =3. Avera.e total cost for 1& units of output is =$. Chat is the monopolist<s profitD a. =3& b. =4& c. =1&& d. =1!& ANS: 1 ()*: Monopoly D F: ')+: ! +rofit "#F: 1$%! MS*: Applicative NA': Analytic
1!&. A profit%ma6imi7in. monopolist char.es a price of =10. 'he intersection of the mar.inal revenue curve and the mar.inal cost curve occurs where output is 1$ units and mar.inal cost is =4. Chat is the monopolist<s profitD a. =8& b. =1&$ c. =15& d. Not enou.h information is .iven to determine the answer. ANS: D ()*: Monopoly D F: ')+: ! +rofit "#F: 1$%! MS*: Applicative NA': Analytic
1!1. f a monopolist sells 1&& units at =5 per unit and reali7es an avera.e total cost of =3 per unit, what is the monopolistLs profitD a. =!&& b. =0&& c. =3&& d. =5&& ANS: A ()*: Monopoly D F: ')+: 1 +rofit "#F: 1$%! MS*: Applicative NA': Analytic
1!!. A monopolist can sell !&& units of output for =/3 per unit. Alternatively, it can sell !&1 units of output for =/$.5& per unit. 'he mar.inal revenue of the !&1st unit of output is a. =%0.!&. b. =%&.!&. c. =0.!&. d. =/$.5&. ANS: A ()*: Monopoly D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
!4$
*hapter 1$9Monopoly
1!/. A monopoly firm can sell 1$& units of output for =1& per unit. Alternatively, it can sell 1$1 units of output for =8.8$ per unit. 'he mar.inal revenue of the 1$1st unit of output is a. =%!.0$. b. =%&.&$. c. =!.0$. d. =8.8$. ANS: * ()*: Monopoly D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
1!0. Chen a certain monopoly sets its price at =5 it sells 30 units. Chen the monopoly sets its price at =1& it sells 3& units. 'he mar.inal revenue for the firm over this ran.e is a. =11. b. =!!. c. =//. d. =00. ANS: 1 ()*: Monopoly D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Analytical
1!$. Suppose when a monopolist produces $& units its avera.e revenue is =5 per unit, its mar.inal revenue is =0 per unit, its mar.inal cost is =0 per unit, and its avera.e total cost is =/ per unit. Chat can we conclude about this monopolistD a. 'he monopolist is currently ma6imi7in. profits, and its total profits are =!&&. b. 'he monopolist is currently ma6imi7in. profits, and its total profits are =!$&. c. 'he monopolist is not currently ma6imi7in. its profitsO it should produce more units and char.e a lower price to ma6imi7e profit. d. 'he monopolist is not currently ma6imi7in. its profitsO it should produce fewer units and char.er a hi.her price to ma6imi7e profit. ANS: 1 ()*: Monopoly D F: ')+: ! "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
1!3. Suppose when a monopolist produces 4$ units its avera.e revenue is =1& per unit, its mar.inal revenue is =$ per unit, its mar.inal cost is =3 per unit, and its avera.e total cost is =$ per unit. Chat can we conclude about this monopolistD a. 'he monopolist is currently ma6imi7in. profits, and its total profits are =/4$. b. 'he monopolist is currently ma6imi7in. profits, and its total profits are =/&&. c. 'he monopolist is not currently ma6imi7in. profitsO it should produce more units and char.e a lower price to ma6imi7e profits. d. 'he monopolist is not currently ma6imi7in. profitsO it should produce fewer units and char.e a hi.her price to ma6imi7e profits. ANS: D ()*: Monopoly D F: ')+: / "#F: +rofit ma6imi7ation 1$%! NA': Analytic MS*: Analytical
1!4. f a monopolist can sell 4 units when the price is =0 and 5 units when the price is =/, then mar.inal revenue of sellin. the ei.hth unit is e-ual to a. =/. b. =0. c. =!0. d. %=0. ANS: D ()*: Monopoly D F: ')+: ! "#F: Mar.inal revenue 1$%! NA': Analytic MS*: Applicative
1!5. f a pharmaceutical company discovers a new dru. and successfully patents it, patent law .ives the firm a. partial ownership of the ri.ht to sell the dru. for a limited number of years. b. partial ownership of the ri.ht to sell the dru. for an unlimited number of years. c. sole ownership of the ri.ht to sell the dru. for a limited number of years. d. sole ownership of the ri.ht to sell the dru. for an unlimited number of years. ANS: * ()*: Monopoly D F: ')+: 1 +atents "#F: 1$%! MS*: Definitional NA': Analytic
*hapter 1$9Monopoly
1!8. Due to the nature of the patent laws on pharmaceuticals, the market for such dru.s a. always remains a competitive market. b. always remains a monopolistic market. c. switches from competitive to monopolistic once the firmLs patent runs out. d. switches from monopolistic to competitive once the firmLs patent runs out. ANS: D ()*: Monopoly D F: ')+: ! +atents "#F: 1$%! MS*: nterpretive NA': Analytic
!43
1/&. Chat happens to the price and -uantity sold of a dru. when its patent runs outD GiH 'he price will fall. GiiH 'he -uantity sold will fall. GiiiH 'he mar.inal cost of producin. the dru. will rise. a. b. c. d. GiH only GiH and GiiH only GiiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! +atents "#F: 1$%! MS*: nterpretive NA': Analytic
1/1. ?eneric dru.s enter the pharmaceutical dru. market once a. the in.redients to the name brand dru. have been discovered. b. 1& years have passed. c. they are patented. d. the patent on the name brand dru. e6pires. ANS: D ()*: Monopoly D F: ')+: ! +atents "#F: 1$%! MS*: nterpretive NA': Analytic
1/!. Name brand dru.s are able to continue capitali7in. on their market power even after .eneric dru.s enter the market because GiH almost all people fear the .eneric dru. companies are devotin. too few resources to research and development. GiiH some people fear that .eneric dru.s are inferior. GiiiH some people are loyal to the name brand. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! +atents "#F: 1$%! MS*: nterpretive NA': Analytic
1//. After the patent runs out on a brand name dru., .eneric dru.s enter the market. Chat happens ne6t in the marketD a. +rice increases, and total surplus decreases. b. +rice decreases, and total surplus decreases. c. +rice decreases, and total surplus increases. d. +rice increases, and total surplus increases. ANS: * ()*: Monopoly D F: ')+: ! +atents "#F: 1$%! MS*: nterpretive NA': Analytic
!44
*hapter 1$9Monopoly
Sec 0- - Monopoly - The Wel$are Co#t o$ Monopol"e#

MULT !LE CHO CE 1. Deadwei.ht loss a. measures monopoly inefficiency. b. e6ceeds monopoly profits. c. e-uals monopoly profits. d. e-uals monopoly revenues minus profits. D F: ')+: 1 "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative
ANS: A ()*: Monopoly !.
A monopoly is an inefficient way to produce a product because a. it can earn both short%run and lon.%run profits. b. it faces a downward%slopin. demand curve. c. the cost to the monopolist of producin. one more unit e6ceeds the value of that unit to potential buyers. d. it produces a smaller level of output than would be produced in a competitive market. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly /.
'he deadwei.ht loss associated with a monopoly occurs because the monopolist a. ma6imi7es profits. b. produces an output level less than the socially optimal level. c. produces an output level .reater than the socially optimal level. d. e-uates mar.inal revenue with mar.inal cost. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
Chen we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent a. a transfer of benefits from the consumer to the producer. b. a loss in total welfare. c. the hi.her mar.inal costs incurred by the monopolists in comparison to competitive firms. d. the hi.her mar.inal revenues .ained by the monopolists in comparison to competitive firms. D F: ')+: ! Celfare "#F: 1$%/ MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly $.
A monopoly market a. always ma6imi7es total economic well%bein.. b. always minimi7es consumer surplus. c. .enerally fails to ma6imi7e total economic well%bein.. d. .enerally fails to ma6imi7e producer surplus. D F: ')+: ! Celfare "#F: 1$%/ MS*: nterpretive NA': Analytic
Suppose a monopolist chooses the price and production level that ma6imi7es its profit. From that point, to increase society<s economic welfare, output would need to be increased as lon. as a. avera.e revenue e6ceeds mar.inal cost. b. avera.e revenue e6ceeds avera.e total cost. c. mar.inal revenue e6ceeds mar.inal cost. d. mar.inal revenue e6ceeds avera.e total cost. D F: ')+: ! Celfare "#F: 1$%/ MS*: Analytical NA': Analytic
'he economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its hi.h price. b. e6cess profit .enerated by monopoly firms. c. poor -uality of service offered by monopoly firms. d. deadwei.ht loss.
*hapter 1$9Monopoly
ANS: D ()*: Monopoly 5. GiH GiiH GiiiH D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
!45
Monopolies are inefficient because they eliminate barriers to entry. price their product at a level where mar.inal revenue e6ceeds mar.inal cost. restrict output below the socially efficient level of production. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! Monopoly "#F: 1$%/ MS*: nterpretive NA': Analytic
'he socially efficient level of production occurs where the mar.inal cost curve intersects a. avera.e variable cost. b. avera.e total cost. c. demand. d. mar.inal revenue. D F: ')+: ! Celfare "#F: 1$%/ MS*: Analytical NA': Analytic
Monopoly pricin. prevents some mutually beneficial trades from takin. place. 'hese unreali7ed mutually beneficial trades are a. of little concern to society. b. a deadwei.ht loss to society. c. a sunk cost to society. d. also observed in competitive markets. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
'he difference in total surplus between the socially efficient level of production and the monopolistLs level of production is a. offset by re.ulatory revenues. b. called a deadwei.ht loss. c. e-ual to the monopolist<s profit. d. 1oth b and c are correct. D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: Definitional
1!. #conomic welfare is .enerally measured by GiH profit. GiiH total surplus. GiiiH the price consumers pay for the product. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiiH only GiH, GiiH, and GiiiH D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: nterpretive
For a monopoly market, total surplus can be defined as the value of the .ood to a. producers minus the cost incurred by consumers. b. producers plus the cost incurred by consumers. c. consumers minus the costs of producin. the .ood. d. consumers plus the cost of producin. the .ood.
!48
*hapter 1$9Monopoly
D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: Definitional
*onsumersL willin.ness to pay for a .ood minus the amount they actually pay for it e-uals a. consumer surplus. b. consumer benefit. c. price discriminant. d. deadwei.ht loss. D F: ')+: ! "#F: *onsumer surplus 1$%/ NA': Analytic MS*: Definitional
'he amount that producers receive for a .ood minus their costs of producin. it e-uals a. -uantity supplied. b. supply price. c. deadwei.ht loss. d. producer surplus. D F: ')+: ! "#F: +roducer surplus 1$%/ NA': Analytic MS*: Definitional
ANS: D ()*: Monopoly Figure 15-6

Price
Mar.inal *ost
Demand
Gvalue to buyersH J&

Quantity
13.
Re$er to F"%&re 15-7. A benevolent social planner would have the monopoly operate at an output level a. less than J&. b. .reater than J&. c. e-ual to J&. d. e-ual to 7ero. D F: ')+: ! Celfare "#F: 1$%/ MS*: Analytical NA': Analytic
Re$er to F"%&re 15-7. f the monopoly operates at an output level less than J&, then an increase in output toward Gbut not e6ceedin.H J& would a. raise the price and raise total surplus. b. lower the price and raise total surplus. c. raise the price and lower total surplus. d. lower the price and lower total surplus. D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: Analytical
Sellin. a .ood at a price determined by the intersection of the demand curve and the mar.inal cost curve is consistent with the GiH socially%optimal level of output. GiiH market solution for profit%ma6imi7in. competitive firms. GiiiH market solution for a profit%ma6imi7in. monopoly.
*hapter 1$9Monopoly
a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! Celfare "#F: 1$%/ MS*: nterpretive NA': Analytic
!5&
A monopoly chooses to supply the market with a -uantity of a product that is determined by the intersection of the a. mar.inal cost and demand curves. b. avera.e total cost and demand curves. c. mar.inal revenue and avera.e total cost curves. d. mar.inal revenue and mar.inal cost curves. D F: ')+: 1 "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly !&.
Chen the .overnment creates a monopoly, the social loss may include a. declinin. mar.inal costs. b. the cost of lawyers and lobbyists hired to convince lawmakers to continue the monopoly. c. e6cessive monopoly profits. d. diminishin. mar.inal revenue. D F: ')+: ! Celfare "#F: 1$%/ MS*: nterpretive NA': Analytic
f a social planner were runnin. a monopoly, that planner could achieve an efficient outcome by char.in. the price that is determined by the a. minimum point on the avera.e total cost curve. b. intersection of the avera.e total cost curve and the demand curve. c. intersection of the mar.inal cost curve and the demand curve. d. intersection of the mar.inal cost curve and the mar.inal revenue curve. D F: ')+: ! Celfare "#F: 1$%/ MS*: Analytical NA': Analytic
'he deadwei.ht loss that arises from a monopoly is a conse-uence of the fact that the monopoly a. -uantity is lower than the socially%optimal -uantity. b. price e-uals mar.inal revenue. c. price is the same as avera.e revenue. d. earns positive profits. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
ANS: A ()*: Monopoly !/.
Chich of the followin. statements is correctD a. 'he benefits that accrue to a monopoly<s owners are e-ual to the costs that are incurred by consumers of that firmLs product. b. 'he deadwei.ht loss that arises in monopoly stems from the fact that the profit%ma6imi7in. monopoly firm produces a -uantity of output that e6ceeds the socially%efficient -uantity. c. 'he deadwei.ht loss caused by monopoly is similar to the deadwei.ht loss caused by a ta6 on a product. d. 'he primary social problem caused by monopoly is monopoly profit. D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
'o ma6imi7e total surplus with a monopoly firm, a benevolent social planner would a. choose the level of output where M" ; M*. b. choose the level of output where M" intersects the demand curve. c. choose the level of output where M* intersects the demand curve. d. allow the free market system to determine the level of output.
!51
*hapter 1$9Monopoly
D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly !$.
A monopolist produces a. more than the socially efficient -uantity of output but at a hi.her price than in a competitive market. b. less than the socially efficient -uantity of output but at a hi.her price than in a competitive market. c. the socially efficient -uantity of output but at a hi.her price than in a competitive market. d. possibly more or possibly less than the socially efficient -uantity of output, but definitely at a hi.her price than in a competitive market. D F: ')+: ! Monopoly "#F: 1$%/ MS*: nterpretive NA': Analytic
For a monopoly, the socially efficient level of output occurs where a. mar.inal revenue e-uals mar.inal cost. b. avera.e revenue e-uals mar.inal cost. c. mar.inal revenue e-uals avera.e total cost. d. avera.e revenue e-uals avera.e total cost. D F: ')+: ! Celfare "#F: 1$%/ MS*: nterpretive NA': Analytic
'he social cost of a monopoly is e-ual to its a. economic profit. b. fi6ed cost. c. dead wei.ht loss. d. variable cost. D F: ')+: 1 "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
FMonopolists do not worry about efficient production and minimi7in. costs since they can 2ust pass alon. any increase in costs to their consumers.F 'his statement is a. falseO price increases will mean fewer sales, which may lower profits. b. trueO this is the primary reason why economists believe that monopolies result in economic inefficiency. c. falseO the monopolist is a price taker. d. trueO consumers in a monopoly market have no substitutes to turn to when the monopolist raises prices. D F: ')+: ! Monopoly "#F: 1$%/ MS*: nterpretive NA': Analytic
ANS: A ()*: Monopoly !8.
Many economists critici7e monopolists because they a. char.e a price that e-uals mar.inal cost rather than a price that e-uals avera.e cost. b. donLt innovate. c. produce a lar.e -uantity of waste. d. produce less than the socially efficient level of output. D F: ')+: ! nefficiency "#F: 1$%/ MS*: nterpretive NA': Analytic
*hapter 1$9Monopoly
Figure 15-7
Price
!5!
M*
F ? D
M"
A 1 *
D
Quantity
/&.
Re$er to F"%&re 15-8' Chat is the socially efficient price and -uantityD a. price ; FO -uantity ; A b. price ; ?O -uantity ; 1 c. price ; ?O -uantity ; A d. price ; DO -uantity ; A D F: ')+: ! Monopoly "#F: 1$%/ MS*: Applicative NA': Analytic
Re$er to F"%&re 15-8' Chat is the monopoly price and -uantityD a. price ; FO -uantity ; A b. price ; ?O -uantity ; 1 c. price ; ?O -uantity ; A d. price ; DO -uantity ; A D F: ')+: ! Monopoly "#F: 1$%/ MS*: Applicative NA': Analytic
ANS: A ()*: Monopoly /!.
Re$er to F"%&re 15-8' Chat is the area of deadwei.ht lossD a. the rectan.le GF%DH6A b. the trian.le 19!RGF%DH6G1%AHS c. the trian.le 19!RGF%?H6G1%AHS d. the rectan.le GF%DH6A plus the trian.le 19!RGF%DH6G1%AHS D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative
ANS: 1 ()*: Monopoly //.
Re$er to F"%&re 15-8' Chat area represents the total surplus lost due to monopoly pricin.D a. the rectan.le GF%DH6A b. the trian.le 19!RGF%DH6G1%AHS c. the trian.le 19!RGF%?H6G1%AHS d. the rectan.le GF%DH6A plus the trian.le 19!RGF%DH6G1%AHS D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative
!5/
*hapter 1$9Monopoly
Price
Figure 15-8
M ar.inal *ost
!& 1$ 1&
Demand
1&& 1$& !&& Quantity
M ar.inal "evenue
/0.
Re$er to F"%&re 15-9. 'o ma6imi7e total surplus, a benevolent social planner would choose which of the followin. outcomesD a. 1&& units of output and a price of =1& per unit b. 1$& units of output and a price of =1& per unit c. 1$& units of output and a price of =1$ per unit d. !&& units of output and a price of =1& per unit D F: ')+: ! 'otal surplus "#F: 1$%/ NA': Analytic MS*: Analytical
ANS: * ()*: Monopoly /$.
Re$er to F"%&re 15-9. 'o ma6imi7e its profit, a monopolist would choose which of the followin. outcomesD a. 1&& units of output and a price of =1& per unit b. 1&& units of output and a price of =!& per unit c. 1$& units of output and a price of =1$ per unit d. !&& units of output and a price of =!& per unit D F: ')+: ! "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
Re$er to F"%&re 15-9. 'he monopolistLs ma6imum profit a. is =5&&. b. is =1,&&&. c. is =1,!$&. d. cannot be determined from the dia.ram. D F: ')+: ! +rofit "#F: 1$%/ MS*: Analytical NA': Analytic
Re$er to F"%&re 15-9. 'he deadwei.ht loss caused by a profit%ma6imi7in. monopoly amounts to a. =1$&. b. =!&&. c. =!$&. d. =$&&. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative
*hapter 1$9Monopoly
Figure 15-9
Price
!50
M*
A 1 * F ? I D ) @ Q (
Quantity
A'*
M"
/5.
Re$er to F"%&re 15-:' Chat area measures the deadwei.ht lossD a. G1%FHKQ b. &.$RG+%)HKG(%)HS c. &.$RGA%IHKG(%@HS d. &.$RG1%FHKG(%QHS D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
ANS: D ()*: Monopoly Figure 15-10
/8.
Re$er to F"%&re 15-10' Chich area represents the deadwei.ht loss from monopolyD a. @ b. I c. AT1T*TDTFT T@TI d. @TI D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
!5$
*hapter 1$9Monopoly
!r"ce =1& =8 =5 =4 =3 =$ =0 =/ =! =1 =&
Table 15-5 /&ant"ty & 1 ! / 0 $ 3 4 5 8 1& 0&.
Re$er to Ta1le 15-5' f the monopolist faces a constant mar.inal cost of =$, how much output should the firm produceD a. / units b. 0 units c. $ units d. 3 units D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
Re$er to Ta1le 15-5' f the monopolist faces a constant mar.inal cost of =0, how much output should the firm produceD a. / units b. 0 units c. $ units d. 3 units D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
ANS: A ()*: Monopoly 0!.
Re$er to Ta1le 15-5' f the monopolist faces a constant mar.inal cost of =/, how much output should the firm produceD a. / units b. 0 units c. $ units d. 3 units D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
ANS: 1 ()*: Monopoly 0/.
Re$er to Ta1le 15-5' f the monopolist faces a constant mar.inal cost of =!, how much output should the firm produceD a. / units b. 0 units c. $ units d. 3 units D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
Re$er to Ta1le 15-5' f the monopolist faces a constant mar.inal cost of =1, how much output should the firm produceD a. / units b. 0 units c. $ units d. 3 units D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Analytical
*hapter 1$9Monopoly
0$.
!53
Suppose that a monopolist produces .ood A. 'he profit%ma6imi7in. -uantity is 0& units, the profit% ma6imi7in. price is =13&, and the mar.inal cost of the 0&th unit is =1!&. f .ood A were produced in a perfectly competitive market, the e-uilibrium -uantity would be $&, and the e-uilibrium price would be =1$&. Chat is the value of the deadwei.ht loss created by the monopolistD a. =0& b. =1&& c. =!&& d. =0&& D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Analytical
*onsider a profit%ma6imi7in. monopoly pricin. under the followin. conditions. 'he profit%ma6imi7in. price char.ed for .oods produced is =1!.'he intersection of the mar.inal revenue and mar.inal cost curves occurs where output is 1& units and mar.inal cost is =3. 'he socially efficient level of production is 1! units. 'he demand curve and mar.inal cost curves are linear. Chat is the deadwei.ht lossD a. =0 b. =3 c. =1! d. =13 D F: ')+: / "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: Applicative
Scenario 15-3 Suppose a monopolist has a demand curve that can be e6pressed as +;8&%J. 'he monopolist<s mar.inal revenue curve can be e6pressed as M";8&%!J. 'he monopolist has constant mar.inal costs and avera.e total costs of =1&. 04. Re$er to Scenar"o 15--' 'he profit%ma6imi7in. monopolist will produce an output level of a. 5& units. b. 0& units. c. !& units. d. 1& units. D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Applicative
Re$er to Scenar"o 15--' 'he profit%ma6imi7in. monopolist will char.e a price of a. =$&. b. =0&. c. =!&. d. =1&. D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Applicative
Re$er to Scenar"o 15--' 'he profit%ma6imi7in. monopolist will earn profits of a. =3,0&&. b. =/,!&&. c. =1,3&&. d. =5&&. D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Applicative
ANS: * ()*: Monopoly $&.
Re$er to Scenar"o 15--' 'he profit%ma6imi7in. monopolist will have a deadwei.ht loss of a. =3,0&&. b. =/,!&&. c. =1,3&&. d. =5&&. D F: ')+: / "#F: +rofit ma6imi7ation 1$%/ NA': Analytic MS*: Applicative
!54
$1.
*hapter 1$9Monopoly
Chich of the followin. statements is not correctD a. +art of the deadwei.ht loss associated with monopoly is measured by the monopolistLs economic profit. b. Mar.inal cost is always less than avera.e total cost in a natural monopoly. c. Discount coupons available free to the public are a type of price discrimination. d. Anti%trust laws make it harder for firms to create syner.ies. D F: ')+: ! "#F: Deadwei.ht loss 1$%/ NA': Analytic MS*: nterpretive
Sec 0. - Monopoly - !r"ce ,"#cr"6"nat"on

MULT !LE CHO CE 1. +rice discrimination a. is ille.al in the >nited States and #urope. b. can occur in both perfectly competitive and monopoly markets. c. is illo.ical because it does not ma6imi7e profits. d. can ma6imi7e profits if the seller can prevent the resale of .oods between customers. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
ANS: D ()*: Monopoly !.
+rice discrimination is the business practice of a. bundlin. related products to increase total sales. b. sellin. the same .ood at different prices to different customers. c. pricin. above mar.inal cost. d. hirin. marketin. e6perts to increase consumers< brand loyalty. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Definitional
ANS: 1 ()*: Monopoly /.
Chen a monopolist is able to sell its product at different prices, it is en.a.in. in a. distribution pricin.. b. -uality%ad2usted pricin.. c. price differentiation. d. price discrimination. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Definitional
'he practice of sellin. the same .oods to different customers at different prices, but with the same mar.inal cost, is known as a. price se.re.ation. b. price discrimination. c. arbitra.e. d. monopoly pricin.. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Definitional
ANS: 1 ()*: Monopoly $.
For a firm to price discriminate, a. it must be a natural monopoly. b. it must be re.ulated by the .overnment. c. it must have some market power. d. consumers must tell the firm what they are willin. to pay for the product. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
A rational pricin. strate.y for a profit%ma6imi7in. monopolist is a. price discrimination. b. price se.re.ation. c. syner.y pricin.. d. avera.e cost pricin..
*hapter 1$9Monopoly
ANS: A ()*: Monopoly 4. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
!55
+rice discrimination re-uires the firm to a. separate customers accordin. to their willin.ness to pay. b. differentiate between different units of its product. c. en.a.e in arbitra.e. d. use coupons. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
Chich of the followin. can eliminate the inefficiency inherent in monopoly pricin.D a. arbitra.e b. cost%plus pricin. c. price discrimination d. re.ulations that force monopolies to reduce their levels of output D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
A firm cannot price discriminate if it a. has perfect information about consumer demand. b. operates in a competitive market. c. faces a downward%slopin. demand curve. d. is re.ulated by the .overnment. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
A firm cannot price discriminate if a. its has declinin. mar.inal revenue. b. it operates in a competitive market. c. buyers only reveal the price they are willin. to pay for the product. d. it has a constant mar.inal cost. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
11. +rice discrimination adds to social welfare in the form of GiH increased total surplus. GiiH reduced costs of production. GiiiH increased consumer surplus. a. b. c. d. GiH only GiH and GiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
1!. *ompared to the monopoly outcome with a sin.le price, imperfect price discrimination GiH sometimes raises total surplus. GiiH sometimes lowers total surplus. GiiiH always leads to a lower -uantity of output. a. b. c. d. GiH and GiiH only GiiH and GiiiH only GiH and GiiiH only GiH, GiiH, and GiiiH D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
!58
1/.
*hapter 1$9Monopoly
+rice discrimination a. forces monopolies to char.e a lower price as a result of .overnment re.ulation. b. is an attempt by a monopoly to prevent some customers from purchasin. its product by char.in. a hi.h price. c. is an attempt by a monopoly to increases its profit by sellin. the same .ood to different customers at different prices. d. increases the consumer surplus associated with a monopolistic market. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
Chat do economists call the business practice of sellin. the same .ood at difference prices to different customersD a. price discrimination b. collusion c. compensatin. differential d. 1oth a and b are correct D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Definitional
A monopolistLs profits with price discrimination will be a. lower than if the firm char.ed a sin.le, profit%ma6imi7in. price b. the same as if the firm char.ed a sin.le, profit%ma6imi7in. price. c. hi.her than if the firm char.ed 2ust one price because the firm will capture more consumer surplus. d. hi.her than if the firm char.ed a sin.le price because the costs of sellin. the .ood will be lower. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly Figure 15-11

$& 0$ 0& /$ /& !$ !& 1$ 1& $ Price
M *;A'* M" Demand

Quantity
$& 1&& 1$& !&& !$& /&& /$& 0&& 0$& $&& $$& 3&&
13.
Re$er to F"%&re 15-11. f the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to a. =&. b. =$&&. c. =1,&&&. d. =!,&&&. D F: ')+: ! "#F: *onsumer surplus 1$%0 NA': Analytic MS*: Applicative
Re$er to F"%&re 15-11. f the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. =&. b. =!$&. c. =$&&. d. =1,&&&.
*hapter 1$9Monopoly
ANS: A ()*: Monopoly 15. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
!8&
Re$er to F"%&re 15-11. f the monopoly firm is not allowed to price discriminate, then the deadwei.ht loss amounts to a. =$&. b. =1&&. c. =$&&. d. =1,&&&. D F: ')+: / "#F: Deadwei.ht loss 1$%0 NA': Analytic MS*: Applicative
Re$er to F"%&re 15-11. f the monopoly firm perfectly price discriminates, then the deadwei.ht loss amounts to a. =&. b. =1&&. c. =!&&. d. =$&&. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
ANS: A ()*: Monopoly !&.
Re$er to F"%&re 15-11. f there are no fi6ed costs of production, monopoly profit without price discrimination e-uals a. =$&&. b. =1,&&&. c. =!,&&&. d. =0,&&&. D F: ')+: / +rofit "#F: 1$%0 MS*: Applicative NA': Analytic
Re$er to F"%&re 15-11. f there are no fi6ed costs of production, monopoly profit with perfect price discrimination e-uals a. =$&&. b. =1,&&&. c. =!,&&&. d. =0,&&&. D F: ')+: / +rofit "#F: 1$%0 MS*: Applicative NA': Analytic
!81
$& 0$ 0& /$ /& !$ !!.$ !& 1$ 1& $
*hapter 1$9Monopoly
Price
Figure 15-12
M *;A'* M" Demand

Quantity
$& 1&& 1$& !&& !$& /&& /$& 0&& 0$& $&& $$& 3&& 3$& 4&& 4$& 5&&
!!.
Re$er to F"%&re 15-1(. f the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to a. =&. b. =1,$3!.$&. c. =/,1!$. d. =3,!$&. D F: ')+: ! "#F: *onsumer surplus 1$%0 NA': Analytic MS*: Applicative
ANS: 1 ()*: Monopoly !/.
Re$er to F"%&re 15-1(. f the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. =&. b. =1,$3!.$&. c. =/,1!$. d. =3,!$&. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
Re$er to F"%&re 15-1(. f the monopoly firm is not allowed to price discriminate, then the deadwei.ht loss amounts to a. =&. b. =1,$3!.$&. c. =/,1!$. d. =3,!$&. D F: ')+: / "#F: Deadwei.ht loss 1$%0 NA': Analytic MS*: Applicative
ANS: 1 ()*: Monopoly !$.
Re$er to F"%&re 15-1(. f the monopoly firm perfectly price discriminates, then the deadwei.ht loss amounts to a. =&. b. =1,$3!.$&. c. =/,1!$. d. =3,!$&. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
Re$er to F"%&re 15-1(. f there are no fi6ed costs of production, monopoly profit without price discrimination e-uals a. =&. b. =1,$3!.$&. c. =/,1!$. d. =3,!$&.
*hapter 1$9Monopoly
ANS: * ()*: Monopoly !4. D F: ')+: / +rofit "#F: 1$%0 MS*: Applicative NA': Analytic
!8!
Re$er to F"%&re 15-1(. f there are no fi6ed costs of production, monopoly profit with perfect price discrimination e-uals a. =1. b. =1,$3!.$. c. =/,1!$. d. =3,!$&. D F: ')+: / +rofit "#F: 1$%0 MS*: Applicative NA': Analytic
Scenario 15-4 1lack 1o6 *able 'M is able to purchase an e6clusive ri.ht to sell a premium movie channel G+M*H in its market area. (etLs assume that 1lack 1o6 *able pays =1$&,&&& a year for the e6clusive marketin. ri.hts to +M*. Since 1lack 1o6 has already installed cable to all of the homes in its market area, the mar.inal cost of deliverin. +M* to subscribers is 7ero. 'he mana.er of 1lack 1o6 needs to know what price to char.e for the +M* service to ma6imi7e her profit. 1efore settin. price, she hires an economist to estimate demand for the +M* service. 'he economist discovers that there are two types of subscribers who value premium movie channels. First are the 0,&&& die%hard 'M viewers who will pay as much as =1$& a year for the new +M* premium channel. Second, the +M* channel will appeal to about !&,&&& occasional 'M viewers who will pay as much as =!& a year for a subscription to +M*. !5. Re$er to Scenar"o 15-.. f 1lack 1o6 *able 'M is unable to price discriminate, what price will it choose to ma6imi7e its profit, and what is the amount of the profitD a. price ; =!&O profit ; =0&&,&&& b. price ; =!&O profit ; =//&,&&& c. price ; =1$&O profit ; =0$&,&&& d. price ; =1$&O profit ; =3&&,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
Re$er to Scenar"o 15-.. f 1lack 1o6 *able 'M is able to price discriminate, what would be the ma6imum amount of profit it could .enerateD a. =$&&,&&& b. =3&&,&&& c. =5$&,&&& d. =8!$,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
ANS: * ()*: Monopoly /&.
Re$er to Scenar"o 15-.. Chat is the deadwei.ht loss associated with the nondiscriminatin. pricin. policy compared to the price discriminatin. policyD a. =/4$,&&& b. =0&&,&&& c. =04$,&&& d. t cannot be determined from the information provided. D F: ')+: / "#F: Deadwei.ht loss 1$%0 NA': Analytic MS*: Applicative
!8/
*hapter 1$9Monopoly
Scenario 15-5 Me.a Media *able 'M is able to purchase an e6clusive ri.ht to sell a premium sports channel in its market area. (etLs assume that Me.a Media pays =1&&,&&& a year for the e6clusive marketin. ri.hts to the sports channel. Since Me.a Media has already installed cable to all of the homes in its market area, the mar.inal cost of deliverin. the sports channel to subscribers is 7ero. 'he mana.er of Me.a Media needs to know what price to char.e for the sports channel service to ma6imi7e her profit. 1efore settin. price, she hires an economist to estimate demand for the sports channel. 'he economist discovers that there are two types of subscribers who value premium sportin. channels. First are the /,&&& die%hard sports fans who will pay as much as =1$& a year for the new channel. Second, the premium sports channel will appeal to about !&,&&& occasional sports viewers who will pay as much as =!$ a year for a subscription to it. /1. Re$er to Scenar"o 15-5. f 1lack 1o6 *able 'M is unable to price discriminate, what price will it choose to ma6imi7e its profit, and what is the amount of the profitD a. price ; =!$O profit ; =0$&,&&& b. price ; =!$O profit ; =/$&,&&& c. price ; =1$&O profit ; =$&&,&&& d. price ; =1$&O profit ; =0&&,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
ANS: D ()*: Monopoly /!.
Re$er to Scenar"o 15-5. f 1lack 1o6 *able 'M is able to price discriminate, what would be the ma6imum amount of profit it could .enerateD a. =8$&,&&& b. =5$&,&&& c. =0&&,&&& d. =/$&,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
ANS: 1 ()*: Monopoly //.
Re$er to Scenar"o 15-5. Chat is the deadwei.ht loss associated with the nondiscriminatin. pricin. policy compared to the price discriminatin. policyD a. =$&&,&&& b. =0$&,&&& c. =0&&,&&& d. t cannot be determined from the information provided. D F: ')+: / "#F: Deadwei.ht loss 1$%0 NA': Analytic MS*: Applicative
Chich of the followin. can defeat the profit%ma6imi7in. strate.y of price discriminationD a. consumer surplus b. deadwei.ht loss c. market power d. arbitra.e D F: ')+: 1 Arbitra.e "#F: 1$%0 MS*: Definitional NA': Analytic
+rice discrimination is a rational strate.y for a profit%ma6imi7in. monopolist when a. the monopolist finds itself able to produce only limited -uantities of output. b. consumers are unable to be se.mented into identifiable markets. c. the monopolist wishes to increase the deadwei.ht loss that results from profit%ma6imi7in. behavior. d. there is no opportunity for arbitra.e across market se.ments. D F: ')+: ! Arbitra.e "#F: 1$%0 MS*: nterpretive NA': Analytic
A market force that can prevent firms from price discriminatin. is a. fluctuatin. resource prices. b. arbitra.e. c. hi.h fi6ed costs. d. mar.inal%cost pricin..
*hapter 1$9Monopoly
ANS: 1 ()*: Monopoly /4. D F: ')+: ! Arbitra.e "#F: 1$%0 MS*: nterpretive NA': Analytic
!80
'he process of buyin. a .ood in one market at a low price and sellin. the .ood in another market for a hi.her price in order to profit from the price difference is known as a. sabota.e. b. conspiracy. c. arbitra.e. d. collusion. D F: ')+: 1 Arbitra.e "#F: 1$%0 MS*: Definitional NA': Analytic
+erfect price discrimination a. eliminates deadwei.ht loss. b. reduces profits to the monopolist. c. decreases the total -uantity sold by the monopolist. d. re-uires arbitra.e in order for the monopolist to ma6imi7e profits. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Applicative
+erfect price discrimination a. increases profits to the firm. b. increases total surplus. c. decreases consumer surplus. d. All of the above are correct. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Applicative
A perfectly price%discriminatin. monopolist is able to a. ma6imi7e profit and produce a socially%optimal level of output. b. ma6imi7e profit, but not produce a socially%optimal level of output. c. produce a socially%optimal level of output, but not ma6imi7e profit. d. e6ercise ille.al preferences re.ardin. the race and9or .ender of its employees. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
f a monopolist is able to perfectly price discriminate, a. consumer surplus is always increased. b. total surplus is always decreased. c. consumer surplus and deadwei.ht losses are transformed into monopoly profits. d. the price effect dominates the output effect on monopoly revenue. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
n theory, perfect price discrimination a. decreases the monopolistLs profits. b. decreases consumer surplus. c. increases deadwei.ht loss. d. reduces the number of consumers who purchase the monopoly<s product. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
+erfect price discrimination describes a situation in which the monopolist a. knows the e6act willin.ness to pay of each of its customers. b. char.es e6actly two different prices to e6actly two different .roups of customers. c. ma6imi7es consumer surplus. d. e6periences a 7ero economic profit. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
!8$
00.
*hapter 1$9Monopoly
n reality, perfect price discrimination is a. used by about 4$ percent of all monopolies. b. used by about $& percent of all monopolies. c. seldom used by monopolies because it leads to lower profits. d. rarely possible. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
Iow does a competitive market compare to a monopoly that en.a.es in perfect price discriminationD a. n both cases, total social welfare is the same. b. 'otal social welfare is hi.her in the competitive market than with the perfectly price discriminatin. monopoly. c. n both cases, some potentially mutually beneficial trades do not occur. d. *onsumer surplus is the same in both cases. D F: ')+: / "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
A monopolist that practices perfect price discrimination a. creates no deadwei.ht loss. b. char.es one .roup of buyers a hi.her price than another .roup, such as offerin. a student discount. c. char.es a hi.her price but produces the same monopoly level of output as when a sin.le price is char.ed. d. char.es some customers a price below mar.inal cost because costs are covered by the hi.h%priced buyers. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: nterpretive
A monopolist faces the followin. demand curve: !r"ce =5 =4 =3 =$ =0 =/ =! =1 /&ant"ty /&& 0&& $&& 3&& 4&& 5&& 8&& 1,&&&
'he monopolist has fi6ed costs of =1,&&& and has a constant mar.inal cost of =! per unit. f the monopolist were able to perfectly price discriminate, how many units would it sellD a. 0&& b. $&& c. 8&& d. 0,!&& ANS: * ()*: Monopoly 05. D F: ')+: / "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Analytical
Cith perfect price discrimination the monopoly a. eliminates all price discrimination by char.in. each customer the same price. b. char.es each customer an amount e-ual to the monopolistLs mar.inal cost of production. c. eliminates deadwei.ht loss. d. eliminates profits and increases consumer surplus. D F: ')+: ! "#F: 1$%0 +erfect price discrimination NA': Analytic MS*: Applicative
*hapter 1$9Monopoly
!83
Scenario 15-6 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular fli.ht, there are 1&& business travelers who will pay =3&& for a ticket while there are $& vacationers who will pay =/&& for a ticket. 'here are 1$& seats available on the plane. Suppose the cost to the airline of providin. the fli.ht is =!&,&&&, which includes the cost of the pilots, fli.ht attendants, fuel, etc. 08. Re$er to Scenar"o 15-7' Iow much profit will the airline earn if it sets the price of a ticket at =3&&D a. %=$,&&& b. =1$,&&& c. =0&,&&& d. =3&,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
ANS: * ()*: Monopoly $&.
Re$er to Scenar"o 15-7' Iow much profit will the airline earn if it sets the price of a ticket at =/&&D a. %=1$,&&& b. %=$,&&& c. =!$,&&& d. =0$,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Re$er to Scenar"o 15-7' Iow much profit will the airline earn if it en.a.es in price discriminationD a. %=$,&&& b. =0&,&&& c. =$$,&&& d. =4$,&&& D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
ANS: * ()*: Monopoly $!.
Re$er to Scenar"o 15-7' Iow much additional profit can the firm earn by char.in. each customer their willin.ness to pay relative to char.in. a flat price of =3&& per ticketD a. =1$,&&& b. =!$,&&& c. =0&,&&& d. =4&,&&& D F: ')+: / "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Table 15-6 DreherLs Desi.ner Shirt *ompany, a monopolist, has the followin. cost and revenue information. Assume that Dreher<s is able to en.a.e in perfect price discrimination. COSTS Total Co#t =1&& =10& =150 =!/& =!5& =//$ =/8$ =04$ =$4$ RE2ENUES !r"ce Total Re0en&e =14& =13& =1$& =10& =1/& =1!& =11& =1&& =8$
/&ant"ty !ro+&ce+ & 1 ! / 0 $ 3 4 5
Mar%"nal Co#t %%
/&ant"ty ,e6an+e+ & 1 ! / 0 $ 3 4 5
Mar%"nal Re0en&e %%
!84
$/.
*hapter 1$9Monopoly
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the mar.inal revenue from sellin. the $th shirtD a. =5& b. =1&& c. =11& d. =1!& D F: ')+: ! "#F: Mar.inal revenue 1$%0 NA': Analytic MS*: Applicative
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the mar.inal revenue from sellin. the 5th shirtD a. =0$ b. =3& c. =5& d. =8$ D F: ')+: ! "#F: Mar.inal revenue 1$%0 NA': Analytic MS*: Applicative
ANS: D ()*: Monopoly $$.
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the total revenue when / shirts are soldD a. =10& b. =0!& c. =0$& d. =3!& D F: ')+: / 'otal revenue "#F: 1$%0 NA': Analytic MS*: Applicative
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the total revenue when 4 shirts are soldD a. =3$& b. =4&& c. =81& d. =1&5& D F: ')+: / 'otal revenue "#F: 1$%0 NA': Analytic MS*: Applicative
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the avera.e revenue when 4 shirts are soldD a. =8& b. =1&& c. =11& d. =1/& D F: ')+: / "#F: Avera.e revenue 1$%0 NA': Analytic MS*: Applicative
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is the -uantity that ma6imi7es economic profitD a. $ b. 3 c. 4 d. 5 D F: ')+: / "#F: +rofit ma6imi7ation 1$%0 NA': Analytic MS*: Applicative
*hapter 1$9Monopoly
$8.
!85
Re$er to Ta1le 15-7. f the monopolist can en.a.e in perfect price discrimination, what is total profit at the profit%ma6imi7in. -uantityD a. =/!$ b. =0/$ c. =$3$ d. =1&&& D F: ')+: / +rofit "#F: 1$%0 MS*: Applicative NA': Analytic
Re$er to Ta1le 15-7. Chat are DreherLs Desi.ner Shirt *ompanyLs fi6ed costsD a. =1&& b. =1$& c. =/$0 d. =3$0 D F: ')+: ! Fi6ed cost "#F: 1$%0 MS*: Applicative NA': Analytic
Chich of the followin. is not an e6ample of price discriminationD a. A movie theater char.es a lower price for a child<s ticket than for an adult<s ticket. b. A university rebates part of the cost of tuition in the form of financial aid for needy students. c. A local pi77a chain offers a Abuy three .et one freeB deal. d. An ice cream parlor char.es a hi.her price for ice cream than for sherbet. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
A movie theater can increase its profits throu.h price discrimination by char.in. a hi.her price to adults and a lower price to children if it a. can prevent children from buyin. the lower%priced tickets and sellin. them to adults. b. has some de.ree of monopoly pricin. power. c. can easily distin.uish between the two .roups of customers. d. All of the above are correct. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
Financial aid to colle.e students, -uantity discounts, and senior citi7en discounts are all e6amples of a. consumer surplus. b. deadwei.ht loss. c. price discrimination. d. nonprofit pricin. strate.ies. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
Chen decidin. what price to char.e consumers, the monopolist may choose to char.e them different prices based on the customersL a. .eo.raphical location. b. a.e. c. income. d. All of the above are correct. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
Many movie theaters allow discount tickets to be sold to senior citi7ens because a. senior%citi7en laws mandate such discounts. b. .oodwill efforts show community respect and win loyal patrons. c. the theaters are profit ma6imi7ers. d. senior citi7ens lobby city councils for lower prices. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
!88
33.
*hapter 1$9Monopoly
"ound%trip airline tickets are usually cheaper if you stay over a Saturday ni.ht before you fly back. Chat is the reason for this price discrepancyD a. Airlines are practicin. imperfect price discrimination to raise their profits. b. Airlines char.e a different rate based on the different nature of peoplesL travel needs. c. Airlines are attemptin. to char.e people based on their willin.ness to pay. d. All of the above are correct. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
Chen a local .rocery store offers discount coupons in the Sunday paper it is most likely tryin. to a. reduce prices for all customers. b. encoura.e literacy. c. encoura.e arbitra.e. d. price discriminate. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
+rice discrimination e6plains why vy (ea.ue universities often base tuition costs on studentsL a. a.e. b. financial resources. c. hi.h school ?+A. d. .ender. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Some prescription dru.s sell for more in the >nited States than they do in other countries. Chich of the followin. statements about this issue is most likely to be trueD a. Dru. companies are en.a.in. in price discrimination, and this practice certainly reduces .lobal social welfare. b. ?lobal social welfare could be improved if the price in the >nited States were reduced to the price char.ed in other countries. c. ?lobal social welfare could be improved if the price in the other countries were increased to the price char.ed in the >nited States. d. Dru. companies are en.a.in. in price discrimination, but this mi.ht improve .lobal social welfare if it .ives more people access to the dru.s. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
Chich of the followin. is not an e6ample of price discrimination by a firmD a. childrenLs meals at a restaurant b. a natural .as company char.in. customers a hi.her rate in the winter than in the summer c. a senior citi7ensL discount d. coupons in the Sunday newspaper D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
*ustomers who purchase a book from DaveLs 1ookstore are char.ed !&U more than customers who purchase the same book from the DaveLs 1ookstore website. 'his is an e6ample of a. perfect price discrimination. b. price discrimination. c. deadwei.ht loss. d. socially inefficient output. D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: Applicative
*hapter 1$9Monopoly
4!.
/&&
Durin. the holiday season, hi.h%end retailers fre-uently place a hi.h price on merchandise on weekends and discount the price durin. the week. 'hey do this because they believe that two .roups of customers e6ist: shoppers with little free time and bar.ain hunters. 1ar.ain hunters have time to shop around and fre-uently shop durin. the week. Chat do economists call this price strate.y used by hi.h%end retailersD a. oli.opoly b. price discrimination c. compensatin. differential d. in%kind transfers D F: ')+: ! "#F: +rice discrimination 1$%0 NA': Analytic MS*: nterpretive
Chich of the followin. is an e6ample of price discriminationD a. Nabisco provides cents%off coupons for its products. b. Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. c. Iotel rates for AAA members are lower than for nonmembers. d. All of the above are correct. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Chich of the followin. statements comparin. monopoly with competition is correctD a. A monopolist produces a hi.her level of output and char.es a lower price than a competitive firm would. b. Cith perfect price discrimination, the total surplus under monopoly can be the same as under competition. c. Cith or without price discrimination, the consumer surplus under monopoly is at least as lar.e as it would be under competition. d. 'he deadwei.ht loss associated with monopoly is caused by the positive economic profits of the monopolistO competitive firms do not earn a positive economic profit so there is no deadwei.ht loss under competition. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Chich of the followin. is the most likely reason the city council in New Nork *ity consistently denies licenses to independent van drivers sellin. rides to the publicD a. Allowin. the vans to operate would reduce social welfare. b. 'he van drivers en.a.e in price discrimination. c. Allowin. the vans to operate would allow them to unfairly take advanta.e of poor residents. d. 'he vans are a threat to the public transit monopoly, which makes campai.n contributions to the city council members. D F: ')+: 1 "#F: +rice discrimination 1$%0 NA': Analytic MS*: Analytical
Sec 05 - Monopoly - !&1l"c !ol"cy To)ar+ Monopol"e#

MULT !LE CHO CE 1. Chich of the followin. may eliminate some or all of the inefficiency that results from monopoly pricin.D a. 'he .overnment can re.ulate the monopoly. b. 'he monopoly can be prohibited from price discriminatin.. c. 'he monopoly can be forced to operate at a point where its mar.inal revenue is e-ual to its mar.inal cost. d. None of the above would eliminate any inefficiency associated with a monopoly. D F: ')+: ! Antitrust "#F: 1$%$ MS*: Applicative NA': Analytic
/&1
!.
*hapter 1$9Monopoly
Antitrust laws have economic benefits that outwei.h the costs if they a. prevent mer.ers that would decrease competition and lower the costs of production. b. prevent mer.ers that would decrease competition and raise the costs of production. c. allow mer.ers that would decrease competition and raise the costs of production. d. None of the above is correct because antitrust laws never have economic benefits that outwei.h the costs. D F: ')+: ! Antitrust "#F: 1$%$ MS*: Applicative NA': Analytic
Chich of the followin. statements is not correctD a. 'wo e6amples of early antitrust laws are the Sherman and *layton Antitrust Acts. b. Antitrust laws automatically prevent mer.ers between companies that produce similar products. c. Antitrust laws .ive the .overnment power to increase competition. d. Antitrust laws can reduce social welfare if they prevent mer.ers that would lower costs throu.h more efficient 2oint production. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
Chich of the followin. statements is correctD a. 'wo e6amples of early antitrust laws are the *linton and Sti.ler Antitrust Acts. b. Antitrust laws automatically prevent mer.ers between companies that produce similar products. c. Antitrust laws reduce the .overnment<s power to re.ulate private companies. d. Antitrust laws can reduce social welfare if they prevent mer.ers that would lower costs throu.h more efficient 2oint production. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
ANS: D ()*: Monopoly $.
'he first ma2or piece of antitrust le.islation was the a. *layton Act. b. "ea.an%1ush Act. c. Sherman Act. d. *linton%?ore Act. D F: ')+: 1 Antitrust "#F: 1$%$ MS*: Definitional NA': Analytic
'he le.islation passed by *on.ress in 158& to reduce the market power of lar.e and powerful FtrustsF is called the a. Mor.an Act. b. Sherman Act. c. *layton Act. d. 10th Amendment. D F: ')+: 1 Antitrust "#F: 1$%$ MS*: Definitional NA': Analytic
'he le.islation passed by *on.ress in 1810 to stren.then the .overnment<s powers and authori7e private lawsuits is called the a. Mor.an Act. b. Sherman Act. c. *layton Act. d. 10th Amendment. D F: ')+: 1 Antitrust "#F: 1$%$ MS*: Definitional NA': Analytic
'he collection of statutes aimed at curbin. monopoly power is called a. the 10th amendment. b. the *layton Act. c. the Sherman Act. d. antitrust law.
*hapter 1$9Monopoly
ANS: D ()*: Monopoly 8. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
/&!
n order for antitrust laws to raise social welfare, the .overnment must a. disallow syner.y benefits from accruin. to monopolists. b. disallow any mer.ers from takin. place. c. be able to determine which mer.ers are desirable and which are not. d. always attempt to keep markets in their most competitive form. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
"educed competition throu.h mer.in. of companies will raise social welfare a. if the cost from the syner.ies e6ceeds the benefit of increased market power. b. if the benefit from the syner.ies e6ceeds the social cost of increased market power. c. always. d. never. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
)ne method used to control the ability of firms to capture monopoly profit in the >nited States is throu.h a. .overnment purchase of products produced by monopolists. b. .overnment distribution of a monopolistLs e6cess production. c. enforcement of antitrust laws. d. re.ulation of firms in hi.hly competitive markets. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
Antitrust laws may a. enhance the ability of firms to capture profits from a concentration of market power. b. enhance the ability of firms to reduce economic losses. c. restrict the ability of firms to operate at the socially efficient level of production. d. restrict the ability of firms to mer.e. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
Antitrust laws allow the .overnment to a. prevent mer.ers. b. break up companies. c. promote competition. d. All of the above are correct. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
Antitrust laws allow the .overnment to a. collect revenues throu.h the antitrust ta6. b. break up companies. c. purchase privately%held companies throu.h eminent domain. d. All of the above are correct. D F: ')+: ! Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
Splittin. up a monopoly is often 2ustified on the .rounds that a. consumers prefer dealin. with small firms. b. small firms have lower costs. c. competition is inherently efficient. d. nationali7ation is a less%preferred option. D F: ')+: 1 Antitrust "#F: 1$%$ MS*: nterpretive NA': Analytic
/&/
13.
*hapter 1$9Monopoly
Chich of the followin. statements is not correctD a. +art of the deadwei.ht loss associated with monopoly is measured by the monopolistLs economic profit. b. Mar.inal cost is always less than avera.e total cost in a natural monopoly. c. Discount coupons available free to the public are a type of price discrimination. d. Anti%trust laws make it harder for firms to create syner.ies. D F: ')+: 1 "#F: 1$%$ Antitrust E Natural monopoly NA': Analytic MS*: nterpretive
)ne problem with .overnment operation of monopolies is that a. a benevolent .overnment is likely to be interested in .eneratin. profits for political .ain. b. monopolies typically have risin. avera.e costs. c. the .overnment typically has little incentive to reduce costs. d. a .overnment%re.ulated outcome will increase the profitability of the monopoly. D F: ')+: ! "e.ulation "#F: 1$%$ MS*: nterpretive NA': Analytic
)ne problem with re.ulatin. a monopolist on the basis of cost is that a. by focusin. on costs, the re.ulators i.nore profits. b. it does not provide an incentive for the monopolist to reduce its cost. c. a monopolistLs costs, by definition, are hi.her than costs of perfectly competitive firms. d. a monopolist is still able to .enerate e6cessive economic profits. D F: ')+: ! "e.ulation "#F: 1$%$ MS*: nterpretive NA': Analytic
'he task of economic re.ulation is to a. protect monopoly profits. b. appro6imate the results of the competitive market. c. replace competition with .overnment ownership. d. increase competition within the market. D F: ')+: 1 "e.ulation "#F: 1$%$ MS*: nterpretive NA': Analytic
+olicymakers are discussin. various proposals re.ardin. how to deal with natural monopolies. Senator Iuff wants to re.ulate natural monopolies by e-uatin. price with avera.e total cost. Iuff contends that such a policy will ensure that monopolies make every effort to reduce costs. Senator +uff wants the .overnment to own natural monopolies. +uff ar.ues that .overnment%owned monopolies usually do a better 2ob of holdin. down costs than privately owned monopolies. Chich senatorLs ar.ument is correctD a. Senator Iuff b. Senator +uff c. both senators d. neither senator D F: ')+: ! "#F: 1$%$ +ublic ownership E "e.ulation NA': Analytic MS*: nterpretive
Chich type of public policy toward monopolies is much more common in #urope than in the >nited StatesD a. antitrust laws b. re.ulation c. public ownership d. Ado nothin.B D F: ')+: ! "#F: +ublic ownership 1$%$ NA': Analytic MS*: Applicative
Chich of the followin. is an e6ample of public ownership of a monopolyD a. De1eers b. Microsoft c. >.S. +ostal Service d. A'V'
*hapter 1$9Monopoly
ANS: * ()*: Monopoly !/. D F: ')+: 1 "#F: +ublic ownership 1$%$ NA': Analytic MS*: Applicative
/&0
+rivate ownership of a monopoly may benefit society because the monopoly will have an incentive to a. char.e a price that is consistent with that of a benevolent social planner. b. char.e a price that prevents some people from buyin.. c. price its .ood accordin. to the intersection of mar.inal cost and avera.e revenue. d. lower its costs to earn a hi.her profit. D F: ')+: ! "#F: +ublic ownership 1$%$ NA': Analytic MS*: nterpretive
f .overnment re.ulation sets the ma6imum price for a natural monopoly e-ual to its mar.inal cost, then the natural monopolist will a. earn economic losses. b. earn economic profits. c. earn 7ero economic profits. d. produce a lower -uantity of output than is socially optimal. D F: ')+: ! "#F: 1$%$ "e.ulation E Natural monopoly NA': Analytic MS*: Applicative
ANS: A ()*: Monopoly !$.
f the .overnment re.ulates the price that a natural monopolist can char.e to be e-ual to the firm<s mar.inal cost, the firm will a. earn 7ero profits. b. earn positive profits, causin. other firms to enter the industry. c. earn ne.ative profits, causin. the firm to e6it the industry. d. minimi7e costs in order to lower the price that it char.es. D F: ')+: ! "#F: 1$%$ "e.ulation E Natural monopoly NA': Analytic MS*: Applicative
f the .overnment re.ulates the price that a natural monopolist can char.e to be e-ual to the firm<s avera.e total cost, the firm will a. earn 7ero profits. b. earn positive profits, causin. other firms to enter the industry. c. earn ne.ative profits, causin. the firm to e6it the industry. d. minimi7e costs in order to lower the price that it char.es. D F: ')+: ! "#F: 1$%$ "e.ulation E Natural monopoly NA': Analytic MS*: Applicative
Chen re.ulators use a mar.inal%cost pricin. strate.y to re.ulate a natural monopoly, the re.ulated monopoly a. will e6perience a loss. b. will e6perience a price below avera.e total cost. c. may rely on a .overnment subsidy to remain in business. d. All of the above are correct. D F: ')+: ! "#F: 1$%$ "e.ulation E Natural monopoly NA': Analytic MS*: nterpretive
Since natural monopolies have a declinin. avera.e cost curve, re.ulatin. natural monopolies by settin. price e-ual to mar.inal cost would a. cause the monopolist to operate at a loss. b. result in a less than optimal total surplus. c. ma6imi7e producer surplus. d. result in hi.her profits for the monopoly. D F: ')+: ! "#F: 1$%$ "e.ulation E Natural monopoly NA': Analytic MS*: nterpretive
'he key issue in determinin. the efficiency of public versus private ownership of a monopoly is a. the tendency for efficient mana.ement of publicly owned enterprises. b. the inability of private monopolies to .et rid of mana.ers that are doin. a bad 2ob. c. the propensity of private monopolies to .enerate e6cessive profits. d. how ownership of the firm affects the cost of production.
/&$
*hapter 1$9Monopoly
D F: ')+: ! "#F: 1$%$ +ublic ownership E Natural monopoly NA': Analytic
ANS: D ()*: Monopoly MS*: nterpretive /&.
For a typical natural monopoly, avera.e total cost is a. fallin., and mar.inal cost is above avera.e total cost. b. fallin., and mar.inal cost is below avera.e total cost. c. risin., and mar.inal cost is below avera.e total cost. d. risin., and mar.inal cost is above avera.e total cost. D F: ')+: ! "#F: Natural monopoly 1$%$ NA': Analytic MS*: Analytical
n the ma2ority of cases where there is a natural monopoly, the >. S. .overnment usually deals with the problem a. by splittin. the natural monopoly into smaller companies. b. throu.h re.ulation. c. by turnin. the natural monopoly into a public enterprise. d. by doin. nothin.. D F: ')+: ! "#F: Natural monopoly 1$%$ NA': Analytic MS*: nterpretive
ANS: 1 ()*: Monopoly /!.
n a natural monopoly, a. society would be better off if antitrust laws were used to create many different firms in the market. b. the mar.inal cost curve is positively sloped. c. if the .overnment re-uires mar.inal cost pricin., it will likely have to subsidi7e the firm. d. the mar.inal revenue curve is hori7ontal. D F: ')+: ! "#F: Natural monopoly 1$%$ NA': Analytic MS*: nterpretive
ANS: * ()*: Monopoly //.
For a lon. while, electricity producers were thou.ht to be a classic e6ample of a natural monopoly. +eople held this view because a. the avera.e cost of producin. units of electricity by one producer in a specific re.ion was lower than if the same -uantity were produced by two or more producers in the same re.ion. b. the avera.e cost of producin. units of electricity by one producer in a specific re.ion was hi.her than if the same -uantity were produced by two or more produced in the same re.ion. c. the mar.inal cost of producin. units of electricity by one producer in a specific re.ion was hi.her than if the same -uantity were produced by two or more producers in the same re.ion. d. electricity is a special non%e6cludable .ood that could never be sold in a competitive market. D F: ')+: ! "#F: Natural monopoly 1$%$ NA': Analytic MS*: nterpretive
'he reason to re.ulate utilities instead of usin. antitrust laws to promote competition is that a utility is usually a a. profit%ma6imi7in. monopoly. b. producer of e6ternalities. c. revenue%ma6imi7in. monopoly. d. natural monopoly. D F: ')+: ! "#F: Natural monopoly 1$%$ NA': Analytic MS*: nterpretive
Chich of the followin. statements is correctD a. +ublic ownership is preferred to re.ulation in order to minimi7e the deadwei.ht losses associated with natural monopolies. b. Antitrust laws are always the best way to limit monopoly power. c. t is possible that the best approach to monopolies is for the .overnment to do nothin.. d. Mar.inal%cost pricin. re-uires a natural monopoly to earn 7ero economic profits. D F: ')+: ! "#F: 1$%$ NA': Analytic Antitrust E "e.ulation E +ublic ownership
ANS: * ()*: Monopoly MS*: nterpretive
*hapter 1$9Monopoly
/3.
/&3
'he assessment by ?eor.e Sti.ler concernin. the tradeoffs between Fmarket failureF and Fpolitical failureF in the American economy provides support for which of the followin. solutions to the problems of monopoliesD a. public ownership of monopolies b. .overnment re.ulation of monopolies c. .overnment incentives to promote competition in monopoli7ed industries d. doin. nothin. at all D F: ')+: ! Do nothin. "#F: 1$%$ MS*: nterpretive NA': Analytic
'he ?eor.e Sti.ler -uote, A...the de.ree of Wmarket failure< for the American economy is much smaller than the Wpolitical failure< arisin. from the imperfections of economic policies ...B illustrates the advanta.e of which type of public policy toward monopoliesD a. antitrust laws b. re.ulation c. public ownership d. Ado nothin.B D F: ')+: ! Do nothin. "#F: 1$%$ MS*: nterpretive NA': Analytic
Chich of the followin. is the preferred strate.y for the .overnment to follow to remedy the inefficient allocation of resources associated with monopoliesD a. preventin. mer.ers throu.h antitrust laws b. re.ulatin. the prices that monopolies can char.e c. do nothin. d. None of the above strate.ies is preferred. #ach is a viable strate.y. D F: ')+: ! Monopoly "#F: 1$%$ MS*: Applicative NA': Analytic
Chich of the followin. statements is not correctD a. 'he .overnment may use antitrust laws to break up an e6istin. company to improve competition. b. 'he .overnment may break up a natural monopoly to lower the price char.ed to customers. c. +rivate ownership is typically preferred to public ownership. d. Sometimes the best strate.y is for the .overnment to do nothin. about monopoly inefficiency because the Afi6B may be worse than the problem. D F: ')+: ! Monopoly "#F: 1$%$ MS*: Applicative NA': Analytic
Chich of the followin. statements is not correctD a. 'he .overnment may use antitrust laws to prevent a mer.er if the .overnment believes the mer.er will reduce competition and increase prices. b. 1y re.ulatin. a natural monopoly where price e-uals avera.e total cost, the monopoly earns 7ero profits. c. An advanta.e of private ownership over public ownership is that private business owners tend to fire inefficient mana.ers. d. 'he .overnment should always intervene to improve monopoly inefficiency. D F: ')+: ! Monopoly "#F: 1$%$ MS*: Applicative NA': Analytic
Sec 07 - Concl&#"on
MULT !LE CHO CE 1. Chich of the followin. strate.ies is not an effective strate.y to reduce monopoly inefficiencyD a. antitrust laws b. price discrimination c. doin. nothin. d. breakin. up a natural monopoly into more than one firm D F: ')+: ! Monopoly "#F: 1$%3 MS*: nterpretive NA': Analytic
/&4
!.
*hapter 1$9Monopoly
Most firms have a. no monopoly pricin. power. b. some monopoly pricin. power. c. absolute monopoly pricin. power. d. the ability to earn monopoly profits. D F: ')+: 1 Monopoly "#F: 1$%3 MS*: nterpretive NA': Analytic
Chich of the followin. statements is correctD a. Firms with some de.ree of monopoly power are common, but firms with substantial monopoly power are rare. b. Firms with some de.ree of monopoly power are rare, as are firms with substantial monopoly power. c. Firms with some de.ree of monopoly power are common, as are firms with substantial monopoly power. d. Firms with some de.ree of monopoly power are rare, but firms with substantial monopoly power are common. D F: ')+: ! Monopoly "#F: 1$%3 MS*: nterpretive NA': Analytic

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Chapter 15 Monopoly

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