Chapter 10 Monopoly - Lecture notes 1 PDF

Preview

Summary

ksdsh sfhjfh jhjhfjkdhjdhjkh jhdjhjkdhjkzchvjvj...

Description

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly True / False 1. By definition, monopolists sell a product for which there are absolutely no substitutes. a. True b. Fals e ANSWER: Fals e 2. Legal barriers to entry include patents, government licenses and economies of scale. a. True b. Fals e ANSWER: Fals e 3. The single-price monopolist produces the quantity of output at which marginal cost equals marginal revenue and charges a price that is greater than marginal revenue. a. True b. Fals e ANSWER: True 4. Price discrimination occurs when a seller charges different prices for its product and the price differences result from differences in the costs of production. a. True b. Fals e ANSWER: Fals e 5. The perfectly price-discriminating monopolist achieves resource allocative efficiency, while the single-price monopolist does not. a. True b. Fals e ANSWER: True 6. Third-degree price discrimination is sometimes called discrimination among buyers. a. True b. Fals e ANSWER: True 7. If a firm has no variable costs, the profit-maximizing price is also the revenue-maximizing price. a. True Copyright Cengage Learning. Powered by Cognero.

Page 1

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly b. Fals e ANSWER: True 8. Monopolists are guaranteed to earn a positive economic profit because they are the only seller in their industry. a. True b. Fals e ANSWER: Fals e 9. A monopolist that practices perfect price discrimination has the same deadweight loss triangle as the single-price monopolist. a. True b. Fals e ANSWER: Fals e 10. The monopolist's demand curve is perfectly inelastic. a. True b. Fals e ANSWER: Fals e 11. One of the conditions necessary for price discrimination is that the seller be a price searcher. a. True b. Fals e ANSWER: True 12. The U.S. Postal Service is an example of a public franchise. a. True b. Fals e ANSWER: True 13. Economic rent is a payment received in excess of marginal cost. a. True b. Fals e ANSWER: Fals e 14. The Townsend Acts, passed by the British Parliament in 1767, imposed taxes on various products imported into the Copyright Cengage Learning. Powered by Cognero.

Page 2

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly American colonies. a. True b. Fals e ANSWER: True 15. At one time, monopolies were granted to people who were in the favor of kings and queens. a. True b. Fals e ANSWER: True 16. X-inefficiency occurs when a monopolist produces output at a cost that is greater than the lowest possible cost. a. True b. Fals e ANSWER: True 17. When a store offers an incentive for buying more, such as charging $50 for one sweater or $90 for two sweaters, it is an example of price discrimination. a. True b. Fals e ANSWER: True 18. Cents-off coupons can be seen as a form of third-degree price discrimination. a. True b. Fals e ANSWER: True 19. The profit-maximizing monopolist produces the quantity of output at which marginal revenue equals marginal cost. a. True b. Fals e ANSWER: True 20. One of the assumptions of the theory of monopoly is that the single seller sells a product for which there are no close substitutes. a. True b. Fals e ANSWER: True 21. At the profit-maximizing level of output, price is greater than marginal cost for a seller practicing perfect price Copyright Cengage Learning. Powered by Cognero.

Page 3

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly discrimination. a. True b. Fals e ANSWER: Fals e 22. A single-price monopolist receives the maximum price for each unit of the good it sells; a perfectly pricediscriminating monopolist does not. a. True b. Fals e ANSWER: Fals e Multiple Choice 23. Which of the following is an assumption of the theory of monopoly? a. There are extremely high barriers to entry. b. There are many sellers. c. The product has a number of close substitutes. d. The product is of extremely high quality. ANSWER: a 24. The theory of monopoly assumes that the monopoly firm a. faces a downward-sloping supply curve that is the same as its marginal revenue curve. b. faces a downward-sloping demand curve. c. produces more than the perfectly competitive firm under identical demand and cost conditions. d. produces a product for which there are many close substitutes. ANSWER: b 25. Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this, firm X a. cannot be a monopolist because the theory of monopoly assumes there are no substitutes for the good the single seller sells. b.may be a monopolist because the two substitutes may be close substitutes. c. cannot be a monopolist because if substitutes exist for the good it produces, its demand curve is horizontal but monopolists face downward-sloping demand curves. d.must be selling its product in a perfectly competitive market. ANSWER: b 26. Suppose firm X is a monopolist and is receiving positive economic profits. What prevents other firms from directly competing away the profits? a. high barriers to entry Copyright Cengage Learning. Powered by Cognero.

Page 4

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly b. antitrust laws c. low barriers to entry d. diseconomies of scale ANSWER: a 27. Which of the following is an example of a legal barrier to entry? a. a public franchise b. advertising c. exclusive ownership of a scarce resource d. diseconomies of scale ANSWER: a 28. A public franchise is a right granted a. to one firm by another firm; for example, McDonald's Corporation grants restaurant owners a franchise to make its hamburgers. b.to a firm by government that prevents other firms from producing the same product or service. c. to a cooperative of buyers that allows the group to purchase goods at wholesale prices. d.by government that enables a person to engage in arbitrage. ANSWER: b 29. A natural monopoly exists when a. a monopolist produces a product, the main component of which is a natural resource. b. economies of scale are so large that only one firm can survive and achieve low unit costs. c. a firm is the exclusive owner of a key resource necessary to produce the firm’s product. d. there are no close substitutes for a firm's product. ANSWER: b 30. Which of the following is the best example of a monopoly? a. a local public utility b. a fast-food restaurant c. a department store d. a wheat farmer ANSWER: a 31. Which of the following is the best example of a barrier to entry into a monopolistic industry? a. diminishing returns b. comparative advantage c. high price elasticity of demand Copyright Cengage Learning. Powered by Cognero.

Page 5

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly d. a public franchise ANSWER: d 32. Public franchises, patents, and government licenses are examples of __________ barriers to entry. a. social b. legal c. cultural d. geographi c ANSWER: b 33. A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called a. a natural monopoly. b. a comparative advantage. c. an economy of scale. d. a public franchise. ANSWER: d 34. Which of the following is not an example of a legal barrier to entry? a. a public franchise b. economies of scale c. a government license d. a patent ANSWER: b 35. Which of the following is not an example of a legal barrier to entry? a. a beautician's license b. a patent c. exclusive ownership of raw materials d. a public franchise e. a copyright ANSWER: c 36. If economies of scale are so pronounced in an industry that only one firm can survive in the industry, this firm is called a(n) __________ monopoly. a. financial b. natural c. structured d. independen t ANSWER: b Copyright Cengage Learning. Powered by Cognero.

Page 6

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly 37. A monopoly may exist because a. government has refused to grant a public franchise. b.one firm has the exclusive ownership of a necessary resource. c. the firm is so large and is currently experiencing such vast diseconomies of scale that it can out-compete all newcomers. d.of diseconomies of scale. ANSWER: b 38. A seller that has the ability (to some degree) to control the price of the product it sells is called a price a. taker. b. searcher. c. breaker. d. twister. ANSWER: b 39. In the United States, patents are granted to inventors of a product or process for a period of a. unlimited time. b. 10 years. c. 20 years. d. 25 years. ANSWER: c 40. A price searcher a. faces a horizontal demand curve. b. is a seller that searches for good employees and pays them a low wage. c. is a seller that searches for the best location to sell its product. d. is a seller that has the ability to control to some degree the price of the product it sells. ANSWER: d 41. Which of the following statements is false? a. A price searcher must lower price to sell an additional unit of its product. b.For a price searcher, price equals marginal revenue for all units except the first. c. For a price searcher, price is greater than marginal revenue for all units except the first. d.A price searcher, like a price taker, produces that quantity of output for which marginal revenue equals marginal cost. ANSWER: b 42. A price searcher is a. a person who actively seeks out the best price for a product that he or she wishes to buy. b.a firm that seeks out buyers who are willing to pay the price that the seller is asking for the product. Copyright Cengage Learning. Powered by Cognero.

Page 7

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly c. a firm that has the ability to control to some degree the price of the product it sells. d.actually any firm or consumer, because each market "player" searches for the best price at which it can sell or buy. ANSWER: c 43. Which of the following statements is true? a. A monopolist can charge whatever price it wants without losing any customers, by virtue of its monopoly position. b.A monopolist may be able to increase its profits by increasing its price. c. In the monopoly market structure, there are low barriers to entry. d.A monopolist is assured of positive economic profits. ANSWER: b 44. For the monopoly firm that does not engage in perfect price discrimination, a. the marginal revenue curve lies below the demand curve. b. the marginal revenue curve and demand curve are the same. c. the marginal revenue curve lies above the demand curve. d. marginal revenue equals price. ANSWER: a 45. Which of the following statements is false? a. The monopolist faces a horizontal demand curve. b. For the single-price monopolist, marginal revenue is less than price. c. For the monopolist, revenue maximization and profit maximization are usually not the same. d. The monopolist is a price searcher. ANSWER: a 46. Which of the following statements is true? a. The monopolist can sell all it can produce at the market price. b. The marginal revenue curve of the single-price monopolist lies above its demand curve. c. The marginal revenue curve of the single-price monopolist is the same as its demand curve. d. The marginal revenue curve of the single-price monopolist lies below its demand curve. ANSWER: d 47. Which of the following statements is false? a. The monopolist has the ability to control to some degree the price of the product it sells. b. The monopolist faces a downward-sloping demand curve. c. The monopolist is a price taker. d. The monopoly firm is the industry. Copyright Cengage Learning. Powered by Cognero.

Page 8

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly ANSWER: c 48. In maximizing profits, a single-price monopolist will charge a price that is a. less than marginal cost. b. equal to marginal cost. c. greater than marginal cost. d. There is not enough information to answer the question. ANSWER: c 49. If a monopolist wishes to sell an additional unit of the good, then a. it must raise its price to signal consumers that its product is now a more important part of their budget, and they will purchase more. b.like a competitive firm, it can simply make more output available and not lower price. c. it must lower price. d.it can raise price and not worry that sales will decrease. ANSWER: c 50. Maximizing total revenue turns out to be the same as maximizing profit only when a. average fixed cost declines continually as output rises. b. a firm has no fixed costs. c. a firm has no variable costs. d. a firm has both variable and fixed costs. ANSWER: c 51. A monopolist can sell 8,000 units at a price of $10 per unit. Lowering price to all buyers by $1 raises the quantity demanded by 500 units. What is the change in total revenue resulting from this price change? a. $3,500 b. -$12,500 c. -$3,500 d. -$18,000 e. There is not enough information provided to answer the question. ANSWER: c 52. A monopolist can sell 26,000 units at a price of $30 per unit. Lowering price by $1 raises the quantity demanded by 1,000 units. What is the change in total revenue resulting from this price change? a. $1,500 b. $3,000 c. $5,500 d. $2,800 ANSWER: b Copyright Cengage Learning. Powered by Cognero.

Page 9

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly 53. A monopolist maximizes profits at the output at which a. total revenue is at its greatest, assuming that the firm has both fixed and variable costs. b. price equals marginal cost. c. price exceeds marginal cost by the greatest amount. d. marginal revenue equals marginal cost. ANSWER: d 54. Which of the following is characteristic of the monopoly firm? a. It produces the quantity of output at which marginal revenue equals marginal cost, MR = MC. b. It charges a price per unit for its product that is equal to marginal cost. c. It always earns a profit, because it is a single seller of a product. d. It charges a price per unit for its product that is less that its marginal cost. ANSWER: a 55. Which of the following statements is true? a. As a consequence of the monopoly firm producing the quantity of output at which price equals marginal cost, it is resource allocative efficient. b.As a consequence of the perfectly competitive firm producing the quantity of output at which price equals marginal cost, it is resource allocative efficient. c. As a consequence of the perfectly competitive firm producing the quantity of output at which price equals marginal cost, it is productive efficient. d.As a consequence of the monopoly firm producing the quantity of output at which price equals marginal cost, it is productive efficient. ANSWER: b 56. In order for a monopolist to be earning a profit, price must be greater than a. average total cost. b. marginal revenue. c. total cost. d. marginal cost. ANSWER: a 57. For a monopolist, if price is above average total cost, the monopolist is a. earning an economic profit. b. taking an economic loss. c. minimizing total fixed costs. d. minimizing total variable costs. ANSWER: a Copyright Cengage Learning. Powered by Cognero.

Page 10

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly 58. The Townsend Acts a. are anti-trust laws passed in the U.S. in the 1930's to limit monopoly power. b.allow district attorneys the opportunity to plea bargain with accused criminals. c. were British laws enacted in the 1760's that imposed taxes on products imported to the American colonies, leading (in part) to the Boston Tea Party. d.were enacted in the late 1800's to permit regulation of natural monopolies. ANSWER: c 59. The perfectly competitive firm charges a price equal to __________ while the monopolist charges a price __________. a. marginal revenue; equal to marginal cost b. marginal cost; greater than marginal cost c. marginal revenue; less than marginal revenue d. average total cost; greater than average total cost ANSWER: b 60. Economic rent is a payment in excess of a. average fixed cost. b. average variable cost. c. opportunity cost. d. explicit cost, but not necessarily implicit cost. ANSWER: c 61. Rent seeking occurs when the seller a. charges different prices for the product it sells, and the price differences do not reflect cost differences. b. charges the highest price each consumer would be willing to pay for the product rather than go without it. c. charges a uniform price per unit for one specific quantity, a lower price for an additional quantity, and so on. d. spends resources to influence public policy in the hope of transferring income to themselves from others. ANSWER: d 62. The seller of good X sells 1,000 units of the good. Each unit is being sold for the highest price each consumer is willing to pay for the good. The seller practices a. second-degree price discrimination. b. third-degree price discrimination. c. perfect price discrimination. d. marginal revenue pricing. e. rent seeking. Copyright Cengage Learning. Powered by Cognero.

Page 11

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly ANSWER: c 63. Perfect price discrimination is discrimination among a. units. b. quantities . c. buyers. d. prices. ANSWER: a 64. Third-degree price discrimination is discrimination among a. units. b. quantities . c. buyers. d. prices. ANSWER: c 65. Second-degree price discrimination is discrimination among a. units. b. quantities . c. buyers. d. prices. ANSWER: b 66. Which of the following is not a necessary condition for price discrimination to hold? a. The seller must be a price searcher. b. The seller must be able to distinguish between customers willing to pay different prices. c. It must cost the seller more to service some customers than others. d. Reselling the product must be extremely costly or must not be possible ANSWER: c 67. For a firm that perfectly price discriminates, a. price is less than marginal revenue. b. price is greater than marginal revenue. c. price equals marginal revenue. d. price has no definite relationship with marginal revenue. ANSWER: c 68. A monopolist practicing (perfect) price discrimination has a. a larger deadweight loss triangle than a single-price monopolist has. b. the same deadweight loss triangle as a single-price monopolist. Copyright Cengage Learning. Powered by Cognero.

Page 12

Name :

Clas s:

Dat e:

Chapter 10 - Monopoly c. a deadweight loss triangle one-half the size of what it would be with uniform pricing. d. no deadweight loss triangle. ANSWER: d 69. If a monopolist practices perfect price discrimination, then it will have a. a greater total revenue and sell a greater output than if it were not practicing price discrimination. b. a smaller total revenue and sell a smaller output than if it were not practicing price discrimination. c. the same total revenue but sell a larger output than if it were not practicing price discrimination. d. the same total revenue but sell a smaller output than if it were not practicing price discrimination. ANSWER: a 70. Suppose a monopolist practices perfect price discrimination. Its marginal revenue curve a. will lie below its demand curve. b. will lie above its demand curve. c. will coincide with its demand curve. d. has no definite relationship with its demand curve. ANSWER: c 71. Suppose the local pharmacy charges lower prices to senior citizens than it charges to younger customers. The pharmacy is practicing a. perfect price discrimination. b. second-degree price discrimination. c. arbitrage. d. third-degree price discrimination. e. non-cost discrimination. ANSWER: d 72. Suppose that your school pays one rate for the first one million kilowatts of electricity and a lower rate for any power it uses over one million kilowatts. What economic concept is occurring here? a. perfect price discrimination b. second-degree price discrimination c. third-degree price discrimination d. economies of scale ANSWER: b 73. Suppose Johnny, seven years old, is selling lemonade to his neighbors and he sells each of his buyers the refreshment for the maximum price that each buyer is willing ...