Practice Questions - Monopoly - Answers

Monopoly Practice Questions
Type: Definition Topic: 1 LO: 22-1 ECON: 424 MICRO: 190

1. Pure monopoly means:
A) any market in which the demand curve to the firm is downsloping.
B) a standardized product being produced by many firms.
C) a single firm producing a product for which there are no close substitutes.
D) a large number of firms producing a differentiated product.
Answer: C
Type: Application of Concept Topic: 1 LO: 22-1 ECON: 426 MICRO: 192
3. A purely monopolistic industry:
A) has no entry barriers.
B) has a downward sloping demand curve.
C) produces a product or service for which there are many close substitutes.
D) earns only a normal profit in the long run.
Answer: B
Type: Application of Concept Topic: 2 LO: 22-1 ECON: 424-426 MICRO: 190-192
8. Which of the following is not a barrier to entry?
A) patents
B) X-inefficiency
C) economies of scale
D) ownership of essential resources
Answer: B
11. A natural monopoly occurs when:

A) long-run average costs decline continuously through the range of demand.
B) a firm owns or controls some resource essential to production.
C) long-run average costs rise continuously as output is increased.
D) economies of scale are obtained at relatively low levels of output.
Answer: A
16. If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal
revenue:
A) may be either greater or less than $35.
B) will also be $35.
C) will be less than $35.
D) will be greater than $35.
Answer: C
Use the following to answer questions 21-23:

Type: Graphical Topic: 3 LO: 22-1 ECON: 427 MICRO: 193

21. Refer to the above diagram. If price is reduced from P1 to P2, total revenue will:
A) increase by A minus C.
B) increase by C minus A.
C) decrease by A minus C.
D) decrease by C minus A.
Answer: B

22. Refer to the above diagram. The quantity difference between areas A and C for the indicated price reduction
measures:
A) marginal cost.
B) marginal revenue.
C) monopoly price.
D) a welfare or efficiency loss.
Answer: B

23. The above diagram implies that whenever a firm's demand curve is downsloping:
A) price discrimination is not possible.
B) monopolists will be more efficient than competitors.
C) the demand and marginal revenue curves will coincide.
D) marginal revenue is less than price.
Answer: D


34. Refer to the above diagram. This firm is selling in:
A) a market in which there are an extremely large number of other firms producing the same product.
B) an imperfectly competitive market.
C) a market in which demand is elastic at all prices.
D) a purely competitive market.
Answer: B

35. Refer to the above diagram. Demand is relatively elastic:
A) in the P2P1 price range.
B) in the 0P1 price range.
C) in the P2P4 price range.
D) only at price P2.
Answer: C

36. Refer to the above diagram. Demand is relatively inelastic:
A) at price P3.
B) at any price below P2.
C) in the P2P4 price range.
D) in the P2P3 price range.
Answer: B

37. Refer to the above diagram. If this somehow was a costless product (that is, the total cost of any level of
output was zero), the firm would maximize profits by:
A) selling the product at the highest possible price at which a positive quantity will be demanded.
B) producing Q1 units and charging a price of P1.
C) producing Q3 units and charging a price of P3.
D) producing Q2 units and charging a price of P2.
Answer: D
45. The pure monopolist's demand curve is relatively elastic:
A) in the price range where total revenue is declining.
B) at all points where the demand curve lies above the horizontal axis.
C) in the price range where marginal revenue is negative.
D) in the price range where marginal revenue is positive.
Answer: D
46. When the pure monopolist's demand curve is elastic, marginal revenue:
A) may be either positive or negative.
B) is zero.
C) is negative.
D) is positive.
Answer: D
47. When total revenue is increasing:
A) marginal revenue may be either positive or negative.
B) the demand curve is relatively inelastic.
C) marginal revenue is positive.
D) marginal revenue is negative.
Answer: C

69. Which of the above diagrams correctly portray a nondiscriminating pure monopolist's demand (D) and
marginal revenue (MR) curves?
A) A
B) B
C) C
D) D
Answer: B
Type: Graphical Topic: 3 LO: 22-2 ECON: 436 MICRO: 202 Status: New
70. Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a
pure monopolist that is able to price discriminate by charging each customer their maximum willingness to
pay?
A) A
B) B
C) C
D) D
Answer: A

71. Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a
purely competitive seller?
A) A
B) B
C) C
D) D
Answer: C
76. An unregulated pure monopolist will maximize profits by producing that output at which:
A) P = MC.
B) P = ATC.
C) MR = MC.
D) MC = AC.
Answer: C
77.Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The
monopolist will produce and sell the sixth unit if its marginal cost is:
A) $4 or less.
B) $3.90 or less.
C) $3.50 or less.
D) $3.40 or less.
Answer: D
86. Which of the following statements is incorrect?
A) A monopolist's 100 percent market share ensures economic profits.
B) The monopolist's marginal revenue is less than price for any given output greater than 1.
C) A monopolistic firm produces a product having no close substitutes.
D) A pure monopolist's demand curve is the industry demand curve.
Answer: A


91. Refer to the above diagram. To maximize profits or minimize losses this firm should produce:
A) E units and charge price C.
B) E units and charge price A.
C) M units and charge price N.
D) L units and charge price LK.
Answer: B
92. Refer to the above diagram. At the profit-maximizing level of output, total revenue will be:
A) NM times 0M.
B) 0AJE.
C) 0EGC.
D) 0EHB.
Answer: B
93. Refer to the above diagram. At the profit-maximizing level of output, total cost will be:
A) NM times 0M.
B) 0AJE.
C) 0CGC.
D) 0BHE.
Answer: D
94. Refer to the above diagram. At the profit-maximizing level of output, the firm will realize:
A) an economic profit of ABHJ.
B) an economic profit of ACGJ.
C) a loss of GH per unit.
D) a loss of JH per unit.
Answer: A

108. Refer to the above diagram. If this industry is purely competitive, the profit-maximizing price and quantity
will be:
A) P3 and Q3.
B) P1 and Q1.
C) P2 and Q2.
D) indeterminate on the basis of the information given.
Answer: C

109. Refer to the above diagram. If this industry is comprised of only one seller, the profit-maximizing price and
quantity will be:
A) P3 and Q3.
B) P1 and Q1.
C) P2 and Q2.
D) indeterminate on the basis of the information given.
Answer: A
110. When a pure monopolist is producing its profit -maximizing output, price will:
A) be less than MR.
B) equal neither MC nor MR.
C) equal MR.
D) equal MC.
Answer: B
128. At its profit-maximizing output, a pure nondiscriminating monopolist achieves:
A) neither productive efficiency nor allocative efficiency.
B) both productive efficiency and allocative efficiency.
C) productive efficiency but not allocative efficiency.
D) allocative efficiency but not productive efficiency.
Answer: A
129. The profit-maximizing output of a pure monopoly is economically inefficient because in equilibrium:
A) price equals minimum average total cost.
B) marginal revenue equals marginal cost.
C) marginal cost exceeds price.
D) price exceeds marginal cost.
Answer: D
Price discrimination
Type: Definition Topic: 6 LO: 22-4 ECON: 436 MICRO: 202

146. Price discrimination refers to:
A) selling a given product for different prices at two different points in time.
B) any price above that which is equal to a minimum average total cost.
C) the selling of a given product at different prices that do not reflect cost differences.
D) the difference between the prices a purely competitive seller and a purely monopolistic seller would
charge.
Answer: C
Type: Application of Concept Topic: 6 LO: 22-4 ECON: 437 MICRO: 203 Status: New
147. Which of the following conditions is not required for price discrimination?
A) Buyer with different elasticities must be physically separate from each other.
B) The good or service cannot be resold by original buyers.
C) The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of
demand.
D) The seller must possess some degree of monopoly power.
Answer: A
Children Adults
P P
P2
P1 P1
MC=ATC
MC=ATC
DC
MR A DA
MR C
Q1C Q Q2 Q1A Q
Type: Graphical Topic: 6 ECON: 438 MICRO: 204 Status: New

161. Assume the above figure applies to a pure monopolist. If this firm is able to price discriminate between
children and adults, it should charge prices of:
A) P1 to children, and P2 to adults.
B) P1 to adults, and P2 to children.
C) P1 to both children and adults.
D) P2 to both children and adults.
Answer: A

children and adults, its profit-maximizing level of output will be:
A) Q1A + Q1C.
B) Q1C + Q2.
C) Q1A + Q2.
D) Q1A + Q1C + Q2.
Answer: B

children and adults, its economic profit will be:
A) (P2-MC) x (Q1C+Q2).
B) (P1-MC) x (Q1C+Q2).
C) (P2-P1) x (Q1C+Q2).
D) [(P1-MC) x Q1C] + [(P2-MC) x Q2]
Answer: D
166. Refer to the above diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits
by charging:
A) a price above P3 and selling a quantity less than Q3.
B) price P3 and producing output Q3.
C) price P2 and producing output Q2.
D) price P1 and producing output Q1.
Answer: B

167. Refer to the above diagram for a pure monopolist. Suppose a regulatory commission is created to determine
a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it
will set price at:
A) P1.
B) P3.
C) P2.
D) P4.
Answer: A

168. Refer to the above diagram for a pure monopolist. If a regulatory commission seeks to achieve the most
efficient allocation of resources to this line of production, it will set a price of:
A) P1.
B) P3.
C) P2.
D) P4.
Answer: C
169. Refer to the above diagram for a pure monopolist. If a regulatory commission sets price to achieve the most
efficient allocation of resources, it will have to:
A) tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit.
B) subsidize the monopolist or the monopolist will go bankrupt in the long run.
C) subsidize the monopolist P1P4 per unit to allow the monopolist to break even.
D) tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit.
Answer: B
172. If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should
select a price:
A) at which the marginal cost curve intersects the demand curve.
B) at which marginal revenue is zero.
C) at which the average total cost curve intersects the demand curve.
D) which corresponds with the equality of marginal cost and marginal revenue.
Answer: A
173. Suppose for a regulated monopoly that price equals minimum ATC but price exceeds MC. This means that:
A) both productive and allocative efficiency are being achieved.
B) productive efficiency is being achieved, but not allocative efficiency.
C) allocative efficiency is being achieved, but not productive efficiency.
D) neither productive nor allocative efficiency is being achieved.
Answer: B
174. If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to
marginal cost and below average total cost at the resulting output, then:
A) the firm will realize an economic profit.
B) the firm will earn only a normal profit.

C) allocative efficiency will be worsened.
D) the firm must be subsidized or it will go bankrupt.
Answer: D
175. If a regulatory commission forces a natural monopoly to charge a price equal to its marginal cost:
A) the monopoly may incur a loss.
B) resource allocation will be worsened.
C) output will decrease.
D) the firm will earn only a normal profit.
Answer: A
176. If a regulatory commission forces a natural monopoly to charge a price equal to its average total cost:
A) output will decrease.
B) the monopolist will realize a normal profit.
C) resource allocation will worsen.
D) the firm will earn an economic profit.
Answer: B
172. If a regulatory commission wants to establish a socially optimal price for a natural
monopoly, it should select a price:
A) at which the marginal cost curve intersects the demand curve.
B) at which marginal revenue is zero.
C) at which the average total cost curve intersects the demand curve.
D) which corresponds with the equality of marginal cost and marginal
revenue.
Answer: A
173. Suppose for a regulated monopoly that price equals minimum ATC but
price exceeds MC. This means that:
A) both productive and allocative efficiency are being achieved.
B) productive efficiency is being achieved, but not allocative efficiency.
C) allocative efficiency is being achieved, but not productive efficiency.
D) neither productive nor allocative efficiency is being achieved.
Answer: B

Practice Questions - Monopoly - Answers

Uploaded by

Copyright:

Available Formats

Practice Questions - Monopoly - Answers

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Practice Questions - Monopoly - Answers

Uploaded by

Copyright:

Available Formats

Monopoly Practice Questions

Type: Definition Topic: 1 LO: 22-1 ECON: 424 MICRO: 190

11. A natural monopoly occurs when:

Use the following to answer questions 21-23:

Type: Graphical Topic: 3 LO: 22-1 ECON: 427 MICRO: 193

Type: Graphical Topic: 3 LO: 22-1 ECON: 427 MICRO: 193

Type: Graphical Topic: 3 LO: 22-1 ECON: 427 MICRO: 193

Use the following to answer questions 34-37:

Type: Graphical Topic: 3 LO: 22-1 ECON: 428 MICRO: 194

Type: Graphical Topic: 3 LO: 22-1 ECON: 428 MICRO: 194

Type: Graphical Topic: 3 LO: 22-1 ECON: 428 MICRO: 194

Type: Graphical Topic: 3 LO: 22-2 ECON: 429 MICRO: 195

Use the following to answer questions 69-71:

Type: Graphical Topic: 3 LO: 22-2 ECON: 428 MICRO: 194

Type: Graphical Topic: 3 LO: 22-1 ECON: 402 MICRO: 168

Use the following to answer questions 91-94:

Type: Graphical Topic: 4 LO: 22-2 ECON: 430 MICRO: 196

Use the following to answer questions 108-109:

Type: Graphical Topic: 4 LO: 22-3 ECON: 432 MICRO: 198

Type: Graphical Topic: 4 LO: 22-2 ECON: 430 MICRO: 196

Type: Definition Topic: 6 LO: 22-4 ECON: 436 MICRO: 202

Use the following to answer questions 161-163:

Type: Graphical Topic: 6 ECON: 438 MICRO: 204 Status: New

Type: Graphical Topic: 6 ECON: 438 MICRO: 204 Status: New

Type: Graphical Topic: 6 ECON: 438 MICRO: 204 Status: New

Use the following to answer questions 166-169:

Type: Graphical Topic: 7 LO: 22-3 ECON: 439 MICRO: 205

Type: Graphical Topic: 7 LO: 22-3 ECON: 439 MICRO: 205

B) the firm will earn only a normal profit.

You might also like