Question Chapter Fourteen Practice Problems

Chapter Fourteen

Practice Problems

1) A monopoly is

a) a firm that is the only seller of a good or service that does not have a close substitute.

b) a firm that is the only buyer of a factor of production.

c) a firm in a market with a small number of independent firms that compete.

d) a firm in a competitive market with many other sellers.

2) A natural monopoly

a) is the only firm legally allowed to produce a product due to a government patent.

b) develops automatically due to economies of scale.

c) produces a product whose usefulness increases with the number of consumers who use it.

d) is a public franchise.

e) develops automatically due to diseconomies of scale.

3) What is the relationship between a monopolist’s demand curve and the market demand curve?

a) The market demand curve is the sum of the demand curves for all firms in the market

b) A monopolist’s demand curve is upward sloping and the market demand curve is downward sloping.

c) A monopolist’s demand curve is less than the market demand curve.

d) A monopolist’s demand curve is the same as the market demand curve.

4) What is the relationship between a monopolist’s demand curve and its marginal revenue curve?

a) A monopolist’s marginal revenue curve lies below its demand curve, because to sell more output, a monopoly must lower price.

b) A monopolist’s marginal revenue curve has twice the slope of it demand curve due to constant returns to scale.

c) A monopolist’s demand curve is downward sloping and its marginal revenue curve is upward sloping.

d) A monopolist’s demand curve is the same as its marginal revenue curve.

5) In today’s U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time?

a) Pharmaceuticals

b) fast food restaurants

c) accounting services

d) hair salons

6) The monopolist’s marginal revenue curve is downward-sloping because:

a) the monopolist must lower his price in order to sell more.

b) it operates in the range where ATC is downward-sloping.

c) it operates in the range where MC is downward-sloping.

d) total revenue declines as it sells more.

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7) Suppose an industry initially had been perfectly competitive and then became a monopoly. Which of the following would occur?

a) consumer surplus would decrease

b) consumer surplus would increase.

c) producer surplus would decrease

d) the deadweight loss eliminated

8) Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given respectively by the equations P = 40-2Q and MR = 40-4Q. For this firm, the profit-maximizing price and output levels are:

a) P = $12; Q = 12

b) P = $20; Q = 20

c) P = $24; Q = 16

d) P = $24; Q = 8

9) Which of the following statements about monopoly is NOT correct?

a) In order for a monopoly to persist, there must be barriers to the entry of other firms.

b) When a monopolist increases production, the quantity effect will tend to increase total revenue and the price effect will tend to decrease total revenue.

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