Use the following to answer question 1:
Figure: The Monopolist III
| 1. | (Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist perfectly price-discriminates, then it will produce ________ units. This will lead to producer surplus equal to ________, consumer surplus equal to ________, and a deadweight loss equal to ________. | |
| A) | 70; $2,450; $0; $0 | |
| B) | 50; $1,225; $0; $0 | |
| C) | 35; $1,225; $612.50; $612.50 | |
| D) | 100; $1,500; $612.50; $612.50 | |
| 2. | If a change in fixed cost raises average total cost above the demand curve: | |
| A) | price and output will remain unchanged. | |
| B) | more monopolies will enter. | |
| C) | the monopoly will go out of business. | |
| D) | marginal cost will be greater than marginal revenue. | |
| 3. | Which of the following is not a barrier to entry? | |
| A) | control of an input essential for production | |
| B) | government-created barriers such as patents | |
| C) | a ban on certain kinds of advertising | |
| D) | the existence of significant economies of scale | |
| 4. | A monopolist or an imperfectly competitive firm practices price discrimination primarily to: | |
| A) | increase profits. | |
| B) | expand plant size. | |
| C) | lower total costs. | |
| D) | reduce marginal costs. | |
Use the following to answer question 5-7:
Figure: The Profit-Maximizing Output and Price
| 5. | (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. A perfect competitor would produce at a price of ________ and output of ________. | |
| A) | $600; 8 units | |
| B) | $200; 8 units | |
| C) | $200; 16 units | |
| D) | $600; 16 units | |
| 6. | (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, producer surplus is: | |
| A) | $3,200. | |
| B) | $6,400. | |
| C) | $1,000. | |
| D) | $1,600. | |
| 7. | (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. If the monopolist can use price discrimination perfectly, the monopolist will produce an output of _______ diamonds. | |
| A) | 0 | |
| B) | 6 | |
| C) | 16 | |
| D) | 20 | |
| 8. | A natural monopoly exists whenever a single firm: | |
| A) | is owned and operated by the federal or local government. | |
| B) | is investor owned but has been granted the exclusive right by the government to operate in a market. | |
| C) | has economies of scale over the entire range of production that is relevant to its market. | |
| D) | has gained control over a strategic input of an important production process. | |
| 9. | De Beers became a monopoly by: | |
| A) | establishing control over diamond mines. | |
| B) | economies of scale. | |
| C) | technological superiority. | |
| D) | ownership of a patent. | |
| 10. | A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should: | |
| A) | charge the same price in both countries (after adjusting for transportation costs). | |
| B) | charge a higher price in the United States and a lower price in Japan; otherwise it would be accused of unfair trade practices. | |
| C) | charge a lower price in the United States and a higher price in Japan. | |
| D) | figure out which market is more profitable and sell only in that market. | |
| 11. | Bob owns a trout farm with monopoly power in North Carolina. Bob’s optimal output occurs where marginal revenue ________. Because of monopoly power, Bob’s supply curve ________. | |
| A) | equals marginal cost; does not exist | |
| B) | exceeds marginal cost; does not exist | |
| C) | equals marginal cost; is upward sloping | |
| D) | exceeds marginal cost; is perfectly inelastic | |
| 12. | In the short run, a monopoly will stop producing if: | |
| A) | P < ATC. | |
| B) | P < AVC. | |
| C) | P > MR. | |
| D) | P > ATC. | |
Use the following to answer question 13-15:
| 13. | (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo baseball hats. The Saints sell at most one hat to each customer, and the table shows each customer’s willingness to pay. The marginal cost of producing a hat is $18. How many hats should the Saints produce, and what price should the organization charge to maximize its profits? | |
| A) | 1; $28 | |
| B) | 2; $26 | |
| C) | 3; $24 | |
| D) | 4; $22 | |
| 14. | (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo baseball hats. The Saints sell at most one hat to each customer, and the table shows each customer’s willingness to pay. The marginal cost of producing a hat is $18. If the Saints increase the number of hats they sell from 4 to 5, their total revenue changes from _______ to ______. | |
| A) | $88; $100 | |
| B) | $22; $20 | |
| C) | $88; $80 | |
| D) | $110; $100 | |
| 15. | (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo baseball hats. The Saints sell at most one hat to each customer, and the table shows each customer’s willingness to pay. The marginal cost of producing a hat is $18. If the Saints increase the number of hats they sell from 4 to 5, marginal revenue is: | |
| A) | $20. | |
| B) | $22. | |
| C) | $8. | |
| D) | $12. | |
| 16. | The demand curve facing a monopolist is always: | |
| A) | the same as the industry’s demand curve. | |
| B) | perfectly elastic. | |
| C) | unit-elastic. | |
| D) | perfectly inelastic. | |
| 17. | Which of the following is true regarding monopolies? | |
| A) | Monopolies produce too much and charge too much from the standpoint of efficiency. | |
| B) | Monopolies usually are economically efficient because they have economic profits with which to work. | |
| C) | Monopolies produce too little and charge too much from the standpoint of efficiency. | |
| D) | Monopolies create an efficiency problem but are not associated with an equity problem. | |
| 18. | In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would: | |
| A) | rise. | |
| B) | fall. | |
| C) | remain unchanged. | |
| D) | There is insufficient information to make a determination. | |
| 19. | Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will: | |
| A) | rise. | |
| B) | fall. | |
| C) | remain unchanged. | |
| D) | It is not possible to make a determination from the information given. | |
| 20. | An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is: | |
| A) | a duopoly. | |
| B) | a monopoly. | |
| C) | an oligopoly. | |
| D) | perfect competition. | |
