Which of the following is not a barrier to entry?

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.