Practice Quiz   Ch.9

         Monopoly

1. Which of the following is true? a. Patents reduce a firm's incentive to develop new products.
b. Patents are given for new works of art or literature.
c. Patents give a permanent exclusive right to produce a new good.
d. Patents give a temporary exclusive right to produce a new good.
e. Patents guarantee economic profits.


2. A natural monopoly results when a firm has

a. a license
b. a patent
c. official approval to produce a product
d. decreasing average costs over the range of market demand
e. exclusive use of a natural resource


3. If a monopolist must lower the price on all units in order to sell an additional unit,

a. it is impossible for the monopolist to maximize profit
b. the monopolist will always lose profit when it increases quantity
c. the monopolist will always lose revenue when it increases quantity
d. price will always be greater than marginal revenue
e. price will always be less than marginal revenue


4. Suppose it costs Minnie's Mini-Golf (a monopolist) not a penny more to let another person on the course. If Minnie's faces a linear (downward-sloping) market demand curve, it will maximize profits by choosing the point on the demand curve where

a. marginal revenue is greatest
b. price elasticity is unit elastic
c. price elasticity is inelastic
d. price exceeds average total cost by the greatest amount
e. price exceeds marginal cost by the greatest amount


5. If a monopolist is producing a rate of output at which market demand is inelastic,

a. it may or may not be maximizing its short-run profit
b. reducing output would reduce both total revenue and total cost
c. reducing output would increase both total revenue and total cost
d. reducing output would increase total revenue and reduce total cost
e. increasing output will increase its short-run economic profit


6. Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly?

a. Price equals marginal cost.
b. Price is greater than marginal cost.
c. Marginal revenue equals marginal cost.
d. Marginal revenue is less than marginal cost.
e. Marginal revenue is greater than average revenue.
 
7. What is the profit-maximizing price for a  monopolist
a. The point where average cost is a minimum
b. The price where there is a maximum difference between marginal revenue and marginal cost.
c. $10,000
d. The point on the demand curve above the intersection of marginal cost and marginal revenue.
e. The price at which the monopolist operates at maximum efficiency.
 
8. Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should a. pay the higher rent and increase menu prices
b. pay the higher rent and leave menu prices unchanged
c. pay the higher rent and lower prices
d. go out of business
e. shut down
 
9. A nondiscriminating monopolist earning positive short-run economic profit determines that its current marginal cost is $15 and its current marginal revenue is $20. To maximize profit, a firm should a. raise price and increase output
b. raise price and decrease output
c. maintain a constant price and increase output
d. reduce price and increase output
e. shut down
 
10. Suppose that the demand for my new book, Spatulas From Around the World, is such that the demand curve lies everywhere below the average variable cost of producing it. To maximize profits or minimize losses, I should a. raise price
b. lower price to increase demand
c. shut down the presses printing my book
d. lower price until demand is inelastic
e. charge the highest price I can
 
11. Which of the following falsely describes a nondiscriminating monopolist at profit maximization? a. Price is greater than marginal cost.
b. Economic profit is always positive.
c. Marginal revenue is equal to marginal cost.
d. Marginal revenue will typically be less than price.
e. Average total cost will not be at a minimum.
 
12. Firms can earn economic profits even in the long run if a. they charge the highest price possible
b. there is a cost-reducing technological change
c. there are significant barriers to entry
d. marginal revenue equals marginal cost
e. price is less than average variable cost at all rates of output


13. Which of the following conditions would distinguish a competitive firm from a monopolist?

a. The existence of a demand curve for the firm.
b. The slope of the demand curve facing the firm.
c. The rule of profit maximization, i.e., produce where MR = MC.
d. The relationship between marginal revenue and total revenue.
e. The existence of diseconomies of scale.


14. Compared to the productive efficiency of a perfectly competitive firm, a monopolist tends to be

a. very efficient because it charges higher prices
b. more efficient because it produces greater output
c. inefficient
d. equally efficient, as it also produces where MR = MC
e. very efficient because it conserves resources by producing less output


15. When the Postal Service raised third-class ("junk" mail) rates,

a. its profits increased
b. it was practicing perfect price discrimination
c. its fixed costs fell because the Postal Service is a natural monopoly
d. third-class mailers shifted to other forms of advertising, such as cable TV and telemarketing
e. the quantity demanded actually increased


16. Which of the following would not be considered price discrimination?

a. Long distance telephone rates are cheaper late at night.
b. Airline fares are cheaper if you reserve several weeks in advance.
c. The price of lettuce is 59 cents a head and two for a dollar.
d. The price of a brand-name prescription drug is higher than the price of a generic brand.
e. Senior citizens pay less for a movie.


17. Price discrimination occurs when a monopolist charges

a. both c and d
b. different prices to different buyers for different products
c. different prices to different groups of buyers, based on differences in the cost of providing the commodity to the buyer
d. different prices to different groups of buyers for reasons unrelated to the cost of providing the commodity to the buyer
e. all buyers the same price for the same product


18. Suppose that a price-discriminating monopolist divides its market into two segments. The firm will charge the lower price in the market segment where consumers

a. have relatively less elastic demand
b. have relatively more elastic demand
c. attach a higher marginal value to each unit of the good
d. have perfectly inelastic demand
e. attach higher average value to units of the good
 
19. Slugmullet Gulch, New Mexico, is surrounded by desert that stretches 100 miles in all directions. The only cold soft drinks available are for sale in the general store, which charges residents of Slugmullet Gulch 50 cents per bottle consumed in the store. But for residents who want to take a bottle out of the store--or for travelers--the price is $3 per bottle. If the store were to sell cold soft drinks to Slugmullet Gulch residents for 50 cents per bottle no matter where they were consumed, all of the following would be true except one. Which is the exception? a. The store would no longer be unable to price discriminate.
b. The store's profits would be lower.
c. The store would be unable to prevent residents of Slugmullet Gulch from buying cold soft drinks at 50 cents per bottle and reselling them to travelers for less than $3 per bottle.
d. The store would no longer be the only source of cold soft drinks for travelers to Slugmullet Gulch.
e. Consumer surplus would decrease.


20. When a monopolist practices perfect price discrimination,

a. consumers receive no consumer surplus
b. there is allocative inefficiency
c. there is a deadweight loss
d. profit is lower than for the nondiscriminating monopolist
e. total revenue is less than for the nondiscriminating monopolist.