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Module 8 Monopoly Quiz Key Answer

The document contains a series of multiple-choice and true/false questions related to monopolistic market structures and the behavior of monopolists. It covers topics such as demand curves, marginal revenue, profit maximization, barriers to entry, and characteristics of monopolies. The questions are designed to assess understanding of economic principles related to monopolies.

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1 views

Module 8 Monopoly Quiz Key Answer

The document contains a series of multiple-choice and true/false questions related to monopolistic market structures and the behavior of monopolists. It covers topics such as demand curves, marginal revenue, profit maximization, barriers to entry, and characteristics of monopolies. The questions are designed to assess understanding of economic principles related to monopolies.

Uploaded by

gerald.ldg
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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TEST I: MULTIPLE CHOICE. Below are given questions along with their multiple choices’ answers.

Read the statement carefully and shade the letter that represents your best answers on the ANSWER
SHEET. (Erasures are not allowed)
1. The demand curve facing a monopolistic firm is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.

2. For a non-discriminating monopolist to sell one more unit, it must


A) raise the price of only the last unit produced.
B) lower the price of only the last unit produced.
C) raise the price of the last as well as all previous units produced.
D) lower the price of the last as well as all previous units produced.

3. Assuming demand is linear, the shape of a monopolist's total revenue schedule is a


A) straight line passing through the origin.
B) straight line with negative slope.
C) curve from the origin with increasing slope.
D) curve from the origin with decreasing slope.

4. For a monopolist, price


A) equals marginal revenue at all output levels.
B) is less than marginal revenue.
C) is greater than marginal revenue.
D) can be greater than or less than marginal revenue.

5. For a monopolist, if total revenue increases as output decreases, then marginal revenue is
A) equal to price.
B) zero.
C) positive.
D) negative.

6. A monopolist will not produce


A) a positive level of output when its marginal revenue is declining.
B) a positive level of output when its price is less than average total cost but greater than average variable
cost.
C) in the inelastic portion of its demand curve, where marginal revenue is negative.
D) in the perfectly competitive level of output when it engages in perfect price discrimination.

7. Suppose we know that a monopolist is maximizing its profits. Which of the following is a correct
inference? The monopolist has
A) maximized its total revenue.
B) set price equal to its average cost.
C) maximized the difference between marginal revenue and marginal cost.
D) equated marginal revenue and marginal cost.

8. The XYZ Computer Company has a monopoly over the production of a specialized color printer. The
XYZ Computer Company will find it profitable to increase the production of specialized color printers as
long as marginal cost
A) is less than marginal revenue.
B) equals marginal revenue.
C) is greater than marginal revenue.
D) is positive.
9. A profit-maximizing monopolist will produce the level of output where
A) marginal revenue is zero.
B) marginal cost is minimized.
C) price equals marginal cost.
D) marginal revenue equals marginal cost.

10. Ameritech has a monopoly over local telephone service. If Ameritech is producing where marginal
revenue is less than marginal cost, the firm
A) could increase profits by reducing output.
B) could increase profits by increasing output.
C) is maximizing profits.
D) must be earning a zero profit.

11. A monopolist is currently maximizing profits. In addition, if P > ATC > MC, then the monopolist
A) just breaks even.
B) earns positive economic profits.
C) is covering total variable costs but not total fixed costs.
D) is covering total fixed costs but not total variable costs.

12. When the addition to a monopolist's total profit is negative from selling another unit, then it follows
that
A) MR > ATC.
B) MR = MC.
C) MR > MC.
D) MR < MC.

13. A ________ prevents new firms from entering and competing in a monopolistic industry.
A) barrier to entry
B) collusive agreement
C) market power sharing agreement
D) cartel agreement

14. ________ is (are) protected by barriers to entry, specifically ________.


A) State lotteries; government rules
B) DeBeers Company; economies of scale
C) Cable companies; patents
D) All of the above are correct.

15. Which type of barrier to entry allows an electric company to maintain a monopoly over the production
of electricity?
A) a patent
B) economies of scale
C) diseconomies of scale
D) ownership of a scarce factor of production

16. It would be inefficient to break up a ________ monopoly.


A) government created
B) price‐fixing
C) cartelized
D) natural

17. A monopolist ________ if it chooses to sell fewer units of output.


A) can increase the price
B) must decrease the price
C) cannot change the price
D) can set its price wherever it desires
18. The individual firm's demand curve facing a monopoly is
A) also the market demand curve.
B) the summation of all perfectly competitive firms' demand curves.
C) nonexistent.
D) the marginal cost curve above minimum average variable cost.

19. A monopolist will not produce


A) a positive level of output when its marginal revenue is declining.
B) a positive level of output when its price is less than average total cost but greater than average variable
cost.
C) in the inelastic portion of its demand curve, where marginal revenue is negative.
D) in the perfectly competitive level of output when it engages in perfect price discrimination.

20. Verizon has a monopoly over local telephone service. If Verizon is producing where marginal revenue
is greater than marginal cost, the firm
A) could increase profits by reducing output.
B) could increase profits by increasing output.
C) is maximizing profits.
D) must be earning zero profit.

TEST II. TRUE or FALSE. Shade letter A if the statement is correct, shade letter B if it says otherwise.
(Erasures are not allowed)
21. A monopolist's marginal revenue is below market price. A

22. A natural monopoly is one that results from exclusive control of a crucial natural resource. B

23. All monopoly power that is based on barriers to entry is subject to decay in the long run that based on
government franchise. A

24. Monopolists always make economic profits. B

25. Monopolists are price takers. B

26. If a monopolist has a linear demand curve, then it has a linear marginal revenue curve. A

27. A profit-maximizing monopolist will never produce a quantity that corresponds to a point on the
inelastic portion of its demand curve. A

28. A monopolist that is earning a profit in the short run can be expected to earn at least as much profit in
the long run. A

29. If a monopolist is in short-run equilibrium, it must be in long-run equilibrium. B

30. If a firm is small, produces a differentiated good for which there are many close substitutes, and it is
easy to enter and exit the industry, then the firm is a monopolistic competitor. A

31. Barriers to entry include economies of scale and network effects. A

32. For a monopoly, marginal cost equals average total cost at every level of output. B

33. The monopolist's marginal revenue curve is represented graphically by a negatively sloped line. A

34. Ceteris paribus, for a monopoly to sell more output, it must lower its price. A

35. The supply curve for a monopoly and for a perfectly competitive industry are virtually identical. B

36. On the cost side of the profit equation, a pure monopolist does not differ from a perfect competitor. A
37. Monopolists do not face constraints on the prices they charge. B

38. A profit-maximizing monopolist will always raise output if marginal revenue exceeds marginal cost.
A

39. A profit-maximizing monopolist always charges the highest price possible. B

40. A monopolist's marginal revenue is always less than its price at any one level of output. A

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