A monopolist always earns an economic profit

PREVIEW OF HOMEWORK # 5, ECO 157 MACROBUTTON HTMLDirect

1. Monopoly is at the other end of the spectrum from: A) monopolistic competition MACROBUTTON HTMLDirect B) perfect competition MACROBUTTON HTMLDirect C) oligopoly MACROBUTTON HTMLDirect D) none of the aboveCorrect answer(s): B

2. Barriers that prevent the entry of new firms may arise because: A) economies of scale exist over a substantial range of industry demand. MACROBUTTON HTMLDirect B) price exceeds marginal cost. MACROBUTTON HTMLDirect C) marginal revenue is less than average total cost. MACROBUTTON HTMLDirect D) the government protects some firms from competition. MACROBUTTON HTMLDirect E) of both a. and d.

Correct answer(s): E

3. Pure monopoly: A) is characterized by single supplier. MACROBUTTON HTMLDirect B) is a market structure in which no close substitute products are available. MACROBUTTON HTMLDirect C) exists when entry and survival of potential competitors is extremely unlikely. MACROBUTTON HTMLDirect D) is characterized by all of the above.

Correct answer(s): D

4. Why does the government allow some markets to be monopolized by granting patents? A) to promote a more equal distribution of income MACROBUTTON HTMLDirect B) to correct for negative externalities MACROBUTTON HTMLDirect C) to promote technological progress MACROBUTTON HTMLDirect D) to ensure lower prices for consumers in the short run

Correct answer(s): C

5. Many communities have granted monopoly rights to cable companies. This is an example of a monopoly created through: A) government licensing. MACROBUTTON HTMLDirect B) ownership of the cable resources. MACROBUTTON HTMLDirect C) patent protection. MACROBUTTON HTMLDirect D) smart business practices by shrewd entrepreneurs.

Correct answer(s): A

6. When a single firm can produce output over the relevant range of demand more efficiently than two or more firms can, because of the existence of economies of scale, we have: A) perfect competition. MACROBUTTON HTMLDirect B) monopolistic competition. MACROBUTTON HTMLDirect C) diseconomies of scale. MACROBUTTON HTMLDirect D) a natural monopoly MACROBUTTON HTMLDirect E) is called a government monopoly.

Correct answer(s): C

7. Which of these contributes to the existence of monopoly power? A) the control of critical resources MACROBUTTON HTMLDirect B) legal barriers MACROBUTTON HTMLDirect C) patents MACROBUTTON HTMLDirect D) All of the above contribute to the existence of monopoly power.Correct answer(s): D

8. The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. This market power was obtained through: A) illegal means. MACROBUTTON HTMLDirect B) control of a scarce resource. MACROBUTTON HTMLDirect C) patent protection. MACROBUTTON HTMLDirect D) government licensing.

Correct answer(s): B

9. Based on the table below what is the marginal revenue of the 14th unit of output? Quantity Price 13 $50.00 14 $49.75 15 $49.50 A) $0.25 MACROBUTTON HTMLDirect B) $46.00 MACROBUTTON HTMLDirect C) $46.50 MACROBUTTON HTMLDirect D) $49.75

Correct answer(s): C

10. Graphically which of the following is true for a monopoly? A) The marginal revenue curve lies below the demand curve and is steeper than the demand curve. MACROBUTTON HTMLDirect B) The marginal revenue curve lies above the demand curve and is steeper than the demand curve. MACROBUTTON HTMLDirect C) The marginal revenue curve lies below the demand curve and is flatter than the demand curve. MACROBUTTON HTMLDirect D) The marginal revenue curve lies above the demand curve and is flatter than the demand curve. MACROBUTTON HTMLDirect E) none of the above

Correct answer(s): A

11. Which of the following best explains why a monopolist's marginal revenue is less than the sale price? A) To sell more units, monopolist must increase the price on all units sold. MACROBUTTON HTMLDirect B) As a monopolist expands output, its average total cost declines. MACROBUTTON HTMLDirect C) When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist. MACROBUTTON HTMLDirect D) When a monopolist reduces price in order to sell more units, it must lower the price of some units that could otherwise have been sold at a higher price.

Correct answer(s): D

12. A profit-maximizing monopolist will never produce at an output level where: A) demand is elastic. MACROBUTTON HTMLDirect B) it suffers economic losses in the short run. MACROBUTTON HTMLDirect C) demand is inelastic. MACROBUTTON HTMLDirect D) marginal cost is less than average total cost. MACROBUTTON HTMLDirect E) either b. or c. is true.

Correct answer(s): C

13. If a firm seeks to maximize total revenue, it should produce the quantity where: A) marginal revenue equals zero. MACROBUTTON HTMLDirect B) elasticity of demand is less than one. MACROBUTTON HTMLDirect C) elasticity of demand is greater than one. MACROBUTTON HTMLDirect D) marginal revenue is maximized. MACROBUTTON HTMLDirect E) average total cost is minimized.

Correct answer(s): A

14. A price-taking firm and a monopoly firm are alike in that: A) price equals marginal revenue for both. MACROBUTTON HTMLDirect B) both maximize profits by choosing an output where marginal revenue equals marginal cost. MACROBUTTON HTMLDirect C) price exceeds marginal cost at the profit-maximizing level of output for both. MACROBUTTON HTMLDirect D) in the long run, both earn zero economic profits.

Correct answer(s): B

15. In the long run, economic profits are: A) possible both for a monopolist and for a perfectly competitive firm. MACROBUTTON HTMLDirect B) possible for a monopolist but not for a perfectly competitive firm. MACROBUTTON HTMLDirect C) possible for a perfectly competitive firms but not for a monopolist. MACROBUTTON HTMLDirect D) impossible for both a monopolist and for a perfectly competitive firm.

Correct answer(s): B

16. In the short run, a monopolist: A) always suffers an economic loss. MACROBUTTON HTMLDirect B) always earns an economic profit. MACROBUTTON HTMLDirect C) always earns a normal rate of return MACROBUTTON HTMLDirect D) may make an economic loss, an economic profit or zero economic profits

Correct answer(s): D

17. A monopolist will shut down in the short run if: A) price exceeds marginal revenue. MACROBUTTON HTMLDirect B) price is less than marginal revenue. MACROBUTTON HTMLDirect C) price is less than average total cost. MACROBUTTON HTMLDirect D) total revenue is less than total variable cost. MACROBUTTON HTMLDirect E) total revenue is less than total fixed cost.

Correct answer(s): D

18. A monopoly is inefficient because: A) consumers are forced to pay higher prices for products. MACROBUTTON HTMLDirect B) firms are able to earn economic profits. MACROBUTTON HTMLDirect C) the cost of increased production is less than the value that society places on it. MACROBUTTON HTMLDirect D) price exceeds marginal revenue.

Correct answer(s): C

19. If an unregulated monopolist operates in a market, then: A) customers will pay higher prices than if the market were competitive. MACROBUTTON HTMLDirect B) customers will purchase fewer units of output than if the market were competitive. MACROBUTTON HTMLDirect C) society will not be allocating its resources efficiently. MACROBUTTON HTMLDirect D) all of the above will occur.

Correct answer(s): D

20. The aim of antitrust policy is to: A) provide adequate incentives for inventors and entrepreneurs. MACROBUTTON HTMLDirect B) prevent firms from acquiring or exercising undue market power. MACROBUTTON HTMLDirect C) protect established firms by deterring new entry into industries. MACROBUTTON HTMLDirect D) regulate the prices charged by perfectly competitive firms.

Correct answer(s): B

21. What was the first important law regulating monopoly that prohibited "restraint of trade"?

MACROBUTTON HTMLDirect A) Sherman Act MACROBUTTON HTMLDirect B) Robinson-Patman Act MACROBUTTON HTMLDirect C) Cellar-Kefauver Act MACROBUTTON HTMLDirect D) Clayton Act

Correct answer(s): A

22.

Which landmark legislation made it illegal to engage in predatory pricing and also prohibited mergers if it led to weakened competition?

MACROBUTTON HTMLDirect A) Sherman Act MACROBUTTON HTMLDirect B) Robinson-Patman Act MACROBUTTON HTMLDirect C) Cellar-Kefauver Act MACROBUTTON HTMLDirect D) Clayton Act

Correct answer(s): D

23.

Which piece of legislation forbids most forms of price discrimination?

MACROBUTTON HTMLDirect A) Sherman Act MACROBUTTON HTMLDirect B) Robinson-Patman Act MACROBUTTON HTMLDirect C) Cellar-Kefauver Act MACROBUTTON HTMLDirect D) Clayton Act

Correct answer(s): B

24.

U. S. public utilities are often:

MACROBUTTON HTMLDirect A) perfect competitors. MACROBUTTON HTMLDirect B) created through patent protection. MACROBUTTON HTMLDirect C) regulated natural monopolies. MACROBUTTON HTMLDirect D) employee-owned public enterprises.

Correct answer(s): C

25.

What would be the impact if the government forced the breakup of a natural monopoly to promote greater competition in an industry?

MACROBUTTON HTMLDirect A) Smaller firms would have a cost advantage over larger firms. MACROBUTTON HTMLDirect B) The price paid by consumers would be unchanged. MACROBUTTON HTMLDirect C) The average cost of producing the good would increase. MACROBUTTON HTMLDirect D) The averge cost of producing the good would decrease.

Correct answer(s): C

26. Which of the following is a problem with government regulation of natural monopolies?

MACROBUTTON HTMLDirect A) creation of excessive profits levels MACROBUTTON HTMLDirect B) reduced incentives to cut costs MACROBUTTON HTMLDirect C) decreased number of firms in the market MACROBUTTON HTMLDirect D) lack of influence from special interest groups

Correct answer(s): B

27.

If a regulatory commission wishes to allow a firm to earn a normal rate of return, it should set price equal to:

MACROBUTTON HTMLDirect A) marginal revenue. MACROBUTTON HTMLDirect B) marginal cost. MACROBUTTON HTMLDirect C) average total cost. MACROBUTTON HTMLDirect D) average variable cost.

Correct answer(s): C

28.

Price discrimination refers to:

MACROBUTTON HTMLDirect A) charging different prices to different groups on the basis of production cost differences. MACROBUTTON HTMLDirect B) charging different prices to different groups without a basis for doing so because of differences in production costs. MACROBUTTON HTMLDirect C) the ability of a firm to charge a price in excess of marginal cost. MACROBUTTON HTMLDirect D) consumer bargain hunting.

Correct answer(s): B

29.

When setting prices, the monopolist may choose to charge alternative customers different prices based on:

MACROBUTTON HTMLDirect A) geographical location. MACROBUTTON HTMLDirect B) age. MACROBUTTON HTMLDirect C) income. MACROBUTTON HTMLDirect D) all of the above.

Correct answer(s): D

30. A price-discriminating monopolist will tend to charge a lower price to students if it believes that students:

MACROBUTTON HTMLDirect A) have a lower willingness to pay than other demanders. MACROBUTTON HTMLDirect B) have a greater willingness to pay than other demanders. MACROBUTTON HTMLDirect C) have very elastic demand curves. MACROBUTTON HTMLDirect D) have nearly vertical demand curves.

Correct answer(s): A

31.

Monopolistic competition is more similar to monopoly than any other industry model.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

32.

Monopolistic competition, like perfect competition, is a market structure in which firms can easily enter and leave the industry.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

33.

By differentiating their products and promoting brand name loyalty, monopolistically competitive firms can raise prices without losing all their customers.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

34. Monopolistically competitive sellers have some ability to influence the price of their products.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

35. Monopolistically competitive sellers are price takers.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

36. Monopolistic competitors in long-run equilibrium will generally find that they are earning economic profits.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

37. In long-run equilibrium, a monopolistically competitive firm's demand curve will be tangent to its average cost curve.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

38. Unlike purely competitive firms, firms in monopolistic competition will operate with excess capacity even in long-run equilibrium.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

39. In the long run, monopolistically competitive firms typically produce with allocative efficiency.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

40. Although there are certain inefficiencies associated with monopolistic competition, society receives a benefit from monopolistic competition in the form of product variety.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

41. Oligopoly is an industry with a small number of firms producing homogeneous or differentiated goods with minimal barriers to entry.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

42. When making decisions on pricing and other behaviors, oligopolistic firms must take into account the actions of other firms.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

43. The U. S. commercial airline industry is a good example of an oligopolistic market.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

44. Economists consider the breakfast food industry to be an oligopolistic market.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

45. There are significant technological barriers to entry that help make the automobile industry oligopolistic.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

46. The key difference between oligopoly and other market structures is the interdependence among producers.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

47. Large oligopoly firms are often able to take advantage of significant economies of scale. As a result, they can often produce at a lower average total cost than can smaller firms.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

48. A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True

49. Cartels are legal in many countries, including the United States.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): False

50. Oligopolists may charge a price lower than the profit maximizing price to discourage new firms from entering a market.

MACROBUTTON HTMLDirect A) True MACROBUTTON HTMLDirect B) False

Correct answer(s): True