Question

1.A firm is a pure monopoly when:

a.it is the only seller of a unique product and barriers to entry prevent other sellers from

entering the market in the long run.

b.it is the only seller of a product that has very few close substitutes and entry into the

market in the long run is unrestricted.

c.there are only a few other very large firms selling similar products.

d.it can sell all it can produce at any price it chooses.

2.Barriers to entry:

a.guarantee that a firm will always earn positive economic profit.

b.cannot be maintained in the long run because other firms will always find a way to enter a profitable industry.

c.are obstacles that make it impossible or unprofitable for new firms to enter a market in the long run.

d.characterize both perfectly competitive and monopoly markets.

3.Which of the following is not one of the defining characteristics of a pure monopoly?

a.The firm is the only seller of a unique product.

b.There are no close substitutes for the firm’s product.

c.The brand-name of the product is protected by trademark law.

d.Barriers to entry prevent potentials rivals from entering the market.

4.Which statement isincorrect?

a.A pure monopolist’s demand curve is the market demand curve.

b.A monopoly produces a product for which there are no close substitutes.

c.Marginal revenue is less than price for a monopolist that cannot price discriminate.

d.A monopolist’s market position ensures positive economic profits.

5.For a firm with monopoly power that cannot engage in price discrimination:

a.the marginal revenue curve lies below the demand curve because any reduction in price

applies only to the last unit sold.

b.the marginal revenue curve lies below the demand curve because the firm must lower

price on all units in order to sell a higher level of output.

c.the marginal revenue curve lies above the demand curve because the monopoly firm

can charge any price it wishes.

d.total revenue is a linear function of output because sales are independent of product

price.

6.At the profit-maximizing level of output for a monopolist that cannot price discriminate,

the price charged will:

a.equal to MC.

b.equal to MR.

c.exceed both MR and MC.

d.be less than both MR and MC

9.The monopolist is:
a.earning zero economic profit.
b.earning positive economic profit equal $2,400.
c.earning positive economic profit equal to $640.
d.incurring economic losses equal to $1,760.

10.Which of the following is not an example of a barrier to entry?
a.MB = MC and P = MC = minimum ATC.
b.Deadweight Loss = 0.
c.consumer and producer surplus are maximized.
d.all of the above.
11.A monopolist maximizes short-run profit by producing the level of output where:
a.MR = 0.
b.MR = MC.
c.MR = P.
d.P = MC.
12.Suppose that MR = MC = $3 at an output level of 2,000 units. If a monopolist produces
and sells 2,000 units, charging a price of $6 per unit and incurring average total cost of $5
per unit, the monopolist will:
a.earn profit equal to $2,000.
b.earn profit equal to $6,000.
c.choose to sell fewer than 2,000 units in order to charge a higher price.
d.choose to sell more than 2,000 units in order to increase revenue.
13.A monopoly produces a ________ level of output and charges a _________ price than a
perfectly competitive industry, provided economies of scale are not significant.
a.lower; higher
b.higher; higher
c.Higher; lower
d.lower; lower
14.A monopolist that earn positive economic profit in the short run will:
a.always continue to earn positive economic profit in the long run.
b.earn positive economic profit in the long run if it can maintain barriers to entry,
assuming no changes in costs or market demand.
c.earn higher economic profit in the long run because of economies of scale.
d.earn zero economic profit in long-run equilibrium.
15.A firm gains monopoly power when:
a.barriers to entry can be erected and maintained.
b.other firms cannot produce an identical product but are able to purchase a close
substitute.
c.it can sell all that it can produce at the price determined by market forces.
d.it must raise price on all units in order to sell a higher level of output.
16.Which of the following is not an example of price discrimination?
a.An airline charges lower prices for tickets purchased well in advance.
b.An airline charges higher prices for larger seats in the first-class section.
c.A psychologist charges a lower fee to low-income patients.
d.A movie theater gives a discount to students and senior citizens.
17.In order to price discriminate, a monopoly firm must be able to:
a.separate customers based on different elasticities of demand.
b.charge each customer the same price.
c.incur a different cost for producing each unit of output.
d.all of the above.
18.If DeBeers has a monopoly in the diamond market, then:
a.DeBeers must be engaging in perfect price discrimination if it is charging every
customer the same price for a diamond.
b.the marginal revenue of selling one more diamond is greater than the price of that
diamond if DeBeers cannot price discriminate.
c.the marginal revenue of selling one more diamond is less than the price of that diamond
if DeBeers cannot price discriminate.
d.the market demand for diamonds is perfectl
y elastic.
19.A producer of Product X is most likely to be a monopolist when:
a.there are close substitutes for Product X.
b.there are no close substitutes for Product X and there are barriers to entry into the
industry.
c.a single firm owns the patent for manufacturing Product X, but other firms can sell
Product Y which is a close substitute for Product X.
d.there are no close substitutes for Product X and there are no barriers to entry into the
industry.
20.For a monopolist, it is always true that:
a.profit is maximized where marginal revenue equals marginal cost.
b.economic profit is positive in both the short run and the long run.
c.price is greater than average total cost.
d.all of the above are always true

Answer 1

1.A firm is a pure monopoly when:

a.it is the only seller of a unique product and barriers to entry prevent other sellers from

entering the market in the long run.
Explanation: This allows the monopolist to earn economic profit.

2.Barriers to entry:

c.are obstacles that make it impossible or unprofitable for new firms to enter a market in the long run.

Explanation: Barriers to entry is necessary for monopoly to exist.

3.Which of the following is not one of the defining characteristics of a pure monopoly?

c.The brand-name of the product is protected by trademark law.
Explanation: Brand name may not necessarily be protected.