Question

1. A ________ externality exists when the number of customers who purchase a good or use it influences the quantity demanded.

network

production

consumption

distribution

regulation

2. The government has exercised control over monopoly practices since the passage of the

Morrill Land-Grant Act of 1890.

Gold Standard Act.

Crimes Act.

Sherman Act.

Foraker Act of 1900.

3. Market-created and government-created barriers

are the same thing.

are regarded by all economists as bad.

increase competition in markets.

create monopolies.

are problems solved only by government intervention.

4. If a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $17, the monopolist should ________ to maximize profits.

increase production and lower the price

decrease production and increase the price

continue producing at the current price

increase production and increase the price

decrease production and decrease the price

5. Licensing

is a natural barrier.

creates more competition.

causes more varieties of goods and services at different price levels.

creates an opportunity for corruption.

always results in zero economic profits.

Answer 1

(1) (A)

Network externality leads to an increase in demand of a good.

(2) (D)

Sherman Antitrust Act prevents monopoly power of firms by encouraging competition.

(3) (D)

Market-created barriers to entry and government-created barriers to entry both decrease competition and increases monopoly power.

(4) (A)

When MR > MC, there is a marginal profit (= MR - MC) which can be increased by increasing output. Since monopolist faces downward sloping demand curve, to increase quantity the firm must decrease price.

(5) (D)

Since licensing is a government-created barrier to entry, it leaves scope for corruption.