Question

1. Compared with a perfectively competitive market a monopoly is inefficient because       
            a. it raises the market price above marginal cost and produces a smaller output.
            b. it produces a greater output but charges a lower price.
            c. it produces the same quantity while charging a higher price.
            d. all surplus goes to the producer.
            e. it leads to a smaller producer surplus but greater consumer surplus.

2. The demand curve of a monopolist typically

1. slopes downward to the right.
2. slopes upward to the right.
3. is a horizontal line.
4. can be shifted by the monopolist because of his economic power.
5. is the same as that faced by a competitive firm.

3. The ability of a firm to influence the market price of a good by influencing the total quantity of the good sold is known as  

1. monopoly.
2. market power.
3. legal monopoly.
4. patent.
5. copyright.       

4. A monopoly is distinguished from a firm operating under any other market structure in the following way:

1. the monopoly charges a price higher than its average revenue.
2. the monopoly can choose its output level.
3. the monopoly can choose its level of cost.
4. the monopoly does not produce at a profit-maximizing level of output.
5. the monopoly has a demand curve which is identical to the market demand curv

5. A single-price monopolist maximizes profit by producing an output where
            a. its marginal revenue equals marginal cost equals the market price.

            b. its marginal revenue exceeds marginal cost.   

c. its marginal revenue equals marginal cost but is less than the market price.

d. its marginal revenue equals marginal cost but is greater than the market price.

e. its marginal revenue is less than marginal cost.

6. While firms in a perfectly competitive industry make zero economic profit in the long run, a monopolist could make           a.a positive economic profit.
            b.an economic loss.            
            c.a declining economic profit.
            d.an increasing economic profit.  
            e.also a zero economic profit.

7. You are the manager of a firm that sells its product in a competitive market at a price of $250. Your firm's cost function is C = 30 + 5Q². The profit-maximizing output for your firm is

1. 25.
2. 10.
3. 8.45.
4. 7.07.
5. None of the above.

8. The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

1. the market price is determined (through regulation) by the government
2. the firm supplies a different good than its rivals
3. the firm's output is a small fraction of the entire industry's output
4. the short run market price is determined solely by the firm's technology
5. the demand curve for the industry's output is downward sloping

9. Which of the following is true regarding a perfectly competitive firm?

1. The firm can charge a lower price than its competitors and thereby sell more output and increase its profits.
2. The firm always earns a normal profit.
3. The firm's marginal revenue continually decreases.
4. The firm's minimum efficient scale is small relative to the market demand.
5. None of the above.

10. A price-taking firm faces a

1. perfectly inelastic demand.
2. downward-sloping marginal revenue curve.
3. downward-sloping supply curve.
4. perfectly elastic demand.
5. downward-sloping demand curve.

11. If a competitive firm produces an output where its average total cost is $40, and marginal revenue and marginal cost are $50, in the short run this firm  

1. maximizes profit but makes only a normal profit.
2. maximizes profit and makes an economic profit.      
3. can still increase profit.
4. has a declining profit.  
5. makes an economic loss.

12. If current output is less than the profit-maximizing output, then the next unit produced

1. will decrease profit.
2. will increase cost more than it increases revenue.
3. will increase revenue more than it increases cost.
4. will increase revenue without increasing cost.
5. may or may not increase profit.

13. Which one of the following statements describes a market that is monopolistically competitive?

1. The presence of significant barriers to entry.
2. The products produced by the firms are identical.
3. Many firms compete by making similar but slightly different products.
4. There is a small number of large firms.
5. The product produced by one firm has no close substitutes.

14. A market structure where a small number of firms compete occurs in

1. perfect competition.
2. monopolistic competition.
3. the worldwide market for wheat, corn, and rice.
4. oligopoly.
5. monopoly.

15. You are the manager of a monopoly that faces an inverse demand curve described by P = 528 - 12Q. Your costs are

C = 124 + 48Q. The profit-maximizing price is

1. $20.
2. $48.
3. $240.
4. $288.
5. None of the above

16. Which one of the following is a potential source of monopoly power?

1. Cost complementarities.
2. The patent system.
3. Economies of scope.
4. All are potential sources of monopoly power.
5. None of the above.

17. Which of the following is a correct representation of a profit-maximizing monopoly earning positive economic profits?

1. P = MR = MC, and P > AVC.
2. ATC = MR, and P > AVC.
3. MC = MR, and P > ATC.
4. P = MC, and P > ATC.
5. None of the above

18. Which of the following is true regarding the long-run equilibrium relationship between price and costs in a perfectly competitive and monopolistically competitive industry?

1. P = MC.
2. P < MC.
3. P = average costs.
4. P > average costs.
5. None of the above

19. The implication of the long-run equilibrium in the competitive industry is that

1. resources are allocated efficiently.
2. price of the product is the lowest price possible.
3. there is no incentive for firms to enter or leave the industry.
4. All of the above.
5. None of the above.

20. Monopoly, as compared to perfect competition (with a given cost structure), is predicted to result in

1. the same output and a higher price.
2. a greater output and a higher price.
3. a smaller output and a higher price.
4. a smaller output with the same price.
5. the same output and the same price.

Answer 1

Q1) The answer is (a) as a monopolist produces according to a condition MR = MC that leads to a higher price than the marginal cost and a smaller quantity than competitive markets

Q2) The answer is (a) as for a monopolist to sell more, the prices must be lowered thus the demand curve slopes downward to the right

Q3) The answer is (b) market power is indeed the ability of the firm to be able to influence the price by making changes in the quantity sold.

Q4) The answer is (e) as monopolist is the only producer in the market, its demand curve is the same as the market demand curve (downward sloping unlike competition)