Chapter+15+Monopoly Abbreviated

Chapter 15 Monopoly
MULTIPLE CHOICE
1. Which of the following statements is correct?

a. Both a competitive firm and a monopolist are price takers.
b. Both a competitive firm and a monopolist are price makers.
c. A competitive firm is a price taker, whereas a monopolist is a price maker.
d. A competitive firm is a price maker, whereas a monopolist is a price taker.
ANS: C PTS: 1 DIF: 1 REF: 15-0
NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional
2. One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm
produces where
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.
ANS: A PTS: 1 DIF: 2 REF: 15-0
NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive
3. A monopoly
a. can set the price it charges for its output and earn unlimited profits.
b. takes the market price as given and earns small but positive profits.
c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot
earn unlimited profits.
d. can set the price it charges for its output but faces a horizontal demand curve so it can earn
unlimited profits.
4. A perfectly competitive market

a. may not be in the best interests of society, whereas a monopoly market promotes general economic
well-being
b. promotes general economic well-being, whereas a monopoly market may not be in the best interests
of society.
c. and a monopoly market are equally likely to promote general economic well-being.
d. is less likely to promote general economic well-being than a monopoly market.
ANS: B PTS: 1 DIF: 2 REF: 15-0
5. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is
often
a. not in the best interest of society.
b. one that fails to maximize total economic well-being.
c. inefficient.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 15-0
6. Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly
a. does not illustrate profit maximization.
b. is often not in the best interest of society.
c. is characterized by unlimited profits.
d. would be improved if the government produced the product rather than a private firm.
7. Microsoft faces very little competition from other firms for its Windows software. Why isn’t the price of the
software $1,000 per copy?
a. because the government would not allow such a high price
b. because stockholders would not allow such a high price
c. because the company would sell so few copies that they would earn higher profits by selling at a
lower price
8. The DeBeers company faces very little competition from other firms in the wholesale diamond market. Why
isn’t the price of the wholesale diamonds $10,000 per carat?
a. because the government would not allow such a high price
b. because stockholders would not allow such a high price
c. because the company would sell so few copies that they would earn higher profits by selling at a
lower price
WHY MONOPOLIES ARISE
1. Which of the following is not a characteristic of a monopoly?

a. barriers to entry
b. one seller
c. one buyer
d. a product without close substitutes
2. Which of the following is a characteristic of a monopoly?

a. low fixed costs as a portion of total costs
b. free entry and exit
c. barriers to entry
d. declining marginal cost
3. The fundamental source of monopoly power is

a. barriers to entry.
b. profit.
c. decreasing average total cost.
d. a product without close substitutes.
NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Applicative
4. A monopoly market is characterized by
a. many buyers and sellers.
b. “natural” products.
c. barriers to entry.
d. a Nash equilibrium.
5. A benefit of a monopoly is
a. lower prices.
b. a wide variety of similar products.
c. decreasing long-run average total costs.
d. greater creativity by authors who can copyright their novels.
6. A benefit of a monopoly is
a. efficient production.
b. decreasing long-run marginal costs.
c. profit that can be invested in research and development.
7. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.
(ii) The firm's product does not have close substitutes.
(iii) The firm generates a large economic profit.
(iv) The firm is located in a small geographic market.
a. (i) and (ii) only
b. (i) and (iii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
8. The simplest way for a monopoly to arise is for a single firm to

a. decrease its price below its competitors’ prices.
b. decrease production to increase demand for its product.
c. make pricing decisions jointly with other firms.
d. own a key resource.
9. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers,
a large diamond company, has
a. less incentive to advertise than it would otherwise have.
b. less market power than it would otherwise have.
c. more control over the price of diamonds than it would otherwise have.
d. higher profits than it would otherwise have.
10. Which of the following is not a reason for the existence of a monopoly?
a. sole ownership of a key resource
b. patents
c. copyrights
d. diseconomies of scale
11. Which of the following would be most likely to have monopoly power?
a. a long-distance telephone service provider
b. a local cable TV provider
c. a large department store
d. a gas station
12. Which of the following would be most likely to have monopoly power?
a. a national florist
b. an online bookstore
c. a local restaurant
d. a local electrical cooperative
13. A firm that is the sole seller of a product without close substitutes is
a. perfectly competitive.
b. monopolistically competitive.
c. an oligopolist.
d. a monopolist.
14. Most markets are not monopolies in the real world because
a. firms usually face downward-sloping demand curves.
b. supply curves slope upward.
c. firms usually equate price with marginal cost.
d. there are reasonable substitutes for most goods.
15. Which of the following statements is not correct?

a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural
monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something that
benefits society such as medical research.
NAT: Analytic LOC: Monopoly TOP: Monopoly | Natural monopoly
MSC: Applicative
16. Which of the following is not an example of a barrier to entry?
a. Mighty Mitch’s Mining Company owns a unique plot of land in Tanzania, under which lies the
only large deposit of Tanzanite in the world.
b. A pharmaceutical company obtains a patent for a specific high blood pressure medication.
c. A musician obtains a copyright for her original song.
d. An entrepreneur opens a popular new restaurant.
NAT: Analytic LOC: Monopoly TOP: Barriers to entry
MSC: Applicative

a. Mighty Mitch’s Mining Company owns a unique plot of land in Tanzania, under which lies the
only large deposit of Tanzanite in the world.
b. A college student starts a part-time tutoring business.
c. A novelist obtains a copyright for her new book.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York
City.
MSC: Applicative

a. A soybean farmer is the first in her county to use a new brand of fertilizer.
b. Microsoft obtains a copyright for its Windows operating system.
c. A pharmaceutical company obtains a patent for a new medication to treat migraine headaches.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York
City.
MSC: Applicative
19. Which of the following is an example of a barrier to entry?

a. Tom charges a higher price than his competitors for his house-painting services.
b. Dick obtains a copyright for the new computer game that he invented.
c. Harry offers free concerts on Sunday afternoons as a form of advertising.
d. Larry charges a lower price than his competitors for his lawn-mowing services.
MSC: Applicative

a. Dawn charges a higher price than her competitors for her landscape-architecture services.
b. Rhianna obtains a copyright for a short story that she wrote and published.
c. Debbie offers free samples of her chocolate chip cookies to attract new customers.
d. Bev charges a lower price than her competitors for her desktop-publishing services.
MSC: Applicative
a. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup.
b. Mark charges a lower price to students than to faculty for his tattoo services.
c. Luke charges a higher hourly price to business students than to liberal arts students for his
economics tutoring.
d. John obtained a copyright for the song he wrote and recorded.
MSC: Applicative

(i) A key resource is owned by a single firm.
(ii) The costs of production make a single producer more efficient than a large number of
producers.
(iii) The government has given the existing monopolist the exclusive right to produce the good.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) only
d. (i), (ii), and (iii)
MSC: Interpretive
23. A fundamental source of monopoly market power arises from

a. perfectly elastic demand.
b. perfectly inelastic demand.
c. barriers to entry.
d. availability of "free" natural resources, such as water or air.
MSC: Interpretive
24. The fundamental cause of monopoly is

a. incompetent management in competitive firms.
b. the zero-profit feature of long-run equilibrium in competitive markets.
c. advertising.
d. barriers to entry.
MSC: Interpretive
25. Sizable economic profits can persist over time under monopoly if the monopolist
a. produces that output where average total cost is at a maximum.
b. is protected by barriers to entry.
c. operates as a price taker rather than a price maker.
d. earns revenues that exceed variable costs.
MSC: Interpretive
a. Al owns the only parcel of lakeside property with a beach that is safe for swimming. He charges
admission to neighbors who want to use the beach.
b. Meredith owns the copyright to a popular song. She receives royalties every time a radio station
plays her song.
c. Matt sells computers to his state government for use in their legislative sessions. He has sold
computers for ten years.
d. Anne owns the patent for a new running shoe. She receives payments from the company who
manufactures the shoes.
MSC: Applicative
27. Patents, copyrights, and trademarks

a. are examples of government-created monopolies.
b. are examples of barriers to entry.
c. allow their owners to charge higher prices.
MSC: Applicative
28. Patent and copyright laws are major sources of

a. natural monopolies.
b. government-created monopolies.
c. resource monopolies.
d. antitrust regulation.
NAT: Analytic LOC: Monopoly TOP: Patents | Copyrights
MSC: Interpretive
29. Encouraging firms to invest in research and development and individuals to engage in creative endeavors such
as writing novels is one justification for
a. resource monopolies.
b. natural monopolies.
c. government-created monopolies.
d. breaking up monopolies into smaller firms.
MSC: Interpretive
30. A government-created monopoly arises when

a. government spending in a certain industry gives rise to monopoly power.
b. the government exercises its market control by encouraging competition among sellers.
c. the government gives a firm the exclusive right to sell some good or service.
d. Both a and c are correct.
MSC: Interpretive

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Chapter 15 Monopoly

1. Which of the following statements is correct?

4. A perfectly competitive market

1. Which of the following is not a characteristic of a monopoly?

2. Which of the following is a characteristic of a monopoly?

3. The fundamental source of monopoly power is

7. Which of the following are necessary characteristics of a monopoly?

8. The simplest way for a monopoly to arise is for a single firm to

15. Which of the following statements is not correct?

17. Which of the following is not an example of a barrier to entry?

18. Which of the following is not an example of a barrier to entry?

19. Which of the following is an example of a barrier to entry?

20. Which of the following is an example of a barrier to entry?

22. Which of the following is an example of a barrier to entry?

23. A fundamental source of monopoly market power arises from

24. The fundamental cause of monopoly is

27. Patents, copyrights, and trademarks

28. Patent and copyright laws are major sources of

30. A government-created monopoly arises when

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