Monopoly producers are faced with
A. many competitors producing the same product.
B. only a few competitors producing the same product.
C. at least one competitive producer of the same product.
D. no competitive producers of the same product.
In a monopoly market structure, the firm (the monopolist)
A. is the whole industry.
B. sells faulty products.
C. gets unconscionably rich.
D. gouges the consumer.
A monopolist is defined as
A. a producer of a good or service that is expensive to produce, requiring large amounts of capital equipment.
B. a large firm, making substantial profits, that is able to make other firms do what it wants.
C. a single supplier of a good or service for which there is no close substitute.
D. a firm with annual sales over $10 million.
A firm can be the sole supplier of a good and still not be considered a monopoly if
A. the firm is making normal profits.
B. the good produced is not important to the economy.
C. the firm is not large.
D. there are very close substitutes for the good.
Which of the following is not a barrier to entry into a market?
A. Diseconomies of scale.
B. Difficulty in raising adequate capital necessary to enter an industry.
C. Ownership of an important resource where there is no good substitute.
D. Governmental restrictions such as tariffs.
As opposed to other types of monopoly, a natural monopoly typically owes its monopoly position to
A. ownership of a resource without close substitutes.
B. tariffs.
C. economies of scale.
D. patents.
A natural monopoly
A. has decreasing long-run average total costs over a very large range of output.
B. has decreasing long-run marginal costs over a very large range of output.
C. has economies of scale over a very large range of output.
D. All of the above.
Given the cost curves in the diagram, what market situation would you expect to occur?
A. Price discrimination.
B. Price differentiation.
C. A natural monopoly.
D. A cartel.
The demand curve of the monopolist
A. is the same as the industry demand curve.
B. is the same as a price-taking firm.
C. is perfectly inelastic.
D. is perfectly elastic.
Marginal revenue for a monopolist is
A. horizontal, just like for the perfectly competitive firm.
B. downward sloping and always equal to price.
C. downward sloping and always greater than price.
D. downward sloping and always less than price.
The marginal revenue curve for a perfectly competitive firm is _________ while the marginal revenue curve of the monopolist is _________.
A. downward sloping, horizontal
B. horizontal, upward sloping
C. horizontal, downward sloping
D. downward sloping, upward sloping
For a monopoly,
A. price equals average revenue only.
B. price differs from both average revenue and marginal revenue.
C. price equals both average revenue and marginal revenue.
D. price equals marginal revenue only.
You observe that the revenue of a monopolist vary directly with changes in price.
This firm is not maximizing its economic profits because
A. when demand is inelastic, as the price rises, the quantity falls and revenues rise.
B. when demand is elastic, as the price rises, the quantity falls and revenues fall.
C. when demand is elastic, as the price falls, the quantity rises and revenues rise.
D. when demand is inelastic, as the price falls, the quantity rises and revenues fall.
E. All of the above are true.
The demand curve faced by the monopolist
A. is always inelastic where MR = MC and profits are maximized.
B. has lower price elasticity of demand as close substitutes for the monopoly product are developed.
C. has greater price elasticity of demand as close substitutes for the monopoly product are developed.
D. None of the above.
As the number of imperfect substitutes for a monopoly firm’s product increases, the price elasticity of demand
A. decreases.
B. approaches zero.
C. cannot be determined.
D. increases.
The better the substitutes for a monopoly firm’s product, the
A. greater the price elasticity of demand.
B. faster the price elasticity of demand approaches zero.
C. effect on the price elasticity of demand is indeterminate.
D. smaller the price elasticity of demand.
Evaluate the following statement. A profit maximizing monopolist will never operate in a price range in which price elasticity of demand is inelastic.
True False
The table below depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town. Compute the revenues at each output level and fill in the blanks
(Enter dollars and cents and include minus signs where necessary.)
Output
(Suits Cleaned) Price per Suit ($) Total Costs ($) Total Revenue ($)
0 $10.00 $3.00 $0
1 $9.50 $6.00 $9.50
2 $9.00 $8.50 $18.00
3 $8.50 $10.50 $25.50
4 $8.00 $11.50 $32.00
5 $7.50 $13.50 $37.50
6 $7.00 $18.00 $42.00
7 $6.50 $24.00 $45.50
8 $6.00 $26.00 $48.00
Given the information in the table at right, calculate the dry cleaner’s marginal revenue (MR) and marginal cost (MC) at each output level. (Your answer should be rounded to the nearest cent.)
Output
(Suits Cleaned) Price per Suit ($) Total Costs ($) Total Revenue ($) MC ($) MR ($)
0 10.00 3.00 0.00 − −
1 9.50 6.00 9.50
2 9.00 8.50 18.00
3 8.50 10.50 25.50
4 8.00 11.50 32.00
5 7.50 13.50 37.50
6 7.00 18.00 42.00
7 6.50 24.00 45.50
8 6.00 26.00 48.00
Based on marginal analysis, what is the profit-maximizing level of output? units.
A monopolist’s maximized rate of economic profits is $600 per week. Its weekly output is 300 units, and at this output rate, the firm’s marginal cost is $27 per unit. The price at which it sells each unit is $37 per unit.
At these profit and output rates, the firm’s average total cost is $ .(Enter your response as a whole number.)
At these profit and output rates, the firm’s marginal revenue is $ . (Enter your response as a whole number.)
The table below depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town. Compute the revenues at each output level and fill in the blanks. (Enter dollars and cents and include minus signs where necessary.)
Output
(Suits Cleaned) Price per Suit ($) Total Costs ($) Total Revenue ($)
0 $12.00 $3.00
1 $11.50 $6.00
2 $11.00 $8.50
3 $10.50 $10.50
4 $10.00 $11.50
5 $9.50 $13.50
6 $9.00 $20.00
7 $8.50 $28.00
8 $8.00 $32.00
In the graph, the profit-maximizing price for a monopoly is
A P4.
B. P2.
C. P3.
D. P1.
The monopolist sets price by
A. charging the price where average total cost equals marginal cost.
B. charging the price where marginal cost equals price.
C. charging the price where marginal revenue equals price.
D. producing the quantity where marginal cost equals marginal revenue and charging the price that corresponds to that quantity.
Which of the following is not necessary for price discrimination to exist?
A. The ability to separate markets at reasonable cost.
B. Buyers in various markets must have different price elasticities of demand.
C. The ability to prevent resale of the product or service.
D. A perfectly elastic demand curve.
The graph to the right shows demand and marginal revenue curves for a monopoly firm. Complete both steps and then check your answer. Assume the marginal cost is not constant.
1.) Using the line drawing tool, draw a line showing a possible short-run marginal cost curve for this firm. Label this line ‘MC’.
2.) Using the point drawing tool, plot the point identifying this firm’s profit-maximizing output level and corresponding price to be charged. Label this point ‘B’. Carefully follow the instructions above, and only draw the required objects.
In order to price discriminate, a firm must
A. face a downward-sloping demand curve.
B. have permission from the government.
C. be sure the price-marginal cost ratio is the same for all its submarkets.
D. set price equal to marginal cost.
Charging different prices for similar products that have different marginal costs is called
A. predatory pricing.
B. price dumping.
C. price discrimination.
D. price differentiation.
If a public utility company is considered a monopolist, which of the following is not true?
A. Its profit maximizing quantity is determined where its marginal revenue equals its marginal cost.
B. For the company to practice price discrimination, there should not be any resale of its product.
C. Its price must be higher than its marginal revenue.
D. The company’s demand curve and supply curve are upward sloping.
Why is there a social cost of monopoly?
A. Too many resources are being used in a monopoly.
B. The firm does not equate marginal cost to marginal revenue.
C. The firm produces too much of the good.
D. Too few resources are being used in a monopoly.
Monopoly has social costs because
A. too few resources are being used in the monopoly industry and too many are used elsewhere.
B. a monopoly produces less and charges a higher price than a perfectly competitive firm would producing the same product or service.
C. P is greater than MC and this implies economic inefficiency.
D. All of the above.
If we were to compare the amount produced by firms in a competitive industry to the output produced by a monopoly, the monopolist will produce
A. on the inelastic portion of the demand curve but at a higher price.
B. on the inelastic portion of the demand curve because the monopolist would make the entire demand curve inelastic.
C. the same quantity but would make profits because of economies of scale.
D. on the elastic portion of the demand curve and charge a higher price.
A monopoly is socially inefficient because it
A. makes profits even in the long run.
B. makes consumers buy goods they really don’t need.
C. makes profits.
D. charges a price greater than marginal cost.
Selected Occupations Requiring Licenses in Some U.S. States
Acupuncturists Glass Installers Nutritionists
Athletic trainers Hearing-aid fitters Secondhand booksellers
Ballroom-dancing teachers Hunting guides Shampoo specialists
Barbers Librarians Tattoo artists
Dieticians Locksmiths Tour guides
Electricians Manicurists Tree-trimmers
Frozen-dessert retailers Massage therapists Wig specialists
Funeral directors Private detectives Windshield repairers
Hair braiders Respiratory therapists Yoga instructors
The above table lists some of the occupations that require licenses in at least a few states. All told, 1,100 different jobs now require a license in at least one state that is nearly 40 percent larger than three decades ago. Thus, it can surmised that
A. there has been new federal laws passed against license requirement for new jobs.
B. the number of occupational licenses issued have been going down.
C. the number of occupational licenses issued have remained unchanged.
D. there has been an occupational license explosion in the U.S.
Recently in states across the land, licensing rules have expanded with each passing year. In order to obtain occupational licenses, people typically must pay fees or engage in a period of study. Such licensing requirements constitute
A. deregulation.
B. patents.
C. free entry.
D. barriers to entry.
People in licensed occupations earn about 15 percent higher incomes because consumers pay higher prices to obtain the services of people in licensed occupations. Therefore, licenses create
A. low quality products.
B. higher costs of production.
C. free entry and exit to any profession.
D. monopoly profits.
Chapter 24 Homework
Which of the following is not a characteristic of a monopoly?
A. Barriers to entry.
B. Free entry and exit.
C. A product with no close substitutes.
D. A single firm in the market.
Which of the following markets has a barrier to entry?
A. Gold can only be mined in certain places in the world.
B. Stan’s Garbage Company runs the only trash collection service in town.
C. There are already many fast food restaurants in the City of Buffalo.
D. An aluminum company owns all bauxite mines, an essential input.
Which of the following markets has a barrier to entry?
A. Joe’s Bar owns the only liquor license issued by the town.
B. Gold can only be mined in certain places in the world.
C. There are already many fast food restaurants in the City of Buffalo.
D. Stan’s Garbage Company runs the only trash collection service in town.
For a monopolist, marginal revenue is (Graph)
A. greater than the price of the product.
B. less than the price of the product.
C. unable to be determined.
D. equal to the price of the product.
Since a monopolist faces the downward-sloping industry demand curve,
A. it can charge any price that it wants.
B. it must charge the same price as a competitive firm.
C. the price it can charge must be regulated by the government.
D. the price it will charge depends on the elasticity of demand.
A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be maximizing its economic profits. The manager’s argument is
A. incorrect, since profit maximization requires that marginal revenue equals marginal cost but does not require the average total cost to be at any particular level.
B. correct, since a monopolist maximizes profit at a point where average total cost should be at its lowest level.
C. incorrect, since at the minimum feasible point of the average total cost curve, a monopolist earns zero profit.
D. correct, since a monopolist maximizes profit at a point where average total cost is equal to marginal cost.
A new competitor enters the industry and competes with a second firm, which had been a monopolist. The second firm finds that although demand is not perfectly elastic, it is now relatively more elastic. The second firm’s marginal revenue will be _____________ and its profit-maximizing price will be ___________
A. perfectly inelastic; higher.
B. less elastic; higher.
C. more elastic; lower.
D. perfectly elastic; the same.
The following table shows demand and marginal cost for a monopolist. Calculate marginal revenue (MR) at each quantity. (Enter your response as an integer.)
Output (units)
(Q) Price per Unit
(P) Marginal Revenue
(MR) Marginal Cost
(MC)
0 40 — —
1 35 5
2 30 10
3 25 15
4 20 20
5 15 25
A profit-maximizing monopolist will produce ___units and set a price of $__.
The following table shows daily demand and costs for a monopolist.
Output (units)
(Q) Price per Unit
(P) Marginal Revenue
(MR) Marginal Cost
(MC) Average Cost
(ATC)
0 30 — — —
1 25 25 5 25
2 20 15 10 15
3 15 5 15 18
4 10 −5 20 21
5 5 −15 25 24
A profit-maximizing monopolist will produce __ units and set a price of $.
This monopolist’s daily profit is equal to $___.
Consider a price discriminating monopolist. Which of the following is true?
A. A monopoly will engage in price discrimination whenever feasible to increase profits.
B. Charging different prices to different customers does not mean the monopoly is necessarily using price discrimination.
C. The monopolist will sell some of its output at higher prices to consumers with less elastic demand.
D. All of the above are true.
E. None of the above are true.
For each of the following examples, which group will pay the higher price?
Air transport for businesspeople and tourists
Serving food on weekdays to businesspeople and retired people. (Hint: Which group has more flexibility during a weekday to adjust to a price change and, hence, a higher price elasticity of demand?)
A theater that shows the same movie to large families and to individuals and couples. (Hint: For which set of people will the overall expense of a movie be a larger part of their budget, so that demand is more elastic?)
Which of the following is necessary for a firm to practice price discrimination?
A. The firm must be a monopoly.
B. The firm must be able to prevent resale of the product.
C. The firm must be selling a service, not a product.
D. There must be only two groups of buyers in the market.
As compared to a perfectly competitive industry, a monopoly industry with identical cost curves will
A. produce less and set a lower price.
B. produce less and set a higher price.
C. produce less and set the same price.
D. produce more and set a higher price.
E. produce more and set a lower price.
The marginal revenue curve of a monopoly crosses its marginal cost curve at $31 per unit, and an output of 3 million units.
What is the profit-maximizing (loss-minimizing) output?
When the demand for a monopolist falls, the marginal revenue also shifts left and will intersect the marginal cost at a l—–output level. The output rate will____, and economic profits will likely ________.
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