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Which of the following is correct?
A) Both purely competitive and monopolistic firms are "price takers."
B) Both purely competitive and monopolistic firms are "price makers."
C) A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D) A purely competitive firm is a "price maker," while a monopolist is a "price taker."
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c
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Pure monopoly means:
A) any market in which the demand curve to the firm is downsloping.
B) a standardized product being produced by many firms.
C) a single firm producing a product for which there are no close substitutes.
D) a large number of firms producing a differentiated product
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c
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A purely monopolistic industry:
A) has no entry barriers.
B) has a downward sloping demand curve.
C) produces a product or service for which there are many close substitutes.
D) earns only a normal profit in the long run
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d
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Pure monopolists may obtain economic profits in the long run because:
A) of advertising. C) of barriers to entry.
B) marginal revenue is constant as sales increase. D) of rising average fixed costs.
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c
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Which of the following is not a barrier to entry?
A) patents B) X-inefficiency C) economies of scale D) ownership of essential resources
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b
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A natural monopoly occurs when:
A) long-run average costs decline continuously through the range of demand.
B) a firm owns or controls some resource essential to production.
C) long-run average costs rise continuously as output is increased.
D) economies of scale are obtained at relatively low levels of output
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a
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The nondiscriminating pure monopolist’s demand curve:
A) is the industry demand curve.
B) shows a direct or positive relationship between price and quantity demanded.
C) tends to be inelastic at high prices and elastic at low prices.
D) is identical to its marginal revenue curve.
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d
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The nondiscriminating monopolist’s demand curve:
A) is less elastic than a purely competitive firm’s demand curve.
B) is perfectly elastic.
C) coincides with its marginal revenue curve.
D) is perfectly inelastic.
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a
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If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal
revenue:
A) may be either greater or less than $35. C) will be less than $35.
B) will also be $35. D) will be greater than $35.
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c
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A nondiscriminating pure monopolist’s demand curve:
A) is perfectly inelastic. C) lies above its marginal revenue curve.
B) coincides with its marginal revenue curve. D) lies below its marginal revenue curve.
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c
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. For an imperfectly competitive firm:
A) total revenue is a straight, upsloping line because a firm’s sales are independent of product price.
B) the marginal revenue curve lies above the demand curve because any reduction in price applies to all
units sold.
C) the marginal revenue curve lies below the demand curve because any reduction in price applies to all
units sold.
D) the marginal revenue curve lies below the demand curve because any reduction in price applies only to
the extra unit sold.
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c
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For a nondiscriminating imperfectly competitive firm:
A) the marginal revenue curve lies above the demand curve.
B) the demand and marginal revenue curves coincide.
C) the demand curve intersects the horizontal axis where total revenue is at a maximum.
D) marginal revenue will become zero at that output where total revenue is at a maximum.
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d
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When a firm is on the inelastic segment of its demand curve, it can:
A) increase total revenue by reducing price.
B) decrease total costs by decreasing price.
C) increase profits by increasing price.
D) increase total revenue by more than the increase in total cost by increasing price
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c
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Price exceeds marginal revenue for the pure monopolist because the:
A) law of diminishing returns is inapplicable.
B) demand curve is downsloping.
C) monopolist produces a smaller output than would a purely competitive firm.
D) demand curve lies below the marginal revenue curve
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b
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The marginal revenue curve for a monopolist:
A) is a straight, upward sloping curve.
B) rises at first, reaches a maximum, and then declines.
C) becomes negative when output increases beyond some particular level.
D) is a straight line, parallel to the horizontal axis.
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c
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Which of the following is characteristic of a pure monopolist’s demand curve?
A) Average revenue is less than price.
B) Its elasticity coefficient is 1 at all levels of output.
C) Price and marginal revenue are equal at all levels of output.
D) It is the same as the market demand curve.
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d
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Because the monopolist’s demand curve is downsloping:
A) MR will equal price.
B) price must be lowered to sell more output.
C) the elasticity coefficient will increase as price is lowered.
D) its supply curve will also be downsloping.
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b
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The pure monopolist’s demand curve is relatively elastic:
A) in the price range where total revenue is declining.
B) at all points where the demand curve lies above the horizontal axis.
C) in the price range where marginal revenue is negative.
D) in the price range where marginal revenue is positive.
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d
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When the pure monopolist’s demand curve is elastic, marginal revenue:
A) may be either positive or negative. B) is zero. C) is negative. D) is positive.
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d
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When total revenue is increasing:
A) marginal revenue may be either positive or negative.
B) the demand curve is relatively inelastic.
C) marginal revenue is positive.
D) marginal revenue is negative.
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c
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A nondiscriminating monopolist:
A) will never produce in the output range where marginal revenue is positive.
B) will never produce in the output range where demand is inelastic.
C) will never produce in the output range where demand is elastic.
D) may produce where demand is either elastic or inelastic, depending on the level of production costs.
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b
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*For a pure monopolist the relationship between total revenue and marginal revenue is such that:
A) marginal revenue is positive when total revenue is at a maximum.
B) total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when
marginal revenue is decreasing.
C) marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative
when total revenue is decreasing.
D) marginal revenue is positive so long as total revenue is positive.
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c
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A pure monopolist’s demand curve is:
A) downsloping. B) upsloping. C) parallel to the vertical axis. D) parallel to the horizontal axis.
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a
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For a pure monopolist marginal revenue is less than price because:
A) the monopolist’s demand curve is perfectly elastic.
B) the monopolist’s demand curve is perfectly inelastic.
C) when a monopolist lowers price to sell more output, the lower price applies to all units sold.
D) the monopolist’s total revenue curve is linear and slopes upward to the right.
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c
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A pure monopolist should never produce in the:
A) elastic segment of its demand curve because it can increase total revenue and reduce total cost by
lowering price.
B) inelastic segment of its demand curve because it can increase total revenue and reduce total cost by
increasing price.
C) inelastic segment of its demand curve because it can always increase total revenue by more than it
increases total cost by reducing price.
D) segment of its demand curve where the price elasticity coefficient is greater than one
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b
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Assuming no change in product demand, a pure monopolist:
A) can increase price and increase sales simultaneously because it dominates the market.
B) adds an amount to total revenue which is equal to the price of incremental sales.
C) should produce in the range where marginal revenue is negative.
D) must lower price to increase sales.
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d
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Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus
know that:
A) demand is inelastic at this price. C) the firm is maximizing profits.
B) total revenue is increasing. D) total revenue is at a maximum.
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b
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*If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue
associated with that unit will be:
A) equal to its price.
B) the price at which that unit is sold less the price reductions which apply to all other units of output.
C) the price at which that unit is sold plus the price increases which apply to all other units of output.
D) indeterminate unless marginal cost data are known.
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b
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The MR = MC rule:
A) applies only to pure competition.
B) applies only to pure monopoly.
C) does not apply to pure monopoly because price exceeds marginal revenue.
D) applies both to pure monopoly and pure competition.
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d
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In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is
equal to:
A) average total cost. B) marginal revenue. C) average variable cost. D) average cost.
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b
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Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The
monopolist will produce and sell the sixth unit if its marginal cost is:
A) $4 or less. B) $3.90 or less. C) $3.50 or less.. D) $3.40 or less.
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d
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A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is
realizing:
A) a loss that could be reduced by producing more output.
B) a loss that could be reduced by producing less output.
C) an economic profit that could be increased by producing more output.
D) an economic profit that could be increased by producing less output.
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c
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* Which of the following statements is incorrect?
A) A monopolist’s 100 percent market share ensures economic profits.
B) The monopolist’s marginal revenue is less than price for any given output greater than 1.
C) A monopolistic firm produces a product having no close substitutes.
D) A pure monopolist’s demand curve is the industry demand curve.
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a
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A pure monopolist:
A) will realize an economic profit if price exceeds ATC at the equilibrium output.
B) will realize an economic profit if ATC exceeds MR at the equilibrium output.
C) will realize an economic loss if MC intersects the downsloping portion of MR.
D) always realizes an economic profit.
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a
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If a pure monopolist is producing at that output where P = ATC, then:
A) its economic profits will be zero.
B) it will be realizing losses.
C) it will be producing less than the profit-maximizing level of output.
D) it will be realizing an economic profit.
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a
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A pure monopolist’s short-run profit-maximizing or loss-minimizing position is such that price:
A) equals marginal revenue. C) will always equal ATC.
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b
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The short-run profit maximizing position of an unregulated pure monopolist is characterized by:
A) P = minimum ATC. B) P = MC. C) MR = MC. D) MC = ATC.
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c
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In the short run a pure monopolist’s profit:
A) will be maximized where price equals average total cost.
B) may be positive, zero, or negative.
C) are always positive.
D) will be zero.
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b
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Purely competitive firms and pure monopolists are similar in that:
A) the demand curves of both are perfectly elastic. C) both are price makers.
B) significant entry barriers are common to both. D) both maximize profit where MR = MC.
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d
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In the short run, a monopolist’s economic profits:
A) are always positive because the monopolist is a price-maker.
B) are usually negative because of government price regulation.
C) are always zero because consumers prefer to buy from competitive sellers.
D) may be positive or negative depending on market demand and cost.
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d
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A profit-maximizing monopolist will set its price:
A) as far above ATC as possible.
B) along the elastic portion of its demand curve.
C) where the marginal cost curve intersects the demand curve.
D) as close as possible to the minimum point of ATC
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b
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Under which of the following situations would a monopolist increase profits by lowering price (and
increasing output):
A) if it discovered that it was producing where MC = MR
B) if it discovered that it was producing where its MC curve intersects its demand curve
C) if it discovered that it was producing where MC < MR
D) under none of the above circumstances because a monopolist would never lower price
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c
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. The supply curve for a monopolist is:
A) perfectly elastic.
B) upsloping.
C) that portion of the marginal cost curve lying above minimum average variable cost.
D) nonexistent.
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d
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The supply curve of a pure monopolist:
A) is that portion of its marginal cost curve which lies above average variable cost.
B) is the same as that of a purely competitive industry.
C) is its average variable cost curve.
D) does not exist because prices are not "given" to a monopolist.
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d
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If the variable costs of a profit-maximizing pure monopolist decline, the firm should:
A) produce more output and charge a higher price. C) reduce both output and price.
B) produce more output and charge a lower price. D) raise both output and price.
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b
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In the short run a pure monopolist:
A) always earns an economic profit.
B) always earns a normal profit.
C) always realizes a loss.
D) may realize an economic profit, a normal profit, or a loss.
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d
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Economic profit in the long run is:
A) possible for both a pure monopoly and a pure competitor.
B) possible for a pure monopoly, but not for a pure competitor.
C) impossible for both a pure monopolist and a pure competitor.
D) only possible when barriers to entry are nonexistent.
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b
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Which of the following statements is correct?
A) The pure monopolist will maximize profit by producing at that point on the demand curve where
elasticity is zero.
B) In seeking the profit-maximizing output the pure monopolist underallocates resources to its production.
C) The pure monopolist maximizes profits by producing that output at which the differential between
price and average cost is the greatest.
D) Purely monopolistic sellers earn only normal profits in the long run
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b
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A single-price monopoly is economically undesirable because, at the profit maximizing output:
A) marginal revenue exceeds product price at all profitable levels of production.
B) monopolists always price their products on the basis of the ability of consumers to pay rather than on
costs of production.
C) MC > P.
D) society values additional units of the monopolized product more highly than it does the alternative
products those resources could otherwise produce
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d
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At its profit-maximizing output, a pure nondiscriminating monopolist achieves:
A) neither productive efficiency nor allocative efficiency.
B) both productive efficiency and allocative efficiency.
C) productive efficiency but not allocative efficiency.
D) allocative efficiency but not productive efficiency.
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a
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The profit-maximizing output of a pure monopoly is economically inefficient because in equilibrium:
A) price equals minimum average total cost. C) marginal cost exceeds price.
B) marginal revenue equals marginal cost. D) price exceeds marginal cost.
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d
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. A single-price pure monopoly is economically inefficient:
A) only because it produces beyond the point of minimum average total cost.
B) only because it produces short of the point of minimum average total cost.
C) because it produces short of minimum average cost and price is greater than marginal cost.
D) because it produces beyond minimum average total cost and marginal cost is greater than price.
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c
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Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run
equilibrium that the pure monopolist’s:
A) price, output, and average total cost would all be higher.
B) price and average total cost would be higher, but output would be lower.
C) price, output, and average total cost would all be lower.
D) price and output would be lower, but average total cost would be higher.
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b
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If a monopolist engages in price discrimination, we can expect:
A) profits to increase and output to fall.
B) both profits and output to increase.
C) both profits and output to decrease.
D) the demand curve to lie below the marginal revenue curve.
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b
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Which of the following is not a precondition for price discrimination?
A) The commodity involved must be a durable good.
B) The good or service cannot be resold by original buyers.
C) The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of
demand.
D) The seller must possess some degree of monopoly power.
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a
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Other things equal, in which of the following cases would economic profit be the greatest?
A) an unregulated monopolist which is able to engage in price discrimination
B) an unregulated monopolist
C) a regulated monopolist charging a price equal to average total cost
D) a regulated monopolist charging a price equal to marginal cost
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a
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If a pure monopolist can engage in perfect price discrimination:
A) the marginal revenue curve and the total revenue curve will now coincide.
B) the marginal revenue curve will now shift to a position above the demand curve.
C) the marginal revenue curve will now coincide with the demand curve.
D) marginal revenue will become less at each level of output than it would be without price
discrimination.
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c
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If a monopolist engages in perfect price discrimination, it will:
A) realize a smaller profit.
B) charge a higher price where individual demand is inelastic and a lower price where individual demand
is elastic.
C) produce a smaller output than when it did not discriminate.
D) charge a competitive price to all its customers.
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b
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The vertical distance between the horizontal axis and any point on a perfectly discriminating monopolist’s
demand curve measures:
A) the quantity demanded. C) product price and marginal revenue.
B) total revenue. D) average revenue and average total cost.
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c
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Children are charged less than adults for admission to professional baseball games but are
charged the same prices as adults at the concession stands. This pricing system occurs because:
A) children have an elastic demand for game ticket but an inelastic demand for concession items.
B) children have an inelastic demand for game tickets but an elastic demand for concession items.
C) the seller can prevent children from buying game tickets for adults but cannot prevent children from
buying concession items for adults.
D) children can personally "consume" only a single game ticket, but can personally consume more than
one concession item.
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c
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) Children are charged less than adults for admission to professional baseball games but are
charged the same prices as adults at the concession stands. Which of the following conditions of price
discrimination explain why this occurs?
A) The seller must have some monopoly power; that is, it must be able to set the product price.
B) The seller must be able to identify buyers by group characteristics such as age or income.
C) Groups must have different elasticities of demand for the product.
D) The items cannot be bought by people in the low-price group and transferred to members of the highprice group.
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d
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