Question 1

Which of the following best describes a monopoly?

Accepted Answer

A single seller of a good or service that does not have a close substitute.

Question 2

Suppose Barnes & Noble is the only bookstore in a town. According to the narrow definition of monopoly, should it be considered a monopoly?

Accepted Answer

No, because Barnes & Noble would be considered a monopoly only if it had no close substitutes.

Question 3

Why might another entrepreneur not have opened a bookstore in a town where Barnes & Noble is the only bookstore?

Accepted Answer

Because barriers to entry are so high that no other bookstores could enter the market.

Question 4

Which of the following is an example of a government action that can create a monopoly?

Accepted Answer

Granting a public franchise to a firm.

Question 5

Network externalities can create barriers to entry because:

Accepted Answer

If a firm can attract enough customers initially, it can attract additional customers as its product's value increases.

Question 6

Why does the government issue patents?

Accepted Answer

To encourage firms to spend money on research and development necessary to create new products.

Question 7

How long does a patent last in the United States?

Accepted Answer

$$20$$ years

Question 8

Suppose a perfectly competitive industry becomes a monopoly. Compared to perfect competition, what happens to output and price?

Accepted Answer

Output decreases and price increases.

Question 9

Which of the following best explains why perfectly competitive markets are more economically efficient than monopolies?

Accepted Answer

They result in more economic surplus.

Question 10

The Herfindahl-Hirschman Index (HHI) is calculated as the sum of the squares of the market shares of all firms in the market. If four firms have market shares of $$49\%$$, $$30\%$$, $$15\%$$, and $$6\%$$, what is the HHI?

Accepted Answer

$$3562$$

Question 11

Suppose the government grants a public franchise to a firm to be the only legal provider of electricity in a city. This is an example of:

Accepted Answer

A public franchise.

Question 12

A natural monopoly occurs when:

Accepted Answer

Economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than two or more firms.

Question 13

If a monopoly faces the following demand and cost schedule, at what quantity does marginal revenue equal marginal cost?

Price: $$21, 20, 19, 18, 17, 16$$ 
Quantity: $$25,000, 30,000, 35,000, 40,000, 45,000, 50,000$$ 
Total Cost: $$535,000, 565,000, 600,000, 640,000, 685,000, 735,000$$

Accepted Answer

$$45,000$$ units

Question 14

Which of Bekka's statements would weaken the argument that Luke's Express Diner has monopoly power in its town?

Accepted Answer

Luke's Express Diner cut prices when a nearby coffee shop cut prices on its sandwiches.

Question 15

If the government issues a patent to a firm, what is the likely effect on market structure?

Accepted Answer

It creates a legal barrier to entry, allowing the firm to act as a monopoly.

Question 16

Suppose a monopoly faces the following demand: one painting is demanded at $$800, two at 600$$, three at $$400, four at 200$$, and five at $$0. $$What is the marginal revenue from selling the third painting?

Accepted Answer

$$200$$

Question 17

Which of the following best describes the demand curve faced by a monopoly?

Accepted Answer

It is the same as the market demand curve for the product.

Question 18

What is the main rationale for making collusion illegal under U.S. antitrust laws?

Accepted Answer

Because monopolies create deadweight loss.

Question 19

A firm practicing price discrimination will:

Accepted Answer

Charge higher prices to customers with more inelastic demand.

Question 20

If the market for computer operating systems has only Microsoft, and Apple's and Linux's operating systems are not considered close substitutes, then:

Accepted Answer

Microsoft could be considered a monopoly under the broad definition.

Ch. 15 Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards