Question 1

Which of the following best defines a monopoly?

Accepted Answer

A firm that is the only seller of a good or service for which there is not a close substitute.

Question 2

Which of the following is NOT a main source of barriers to entry that can create a monopoly?

Accepted Answer

Perfect information among all buyers and sellers.

Question 3

Suppose a firm is a natural monopoly. Which of the following is most likely true?

Accepted Answer

The firm's average total cost decreases as output increases over the relevant range.

Question 4

A monopoly maximizes profit by producing the quantity where:

Accepted Answer

$$MC = MR$$

Question 5

If a monopoly faces a downward-sloping demand curve, what happens to marginal revenue as output increases?

Accepted Answer

Marginal revenue decreases and is always less than price.

Question 6

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charging different prices for students, seniors, and adults.

Question 7

Which of the following conditions is NOT necessary for a firm to successfully price discriminate?

Accepted Answer

The firm must be a price taker.

Question 8

Suppose a perfectly competitive industry becomes a monopoly. What is the likely effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus decreases and deadweight loss increases.

Question 9

Which of the following best describes a network externality?

Accepted Answer

The usefulness of a product increases as more people use it.

Question 10

A monopolist's profit can be calculated as:

Accepted Answer

$$(P - ATC) 	imes Q$$

Question 11

Which of the following is a real-world example of a government-created monopoly?

Accepted Answer

The U.S. Postal Service's exclusive right to deliver first-class mail.

Question 12

If a monopoly is regulated to set price equal to marginal cost ($$P = MC$$), what is a likely outcome?

Accepted Answer

The monopoly may incur losses if $$P \u003c ATC.$$

Question 13

Which of the following best describes the deadweight loss from monopoly?

Accepted Answer

The loss of economic surplus due to fewer trades occurring than in perfect competition.

Question 14

Which of the following is a potential benefit of market power, according to Joseph Schumpeter?

Accepted Answer

It encourages innovation and technological change.

Question 15

Suppose a firm can perfectly price discriminate. What is the effect on consumer surplus and total output?

Accepted Answer

Consumer surplus is zero, and total output is efficient.

Question 16

Which of the following is an example of a horizontal merger?

Accepted Answer

Two companies producing soft drinks merge.

Question 17

The Herfindahl-Hirschman Index (HHI) is used to:

Accepted Answer

Measure market concentration by summing the squares of market shares.

Question 18

Which of the following is a reason why the overall efficiency loss from monopoly in the U.S. is relatively small?

Accepted Answer

Most firms face significant competition, keeping prices close to marginal cost.

Question 19

Which of the following is a plausible argument in favor of maintaining the USPS's mailbox monopoly?

Accepted Answer

It allows for universal service, including delivery to rural areas that would not be profitable otherwise.

Question 20

If a monopoly faces the following cost and demand conditions: $$MC = 10$$, $$ATC = 12$$, and the demand curve at the profit-maximizing quantity is $$P = 18$$, what is the monopolist's profit per unit?

Accepted Answer

$$18 - 12 = 6$$

Monopoly and Antitrust Policy: Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards