Question 1

Which of the following is NOT a characteristic of a monopoly?

Accepted Answer

There are many close substitutes for the product.

Question 2

A natural monopoly is most likely to arise in which of the following industries?

Accepted Answer

Electric utilities

Question 3

Suppose a monopolist faces the following demand curve: $$P = 20 - 2Q. $$What is the marginal revenue (MR) function?

Accepted Answer

$$MR = 20 - 4Q$$

Question 4

Which of the following best explains why patents can lead to monopoly power?

Accepted Answer

Patents grant exclusive rights to produce and sell a product, blocking entry by others.

Question 5

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 6

If a monopolist is earning positive economic profits in the short run, what happens in the long run?

Accepted Answer

The monopolist continues to earn positive profits because entry is blocked.

Question 7

Which of the following is true about the relationship between price, average revenue, and marginal revenue for a monopolist?

Accepted Answer

$$P = AR \u003e MR$$

Question 8

Consider a monopolist with $$P^* = 6$$, $$ATC = 4$$, and $$Q^* = 2,000. $$What is the monopolist's profit?

Accepted Answer

$$4,000$$

Question 9

Which of the following is NOT a way that monopolies can form?

Accepted Answer

Low fixed costs and easy entry

Question 10

Which of the following statements about economic efficiency is correct?

Accepted Answer

Perfectly competitive firms achieve allocative efficiency because $$P = MC.$$

Question 11

If a monopolist's price is less than average variable cost ($$P \u003c AVC) in $$the short run, what should the firm do?

Accepted Answer

Exit the market in the short run.

Question 12

Which of the following government policies is designed to prevent monopolies and promote competition?

Accepted Answer

Sherman Act of 1890

Question 13

Suppose the wheat industry becomes monopolized. What happens to consumer surplus (CS), producer surplus (PS), and deadweight loss (DWL)?

Accepted Answer

CS decreases, PS may increase, DWL is created.

Question 14

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

Accepted Answer

Dell & Apple computers

Question 15

Why does a monopolist's marginal revenue curve lie below its demand curve?

Accepted Answer

Because the monopolist must lower the price on all units to sell additional output.

Question 16

Which economist argued that the efficiency loss from monopoly is generally small if market power is limited?

Accepted Answer

Harberger

Question 17

A monopoly is considered a 'price maker' because:

Accepted Answer

It can set the price by choosing its output level.

Question 18

Which of the following best describes network externalities as a source of monopoly power?

Accepted Answer

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

Question 19

If a monopolist sets $$P^* = 8$$, $$ATC = 6$$, and $$Q^* = 1,500$$, what is the profit?

Accepted Answer

$$3,000$$

Question 20

Which of the following is true about productive efficiency in monopoly?

Accepted Answer

Monopolists do not achieve productive efficiency.

Monopoly: Structure, Behavior, and Policy (Chapter 15 Study Notes)

Study Guide - Practice Questions