Practice Test Chapter 15 Monopoly


1. The fundamental cause of monopoly is

a. barriers to entry.

b. competition.

c. limited profit margins.

d. lack of product differentiation.

2. An industry is a(n) ________ when a single firm can supply a good or service to an entire market at a lower cost than two or more firms could.

a. government-created monopoly

b. resource monopoly

c. natural monopoly

d. efficient monopoly

3. To encourage firms to invest in research and development and individuals to engage in creative endeavors such as writing novels, is one justification for

a. government-created monopolies.

b. resource monopolies.

c. natural monopolies.

d. monopolistic competition.

4. The market demand curve for a monopolist is typically

a. downward sloping.

b. horizontal.

c. unitary elastic.

d. perfectly elastic at market price.

5. In order to sell more of its product a monopolist

a. must sell to the government.

b. must sell in international markets.

c. must use its market power to force up the price of complementary products.

d. must lower its price.

6. For a monopolist, marginal revenue is _________________ when ________________.

a. negative, the output effect is greater than the price effect

b. negative, the price effect is greater than the output effect

c. positive, the demand effect is greater than the supply effect

d. positive, the monopoly effect is greater than the competitive effect

7. For a monopolist, profit is determined by which of the following equations?

a. Profit = Total Revenue - Total Cost

b. Profit = (TR/Q - TC/Q) x Q

c. Profit = (Price - Average Total Cost) x Quantity

d. All of the above.

8. What is the monopolist's profit under the following conditions:

The price charged for goods produced is $16.

The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and price is $8.

a. Not enough information given.

b. $100

c. $160

d. $80

9. A monopolist will choose to increase output when

a. market prices rise.

b. marginal revenue exceeds marginal cost.

c. there is an expansionary shift in the market supply curve.

d. All of the above.

10. A monopolist faces a demand curve with a slope

a. equal to zero.

b. greater than zero.

c. less than or equal to zero.

d. All of the above are possible, depending on elasticity of demand.

11. By using the concept of total surplus as a measure of well-being

a. it is possible to show that profit maximizing natural monopolists always make

society better off.

b. it is possible to show that producer surplus for a perfectly competitive firm

always exceeds that of a monopolist.

c. it is possible to show that consumer surplus in a monopoly market always

exceeds that in a perfectly competitive market.

d. it is possible to show that society is worse off when monopolists set a price

that maximizes their profit.

12. As long as ____________________ output should be increased to enhance economic well-being.

a. marginal revenue exceeds marginal cost

b. marginal revenue exceeds average total cost

c. average revenue exceeds average total cost

d. average revenue exceeds marginal cost

13. When a monopolist chooses to produce at its profit maximizing level of output

a. some potential consumers value the product in excess of its marginal cost of


b. all potential consumers value the product in excess of its marginal cost of


c. all current consumers value the product in excess of its price.

d. some current consumers are forced to pay more for the product than the value

they receive from consuming it.

14. If a monopolist sells 100 units at $8 per unit and realizes an average cost of $6 per unit, what is the monopolist's total revenue?

a. $600

b. $800

c. $200

d. None of the above.

15. The monopolist's quantity of output ________ the quantity of output that maximizes total surplus.

a. exceeds

b. equals

c. is less than

d. Inconclusive.

16. In order to prevent the deadweight loss from market concentration,

a. the U.S. government reviews all mergers and acquisitions that may lead to

monopoly power in a market.

b. the U.S. government disallows all horizontal mergers and acquisitions.

c. the U.S. government disallows all vertical mergers and acquisitions.

d. the U.S. typically nationalizes all industries that have monopoly power.

17. Monopoly firms which are typically regulated would include

a. natural monopolies.

b. those which consistently earn excessive profits.

c. those who impose deadweight losses on society.

d. all of the above

18. When governments decide not to attempt to correct monopoly inefficiencies

a. it is generally because the gain in total surplus is less than the cost of

intervention in the market.

b. it is generally because they are unaware of the problems of monopolies.

c. they are assuming that competitive pressure in the market will resolve the

problem without intervention.

d. there is typically no evidence of deadweight loss from the monopoly.

19. When a monopolist is able to sell its product at different prices, it is engaging in

a. quality adjusted pricing.

b. distribution pricing.

c. price discrimination.

d. price differentiation.

20. If a monopolist is able to price discriminate

a. consumer surplus is increased.

b. deadweight loss is increased.

c. the price effect dominates the output effect on monopoly revenue.

d. consumer surplus and deadweight losses are transformed into monopoly profits.

21. A good example of a two-part tariff is

a. pricing of premium seats on airplanes.

b. pricing at amusement parks.

c. pricing of movie tickets.

d. financial aid at public universities.

22. If a monopolist can sell 100 units in market "A" for $5 each and 200 units in market "B" for $10 each, what would this firm's total revenue be?

a. $2500

b. $500

c. $2000

d. $1500

23. Which of the following businesses price discriminates based on geographical location?

a. The U.S. Postal Service

b. Gasoline companies

c. Automobile dealerships

d. Cable television companies

24. Certain market forces such as ________ can prevent firms from price discriminating.

a. arbitrage

b. fluctuating resource prices

c. high fixed costs

d. All of the above.

25. Which of the following can eliminate the inefficiency inherent in monopoly pricing?

a. Price discrimination

b. Quantity discounts

c. Two-part tariffs

d. All of the above