Econ 201 Final Exam Chapter 15

Front 1

1. A perfectly competitive market
a. may not be in the best interests of society, whereas a monopoly market promotes general economic well-being
b. promotes general economic well-being, whereas a monopoly market may not be in the best interests of society.
c. and a monopoly market are equally likely to promote general economic well-being.
d. is less likely to promote general economic well-being than a monopoly market.

Back 1

b. promotes general economic well-being, whereas a monopoly market may not be in the best interests of society.

Front 2

2. The fundamental source of monopoly power is
a. barriers to entry.
b. profit.
c. decreasing average total cost.
d. a product without close substitutes.

Back 2

a. barriers to entry.

Front 3

3. Which of the following statements is not correct?
a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research.

Back 3

c. Monopolists typically produce larger quantities of output than competitive firms.

Front 4

4. Patents, copyrights, and trademarks
a. are examples of government-created monopolies.
b. are examples of barriers to entry.
c. allow their owners to charge higher prices.
d. All of the above are correct.

Back 4

d. All of the above are correct.

Front 5

7. When a natural monopoly exists, it is
a. always cost effective for government-owned firms to produce the product.
b. never cost effective for one firm to produce the product.
c. always cost effective for two or more private firms to produce the product.
d. never cost effective for two or more private firms to produce the product.

Back 5

d. never cost effective for two or more private firms to produce the product.

Front 6

8. In order to sell more of its product, a monopolist must
a. lobby the government for a subsidy.
b. lower its price.
c. advertise.
d. enact barriers to entry in related markets.

Back 6

b. lower its price.

Front 7

9. Monopoly firms have
a. downward-sloping demand curves, and they can sell as much output as they desire at the market price.
b. downward-sloping demand curves, and they can sell only a limited quantity of output at each price.
c. horizontal demand curves, and they can sell as much output as they desire at the market price.
d. horizontal demand curves, and they can sell only a limited quantity of output at each price.

Back 7

b. downward-sloping demand curves, and they can sell only a limited quantity of output at each price.

Front 8

10. What is the shape of the monopolist’s marginal revenue curve?
a. a downward-sloping line that is identical to the demand curve
b. a downward-sloping line that lies below the demand curve
c. a horizontal line that is identical to the demand curve
d. a horizontal line that lies below the demand curve

Back 8

b. a downward-sloping line that lies below the demand curve

Front 9

14. For a profit-maximizing monopolist,
a. P > MR = MC.
b. P = MR = MC.
c. P > MR > MC.
d. MR < MC < P.

Back 9

a. P > MR = MC.

Front 10

15. Monopolies are inefficient because they
(i) eliminate barriers to entry.
(ii) price their product at a level where marginal revenue exceeds marginal cost.
(iii) restrict output below the socially efficient level of production.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)

Back 10

c. (iii) only

Front 11

16. The economic inefficiency of a monopolist can be measured by the
a. deadweight loss.
b. value of the unrealized trades that could be made if the monopolist produced the socially-efficient output.
c. area above marginal cost but beneath demand from the monopoly output to the socially-efficient output.
d. All of the above are correct.

Back 11

d. All of the above are correct.

Front 12

17. When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent
a. a loss in total welfare.
b. a transfer of benefits from the buyer to the seller.
c. the higher marginal costs incurred by the monopolists in comparison to competitive firms.
d. All of the above are correct.

Back 12

b. a transfer of benefits from the buyer to the seller.

Front 13

21. Price discrimination
a. forces monopolies to charge a lower price as a result of government regulation.
b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price.
c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
d. increases the consumer surplus associated with a monopolistic market.

Back 13

c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.

Front 14

22. A monopolist's profits with price discrimination will be
a. lower than if the firm charged a single, profit-maximizing price
b. the same as if the firm charged a single, profit-maximizing price.
c. higher than if the firm charged just one price because the firm will capture more consumer surplus.
d. higher than if the firm charged a single price because the costs of selling the good will be lower.

Back 14

c. higher than if the firm charged just one price because the firm will capture more consumer surplus.

Front 15

23. In order for antitrust laws to raise social welfare, the government must
a. disallow synergy benefits from accruing to monopolists.
b. disallow any mergers from taking place.
c. be able to determine which mergers are desirable and which are not.
d. always attempt to keep markets in their most competitive form.

Back 15

c. be able to determine which mergers are desirable and which are not.

Front 16

24. If the government regulates the price that a natural monopolist can charge to be equal to the firm’s average total cost, the firm will
a. earn zero profits.
b. earn positive profits, causing other firms to enter the industry.
c. earn negative profits, causing the firm to exit the industry.
d. minimize costs in order to lower the price that it charges.

Back 16

a. earn zero profits.

Front 17

25. For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
a. the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
b. the average cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more produced in the same region.
c. the marginal cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more producers in the same region.
d. electricity is a special non-excludable good that could never be sold in a competitive market.

Back 17

a. the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.