Monopoly -- Practice Quiz

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. Which of the following is true?
A) Patents reduce a firm's incentive to develop new products.
B) Patents are given for new works of art or literature.
C) Patents give a permanent exclusive right to produce a new good.
D) Patents give a temporary exclusive right to produce a new good.
E) Patents guarantee economic profits.
2. Patent laws promote technical progress in all of the following ways except one.
Which is the exception?
A) They allow other firms to copy successful products as soon as
they are marketed.
B) They prevent duplication of inventions.
C) They provide a stimulus to innovation.
D) They provide the inventor with a temporary monopoly.
E) They increase a firm's incentive to incur the up-front costs of
developing new products.
3. Which of the following could not bar entry into an industry?
A) economies of scale
B) diseconomies of scale
C) patents
D) licenses
E) one firm's control of essential resources
4. For a nondiscriminating monopolist, marginal revenue is
A) equal to price
B) greater than price
C) less than price
D) represented by a horizontal curve
E) equal to average revenue
5. For the nondiscriminating monopolist,
A) P = MR = AR
B) P = MR > AR
C) P > MR = AR
D) P = MR < AR
E) P = AR > MR
6. A nondiscriminating monopolist's demand curve
A) is horizontal at the market price
B) lies above its marginal revenue curve
C) is the same as its marginal cost curve
D) indicates that the firm must raise price to sell additional units
E) lies above the marginal cost curve at all levels of output

7. A profit-maximizing monopoly will always produce at the minimum point of its

average total cost (ATC) curve.
A) True
B) False
8. A monopolist maximizes profit at the quantity where the slope of its total revenue
curve equals the slope of its total cost curve.
A) True
B) False
9. Which of the following is not true of monopolists?
A) The entry of new firms is not a major concern.
B) Monopolists seek to maximize profits.
C) Monopolists can charge any price they want and make a profit.
D) Monopolists can choose any point on the market demand curve.
E) Monopolists can raise price more than 10 percent.
10. A monopolist earning short-run economic profit determines that at its present level
of output, marginal revenue is $23 and marginal cost is $30. Which of the
following should the firm do to increase profit?
A) Raise price and lower output.
B) Lower price and lower output.
C) Raise price and raise output.
D) Lower price and raise output.
E) Lower output but leave price unchanged.

11. Consider Exhibit 0145. What is the profit-maximizing output for a monopolist that
does not price discriminate?
A) 1 unit
B) 2 units
C) 3 units
D) 4 units
E) 5 units
12. In the short run, a monopolist will shut down when
A) average total cost is greater than price at all output levels
B) average variable cost is greater than average fixed cost at all
output levels
C) price is greater than average variable cost at all output levels
D) average fixed cost is greater than price at all output levels
E) average variable cost is greater than price at all output levels

13. For a nondiscriminating monopolist, which of the following statements is true?

A) Unlike a firm in perfect competition, a monopolist produces
where MR > MC.
B) The monopolist's marginal revenue curve is the same as its
demand curve.
C) The monopolist will always produce in the inelastic range of its
demand curve.
D) The monopolist does not have a supply curve.
E) The monopolist produces where MR < MC.

14. The profit-maximizing (or loss-minimizing) price the monopoly will charge in
Exhibit 9-1 is
A) irrelevant since the firm should shut down
B) $11
C) $16
D) $18
E) $22
15. Which of the following would not bar entry into a market?
A) control by a single firm of an essential resource
B) the necessity of taking risks when starting a firm
C) patents
D) economies of scale
E) government regulations limiting the number of firms in an
industry
16. Firms can earn economic profits even in the long run if
A) they charge the highest price possible
B) there is a cost-reducing technological change
C) there are significant barriers to entry
D) marginal revenue equals marginal cost
E) price is less than average variable cost at all rates of output
17. In the long run, which of the following is not a problem for a monopolist earning

economic profit?
A) other firms have an incentive to create substitutes for the
monopolist's product
B) technological change tends to break down barriers to entry
C) patents expire, licenses must be renewed, and new sources of
essential resources may be discovered
D) government often decides to regulate monopolies
E) all profit will gradually be converted to consumer surplus

18. In Exhibit 0150, the level of output that would achieve allocative efficiency is
A) 700 units
B) 810 units
C) 884 units
D) 976 units
E) 1,000 units
19. Compared to the productive efficiency of a perfectly competitive firm, a
monopolist tends to be
A) very efficient because it charges higher prices
B) more efficient because it produces greater output
C) inefficient
D) equally efficient, as it also produces where MR = MC
E) very efficient because it conserves resources by producing less
output
20. Total deadweight loss in society is reduced through rent seeking by monopolists.
A) True
B) False
21. The U.S. Postal Service has found its monopoly eroded over time because
A) the demand for mail delivery has become more inelastic
B) Congress has taken away their monopoly over first-class mail

C) the U.S. Postal Service cannot handle the volume of transactions

D) the price of stamps has increased relative to other substitutes,
such as the telephone
E) of the decline in the use of fax machines
22. Suppose that a price-discriminating monopolist divides its market into two
segments. In each market segment, price is determined by finding the level of
output where that market's
A) average revenue equals average total cost
B) average revenue equals average variable cost
C) marginal revenue equals average total cost
D) marginal revenue equals marginal cost
E) marginal cost equals average total cost

23. If the monopolist in Exhibit 0150 engages in perfect price discrimination, price
would be
A) $120 for the 884th unit
B) $212 on all units
C) $120 on all units
D) $136 on all units
E) $104 on all units
24. If the monopolist in Exhibit 0150 engages in perfect price discrimination, price
would
A) vary between $212 and $120
B) vary between $212 and $104
C) be $136 on all units
D) be $110 on all units
E) be $104 on all units

25. In Exhibit 0153, which area represents the amount of consumer surplus received
by consumers under perfect price discrimination?
A) area a
B) area b
C) area a + b + c
D) area b + e
E) there is no consumer surplus