Principles of Microeconomics Brief Edition 3rd Edition Frank Test Bank

Principles of Microeconomics Brief
Edition 3rd Edition Frank Test Bank

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File: Chapter 007 Monopoly, Oligopoly, and Monopolistic Competition
Multiple Choice
1. A price setter is a firm that:

A. attempts but fails to be perfectly competitive.
B. has the ability to set price at any level it wishes.
C. has some degree of control over its price.
D. faces perfectly inelastic demand.
Ans: C
Difficulty: 01 Easy
Learning Objective: 07-01
Topic: Perfect and Imperfect Competition
Blooms: Remember
AACSB: Reflective Thinking
Feedback: A price setter has at least some latitude to set the price of its output.
2. A pure monopoly exists when:

A. many firms produce a good with no close substitutes.
B. a single firm produces a good with no close substitutes.
C. only a single firm is present in the market.
D. a single firm produces a good with many close substitutes.
Ans: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: A monopoly is the only supplier of a unique product with no close substitutes.
3. In many cities in the United States, a single firm provides electricity. Those firms are:
A. monopolists.
B. oligopolists.
C. monopolistic competitors.
D. perfect competitors.
Ans: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: A monopoly is the only supplier of a unique product with no close substitutes.
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4. If a firm functions in an oligopoly, it is:
A. one of a small number of firms that produce goods that are either close or perfect substitutes.
B. the only firm that produces a good with no close substitutes.
C. one of a large number of firms that produce goods that are either close or perfect substitutes.
D. one of a large number of firms that produce a good with no close substitute.
Ans: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: An oligopoly is an industry in which a small number of large firms produce products
that are either close or perfect substitutes.
5. A monopolistically competitive firm is one:

A. that behaves like a monopolist.
B. of many firms that sell products that are close but not perfect substitutes.
C. of many firms that all sell the exact same product.
D. of a small number of firms that sell products that are close but not perfect substitutes.
Ans: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: Monopolistic competition is an industry structure in which a large number of firms
produce slightly differentiated products that are all reasonably close substitutes for one another.
6. The essential feature that differentiates imperfectly competitive firms from perfectly
competitive firms is that an imperfectly competitive firm:
A. produces a good with no close substitutes.
B. faces high barriers to entry.
C. coordinates their output decisions with other firms.
D. faces a downward-sloping demand curve.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: The essential difference between perfectly competitive firms and imperfectly
competitive firms is that a perfectly competitive firm faces a horizontal demand curve while an
imperfectly competitive firm faces a downward-sloping demand curve.
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7. An imperfectly competitive firm faces a demand curve that is:
A. perfectly elastic.
B. more than perfectly elastic.
C. perfectly inelastic.
D. downward sloping.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
8. An imperfectly competitive firm faces a demand curve that is ______, while a perfectly
competitive firm faces a demand curve that is ______.
A. perfectly inelastic; downward sloping.
B. horizontal; downward sloping.
C. perfectly inelastic; perfectly elastic.
D. downward sloping; perfectly elastic.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
9. Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit
of output, it must:
A. increase its advertising.
B. increase the value of its product.
C. lower its price.
D. lower its quality.
Ans: C
Difficulty: 02 Medium
Blooms: Understand
Feedback: An imperfectly competitive firm faces a downward-sloping demand curve.
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10. Suppose a firm’s total revenue is $100 when it sells 10 units, and $110 when it sells 11 units.
The firm, therefore, is a(n):
A. pure monopolist.
B. oligopolist.
C. monopolistic competitor.
D. perfect competitor.
Ans: D
Blooms: Understand
Feedback: Perfectly competitive firms face a horizontal demand curve, so each additional unit
sold increases revenue by the price of the good, here $10.
11. Suppose a perfectly competitive firm and a monopolist are both charging $5 for their
respective products. From this, one can infer that:
A. the marginal benefit from selling an additional unit of output is $5 for both firms.
B. the marginal benefit from selling an additional unit of output is $5 for the competitive firm
and less than $5 for the monopolist.
C. the marginal benefit from selling an additional unit of output is less than $5 for both firms.
D. the competitive firm is charging too much, and the monopolist is charging too little.
Ans: B
Blooms: Understand
Feedback: Perfectly competitive firms face a horizontal demand curve, so selling an additional
unit of output increases revenue by the price of the good. Imperfectly competitive firms face a
downward-sloping demand curve, so selling an additional unit of output increases revenue by
less than the price of the good.
12. If a firm faces a downward-sloping demand curve, then:

A. the firm could be either a perfectly competitive firm or an imperfectly firm.
B. the firm’s marginal revenue from selling an additional unit of output is less than price.
C. it is a perfectly competitive firm.
D. the firm’s production process exhibits economies of scale.
Ans: B
Blooms: Understand
Feedback: If a firm faces a downward-sloping demand curve, then in order to sell an additional
unit of output, it must lower its price—and not just for the additional unit but for all of the units
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it could have sold at the original (higher) price. As a result, the marginal revenue from selling an
additional unit of output is less than the price of that unit.
13. To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly
competitive firm ______.
A. need not alter its price; must lower its price
B. must hope the market price falls; must lower its price
C. need not alter its price; need not alter its price
D. must lower its price; must lower its price
Ans: A
Blooms: Understand
Feedback: Perfectly competitive firms face a horizontal demand curve. Imperfectly competitive
firms face a downward-sloping demand curve.
14. “Market power” refers to a firm's ability to:

A. undercut its competitors’ prices.
B. force consumers to buy high-priced products.
C. raise its price without losing all of its sales.
D. influence the price its competitors charge.
Ans: C
Difficulty: 01 Easy
Topic: Five Sources of Market Power
Blooms: Remember
Feedback: Market power is defined as a firm's ability to raise price and not lose all of its sales.
15. A good is characterized by network economies if it:

A. can be used by more than one person at a time.
B. becomes cheaper to produce as more people buy it.
C. becomes more valuable as more people own it.
D. is widely advertised on television.
Ans: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Network economies exist when the value a consumer places on a good increases when
other consumers have the same or compatible goods.
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16. Which of the following is NOT an example of a good with network economies?
A. A cell phone
B. Internet service
C. A computer printer
D. Facebook
Ans: C
Blooms: Understand
Feedback: Network economies exist when the value a consumer places on a good increases when
other consumers have the same or compatible goods. The value a consumer places on having a
printer is unlikely to increase as more people own printers.
17. Which of the following firms is most likely to be a pure monopolist?

A. A clothing retailer with the best location in a mall
B. A grocery store in a large city
C. The most popular hot dog vendor on a city street corner
D. The only gas station in a small, isolated town
Ans: D
Blooms: Understand
Feedback: A single gas station in a small town does not face as many competitors as do the other
choices.
18. De Beers accounts for approximately 80% of diamond sales worldwide. The source of its
market power is:
A. its exclusive ownership of South African diamond mines.
B. its patent on diamond production.
C. the perfectly inelastic demand for diamonds.
D. the engagement customs of couples in Western cultures.
Ans: A
Blooms: Understand
Feedback: DeBeers owns the majority of South African diamond mines, and exclusive
ownership of an input is one source of market power.
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19. In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the
exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior
to the deal, three soft drink companies sold beverages on campus; now no other soft drink
company is allowed to sell its products on campus. CheapFizz now has market power due to:
A. economies of scale in the production of soda.
B. its exclusive ownership of an input.
C. its exclusive license to sell soda.
D. network economies in the consumption of soda.
Ans: C
Blooms: Understand
Feedback: State U has granted an exclusive license to CheapFizz to sell soda, giving it market
power.
company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of
CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to
sell for:
A. 75 cents because that is the market price.
B. less than 75 cents because CheapFizz will have greater volume and so can lower its price.
C. more than 75 cents because the demand curve for CheapFizz soda will shift to the left.
D. more than 75 cents because CheapFizz is the only company that can sell soda on campus.
Ans: D
Blooms: Understand
Feedback: Without the competitors, CheapFizz can raise its price without losing all of its sales.
company is allowed to sell its products on campus. The beneficiaries of this deal is/are _______.
A. the students at State U
B. State U
C. State U and CheapFizz
D. CheapFizz
Ans: C
Difficulty: 03 Hard
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Blooms: Analyze
AACSB: Analytic
Feedback: StateU receives some of the sales revenues and CheapFizz acquires market power.
22. Patents, which confer market power, are intended to:

A. protect consumers from imitations, or knock-offs.
B. enable patent holders to charge lower prices for new and innovative products.
C. encourage innovation by helping firms recoup the costs of research and development.
D. maintain the dominance of U.S. firms.
Ans: C
Blooms: Understand
Feedback: Patents allow inventors and developers to recoup some of the costs of developing new
ideas. In this way, they help promote innovation.
23. According to the textbook, the most important and enduring source of market power is:
A. government franchises.
B. patents.
C. copyrights.
D. economies of scale.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
Page: Economies of scale drive most instances of market power.
24. Start-up costs:

A. have no impact on the number of firms in an industry because they are sunk costs.
B. are inversely related to variable costs.
C. are the one-time costs incurred when beginning the production of a new product.
D. are always greater than marginal costs.
Ans: C
Difficulty: 01 Easy
Topic: Economies of Scale and the Importance of Start-Up Costs
Blooms: Remember
Feedback: Start-up costs are one-time costs incurred when a new product is developed.
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25. When a pharmaceutical company introduces a new drug, its research and development costs
are ______, and the cost of the chemicals used in manufacturing the drug are ______.
A. start-up costs; fixed costs
B. fixed costs; start-up costs
C. start-up costs; variable costs
D. marginal costs; variable costs
Ans: C
Blooms: Understand
Feedback: Start-up costs are one-time costs incurred when a new product is developed. Variable
costs are costs that vary as output varies.
26. A firm’s average total cost is equal to the firm’s:

A. total cost divided by its total revenue.
B. marginal cost divided by its level of output.
C. level of output divided by its variable cost.
D. total cost divided by its level of output.
Ans: D
Difficulty: 01 Easy
Blooms: Understand
Feedback: Average total cost is a firm’s total cost divided by its level of output.
27. A firm’s total cost divided by its level of output is equal to its:
A. average total cost.
B. marginal cost.
C. start-up cost.
D. variable cost.
Ans: A
Difficulty: 01 Easy
Blooms: Understand
Feedback: Average total cost is a firm’s total cost divided by its level of output.
28. A firm’s average fixed cost is equal to the firm’s:

A. fixed cost divided by its total revenue.
B. marginal cost divided by its level of output.
C. level of output divided by its variable cost.
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D. fixed cost divided by its level of output.
Ans: D
Difficulty: 01 Easy
Blooms: Understand
Feedback: Average fixed cost is a firm’s fixed cost divided by its level of output.
29. A firm’s fixed cost divided by its level of output is equal to its:
A. explicit cost.
B. average fixed cost.
C. start-up cost.
D. variable cost.
Ans: B
Difficulty: 01 Easy
Blooms: Understand
Feedback: Average fixed cost is a firm’s fixed cost divided by its level of output.
26. A firm is most likely to experience economies of scale if its start-up costs are high and its
marginal cost is ______.
A. increasing
B. low
C. high
D. decreasing
Ans: B
Blooms: Understand
Feedback: The importance of economies of scale depends on how large fixed costs are in relation
to marginal cost.
27. Economies of scale exist when:

A. firms become larger.
B. input prices are falling.
C. the average cost of production falls as output rises.
D. doubling all the inputs leads to less than double the output.
Ans: C
Difficulty: 01 Easy
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Blooms: Remember
Feedback: When production is subject to economies of scale, the average cost of production
declines as the number of units produced increases.
28. Economies of scale arise from:

A. constant returns to scale.
B. increasing returns to scale.
C. decreasing returns to scale.
D. constant marginal returns to scale.
Ans: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: When a production process exhibits increasing returns to scale, the average cost of
production declines as the number of units produced increases.
29. If a firm’s production process exhibits increasing returns to scale, then doubling all the firm’s
inputs will lead output to _____.
A. double.
B. more than double.
C. less than double.
D. fall by one-half.
Ans: B
Blooms: Understand
Feedback: A production process is said to have increasing returns to scale if, when all inputs are
changed by a given proportion, output changes by more than that proportion.
30. A firm whose production process exhibits constant returns to scale would find that if it
doubled all of its inputs, its output would ______.
A. double
B. more than double
C. less than double
D. remain constant
Ans: A
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Blooms: Understand
Feedback: A production process is said to have constant returns to scale if, when all inputs are
changed by a given proportion, output changes by that same proportion.
31. A monopoly that results from economies of scale is called a(n):

A. antitrust violator.
B. large-scale monopolist.
C. natural monopoly.
D. cost-plus firm.
Ans: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: A monopoly that results from economies of scale is called a natural monopoly.
32. Which of the following industries does not fit the natural monopoly model?
A. Electricity
B. Cable TV
C. Fast food restaurants
D. Natural gas
Ans: C
Blooms: Understand
Feedback: A natural monopoly is likely to have high start-up costs and low variable costs.
Utilities like electricity, cable TV and natural gas tend to fit this description because once the
infrastructure is in place, it is relatively inexpensive to provide another unit of service.
33. A natural monopoly is a monopoly that arises from:

A. having an exclusive right to operate in a national park.
B. having exclusive control over the natural resources used to produce a good.
C. a firm’s natural desire to maximize its profit.
D. economies of scale.
Ans: D
Difficulty: 01 Easy
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Blooms: Remember
Feedback: A monopoly that results from economies of scale is called a natural monopoly.
34. If a natural monopoly decreases the quantity of output it produces, then:

A. its average cost will decrease.
B. its average cost will increase.
C. it will have to decrease its price.
D. its profit will increase.
Ans: B
Blooms: Understand
Feedback: A natural monopoly is a monopoly that arises from economies of scale. Thus, as
output falls, average cost will rise.
35. If a natural monopoly increases the quantity of output it produces, then:

A. its average cost will decrease.
B. its average cost will increase.
C. it will have to increase its price.
D. its profit will increase.
Ans: A
Blooms: Understand
Feedback: A natural monopoly is a monopoly that arises from economies of scale. Thus, as
output rises, average cost will fall.
36. Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost
(in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts
you make. Your fixed cost is $______, and your marginal cost is $______.
A. 300; 10
B. 300/Q; 30
C. 300; 10Q
D. 300/Q; 10
Ans: A
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
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Feedback: In the above equation, 300 is the fixed cost because it is a cost you incur even if Q =
0. Marginal cost is 10 because if Q increases by one unit, total cost increases by 10.
you make. As you increase your production of t-shirts, your average fixed cost ______ and your
marginal cost ______.
A. decreases; increases
B. increases; decreases
C. decreases; stays the same
D. stays the same; increases
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: If Q increases by one unit, total cost always increases by 10, so marginal cost is
constant. Average fixed cost, which equals 300/Q, decreases as Q increases.
you make. If you make 100 t-shirts, your average total cost is ______.
A. $3
B. $10
C. $3.10
D. $13
Ans: D
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: When Q = 100, total cost = 300 + 10 × 100 = 1,300. Average total cost is total cost
divided by Q, here 1,300/100 = 13.
you make. If you make 1,000 t-shirts, your average total cost is ______.
A. $3
B. $3.10
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C. $10.30
D. $1.03
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: When Q = 1,000 total cost = 300 + 10 × 1,000 = 10,300. Average total cost is total
cost divided by Q, here 10,300/100 = 10.30.
40. Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total cost
is ______ and total fixed cost is ______.
A. $2; $2
B. $4; $2
C. $4; $2,000
D. $4,000; $2,000
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: When Q = 1,000 total cost = 2,000 + 2 × 1,000 = 4,000. Average total cost is total
cost divided by Q, here 4,000/1,000 = 4. Fixed cost is $2,000, regardless of Q.
41. Industries in which firms have high fixed costs and low marginal costs are likely to have a:
A. large number of small firms.
B. small number of large firms.
C. large number of large firms.
D. small number of small firms.
Ans: B
Blooms: Understand
Feedback: High fixed costs and low marginal costs give rise to economies of scale, meaning that
average costs fall as output rises. As a result, small firms will find it difficult to compete with
large firms.
42. Consider an industry with two firms producing similar products. Each firm’s total cost (in
dollars) is given below.
Acme Manufacturing: TC = 100 + 3Q.

Generic Industries: TC = 500 + 3Q.
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Which of the following statements is true?
A. Acme has a lower marginal cost than does Generic.
B. Acme and Generic have the same marginal cost.
C. Marginal cost at each firm depends on the level of output.
D. Acme has greater economies of scale than does Generic.
Ans: B
Blooms: Understand
Feedback: Both firms will experience a $3 increase in total cost for each one-unit increase in Q.

When each firm is producing the same quantity, Acme’s average total cost is:
A. lower than Generic’s average total cost.
B. equal to Generic's average total cost.
C. higher than Generic’s average total cost.
D. lower than Generic's average total cost at some levels of output, and higher than Generic’s
average total cost at other levels of output.
Ans: A
Blooms: Understand
Feedback: Both firms have the same variable cost (3Q), and Acme has a lower fixed cost than
does Generic. Thus, if they are producing the same level of output, Acme’s average total cost
will be lower than Generic’s average total cost.

Suppose that Acme and Generic face the same demand curve. If each firm produces its profit-
maximizing level of output and earns a positive economic profit, then which of the following
statements is true?
A. Acme will produce more output than Generic.
16
B. Generic will produce more output than Acme.
C. Acme and Generic will produce the same quantity and will have the same profits.
D. Acme and Generic will produce the same quantity, but Acme will have higher profits.
Ans: D
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: If both firms face the same demand curve and have the same marginal cost, then they
will choose the same profit-maximizing output, but Acme will earn a higher profit because its
total cost is lower.
Mega Corp: TC = 5,000 + 100Q

Big Inc: TC = 4,000 + 200Q
______ has a higher fixed cost and ______ has a higher marginal cost.
A. Big Inc; Mega Corp
B. Mega Corp; Big Inc
C. Big Inc; Big Inc
D. Mega Corp; Mega Corp
Ans: B
Blooms: Understand
Feedback: $5000 > $4000 and $200 > $100.
Mega Corp: TC = 5,000 + 100Q

Big Inc: TC = 4,000 + 200Q
If each firm produces 10 units, Mega Corp’s total cost will ______, and Big Inc’s total cost will
be ______.
A. $6,000; $6,000
B. $5,000; $4,000
C. $5,100; $4,200
D. $15,000; $14,200
Ans: A
Difficulty: 03 Hard
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Blooms: Apply
AACSB: Analytic
Feedback: For Mega Corp, total cost is $5,000 + 10×$100 = $6,000, and for Big Inc, total cost is
$4,000 + 10×$200 = $6,000.
Mega Corp: TC = 5,000 + 100Q

Big Inc: TC = 4,000 + 200Q
When each firm produces 8 units, ______ has a lower total cost, and when each firm produces 12
units, ______ has a lower total cost.
A. Big Inc; Mega Corp
B. Mega Corp; Big Inc
C. Big Inc; Big Inc
D. Mega Corp; Mega Corp
Ans: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: At 8 units, Mega Corp’s total cost is $5,800 and Big Inc’s total cost is $5,600. At 12
units, Mega Corp’s total cost is $6,200, and Big Inc’s total cost is $6,400.
Mega Corp: TC = 5,000 + 100Q

Big Inc: TC = 4,000 + 200Q
For both firms, average total cost:

A. declines as quantity increases.
B. increases as quantity increases.
C. is constant for all quantities.
D. declines as quantity increases for Mega Corp and increases as quantity increases for Big Inc.
Ans: A
Blooms: Understand
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Feedback: For both firms, average variable cost is constant ($100 for Mega Corp and $200 for
Big Inc), and average fixed cost falls as quantity rises. Thus, for both firms average total cost
falls as quantity rises.
Mega Corp: TC = 5,000 + 100Q

Big Inc: TC = 4,000 + 200Q
If each firm is producing 15 units, you would expect:

A. both firms to continue to produce 15 units.
B. Big Inc to be able charge a lower price than Mega Corp.
C. Mega Corp to be able charge a lower price than Big Inc.
D. Both Mega Corp and Big Inc to reduce output and charge higher prices.
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: At output levels greater than 10 units, average total cost is lower for Mega Corp than
for Big Inc, allowing it to charge a lower price.
50. The primary objective of an imperfectly competitive firm is to:

A. charge the highest possible price.
B. maximize total revenue.
C. minimize total cost.
D. maximize profit.
Ans: D
Difficulty: 01 Easy
Topic: Profit Maximization for the Monopolist
Blooms: Remember
Feedback: All firms seek to maximize profit.
51. Both a perfectly competitive firm and a monopolist find that:

A. price and marginal revenue are the same.
B. they can sell as many units of output as they want at the market price.
C. it is best to expand production until the benefit and the cost of the last unit produced are equal.
D. price is less than marginal revenue.
Ans: C
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Difficulty: 01 Easy
Blooms: Remember
Feedback: All firms maximize profit by expanding output whenever the marginal benefit of
producing an additional unit exceeds its marginal cost.
52. For all firms, the additional revenue collected from the sale of one additional unit of output is
termed:
A. price.
B. average revenue.
C. marginal profit.
D. marginal revenue.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Marginal revenue is the change in total revenue that results from a one-unit change in
output.
53. When a perfectly competitive firm sells additional units of output, ______, and when a
monopolist sells additional units of output, ______.
A. total revenue always rises; total revenue could rise, fall, or remain unchanged
B. total revenue does not change; total revenue rises
C. marginal revenue stays the same; marginal revenue rises
D. total revenue rises; total revenue falls
Ans: A
Blooms: Understand
Feedback: For perfectly competitive firms, marginal revenue is equal to price. For firms that face
a downward sloping demand curve, selling another unit can increase revenue, decrease revenue,
or keep revenue the same.
54. If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units,
and $120 in revenue when it sells 6 units, then one can infer the firm is a(n):
A. perfectly competitor.
B. monopolistic competitor.
C. oligopolist.
D. monopolist.
Ans: A
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Blooms: Understand
Feedback: Marginal revenue is a constant $20 for this firm, so it must face a horizontal demand
curve.
55. If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units,
and $105 in revenue when it sells 6 units, then one can infer the firm is a:
A. perfect competitor.
B. profit maximizer.
C. price taker.
D. monopolist.
Ans: D
Blooms: Understand
Feedback: Marginal revenue is declining as more units are sold, so this firm must face a
downward sloping demand curve.
56. For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal
revenue ______ price.
A. equals; equals
B. equals; is greater than
C. is less than; equals
D. equals; is less than
Ans: D
Blooms: Understand
Feedback: Perfectly competitive firms do not have to lower price to sell an additional unit;
monopolists do. As a result, marginal revenue is less than price for a monopolist.
57. The demand curve for a perfectly competitive firm is ______, while the demand curve for a
monopolist is ______.
A. perfectly elastic; downward-sloping
B. vertical; downward-sloping
C. perfectly elastic; perfectly inelastic
D. perfectly inelastic; perfectly elastic
Ans: A
Difficulty: 01 Easy
21
Blooms: Remember
Feedback: Perfectly competitive firms do not have to lower price to sell an additional unit;
monopolists do.
58. Suppose the table below describes the demand for a good produced by monopolist.
Price Quantity
$10 1
$9 2
$8 3
$7 4
$6 5
$5 6
$4 7
The monopolist’s total revenue from selling 3 units is ______, and the monopolist’s marginal
revenue from selling the 3rd unit is ______.
A. $28; 8
B. $24; 6
C. $52; 1
D. $24; 8
Ans: B
Blooms: Understand
Feedback: Total revenue when 2 are sold is $18, and total revenue when 3 are sold is $24; thus,
the marginal revenue of the 3rd unit is $6.
Price Quantity
$10 1
$9 2
$8 3
$7 4
$6 5
$5 6
$4 7
22
The total revenue from selling 6 units is ______, and the marginal revenue of selling the 6th unit
is ______.
A. $5; 5
B. $30; 0
C. $24; $5
D. $30; $1
Ans: B
Blooms: Understand
Feedback: Total revenue when either 5 or 6 are sold is $30; therefore, the marginal revenue from
selling the 6th unit is zero.
Price Quantity
$10 1
$9 2
$8 3
$7 4
$6 5
$5 6
$4 7
The monopolist’s marginal revenue from selling the 4th unit of output is less than $7 because:
A. marginal cost is greater than $3.
B. the consumer only pays $4 for the 4th unit.
C. it has to charge $1 less for each of the first 3 units of output.
D. demand is perfectly elastic.
Ans: C
Blooms: Understand
Feedback: When the firm goes from selling 3 to 4 units of output, is has to lower its price from
$8 to $7. Thus, while it gains $7 from selling the 4th unit, it loses $3 because it has to charge $1
less for the first 3 units. Thus, marginal revenue is equal to $7 - $3 = $4.
Price Quantity
$10 1
23
$9 2
$8 3
$7 4
$6 5
$5 6
$4 7
Based on the data in the table, we know the firm should:

A. be able earn an economic profit.
B. produce more than 7 units.
C. not produce the seventh unit.
D. not produce the fifth unit.
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The marginal revenue of the 7th unit is negative.
62. If the demand curve facing a monopolist shifts, then the monopolist’s:
A. marginal revenue curve and profit-maximizing level of output will change.
B. marginal revenue curve will not change, but its profit-maximizing level of output will.
C. total cost curve will change, but its variable cost curve will not.
D. marginal revenue curve will change, but its profit-maximizing level of output will not.
Ans: A
Blooms: Understand
Feedback: Marginal revenue is derived from demand.
63. Suppose a monopolist faces the demand curve shown below.
24
This demand curve can be used to determine:
A. the total cost associated with producing different levels of output.
B. the monopolist’s total revenue at different price and quantity combinations.
C. the impact of advertising on demand.
D. the marginal cost associated with producing different levels of output.
Ans: B
Blooms: Understand
Feedback: At any given price, the demand curve tells us the number of units the monopolist can
sell. Thus, it is possible to determine the monopolist’s revenue (P × Q) at different price and
quantity combinations.
If you were to draw the monopolist’s marginal revenue curve, it would:

A. lie on top of the demand curve.
25
B. intersect the vertical axis at $35.
C. intersect the horizontal axis at 35.
D. have a slope equal to the reciprocal of the slope of the demand curve.
Ans: C
Blooms: Understand
Feedback: For any straight-line demand curve, the corresponding marginal revenue curve will
have twice the slope of the demand curve and the same vertical intercept as the demand curve.
As a result, the horizontal intercept of the marginal revenue curve will be half the horizontal
intercept of the demand curve.
If the monopolist were to sell 20 units of output, its total revenue would be:
A. $50.
B. $100.
C. $140.
D. $1,000.
Ans: D
26
Blooms: Understand
Feedback: If the monopolist sells 20 units of output, then it can charge $50 per unit. Thus, its
total revenue will be $1,000 (= 20 × $50).
The marginal revenue of the 35th unit of output is:

A. $20.
B. $10.
C. $0.
D. $-5.
Ans: C
Blooms: Understand
Feedback: Given the demand curve, we know the monopolist’s marginal revenue curve has a
horizontal intercept of 35. Thus, the marginal revenue of the 35th unit is zero.
27
The monopolist maximizes its profits by:
A. charging $70 for each unit.
B. producing 35 units, since this is where total revenue is maximized.
C. producing the level of output at which marginal revenue minus marginal cost is greatest.
D. producing the level of output at which marginal revenue equals marginal cost.
Ans: D
Blooms: Understand
Refer To: Ch8Ref6
Feedback: Like a perfectly competitive firm, a monopolist maximizes profit by choosing the
output level at which marginal revenue equals marginal cost.
28
If the monopolist’s marginal cost is constant and equal to $30, its profit-maximizing level of
output is:
A. 50 units.
B. 40 units.
C. 20 units.
D. 30 units.
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: Like a perfectly competitive firm, a monopolist maximizes profit by choosing the
output level at which marginal revenue equals marginal cost.
69. Refer to the figure below.
This firm's marginal revenue curve would intersect the vertical axis at ______.
A. $70
29
B. $0
C. $20
D. $35
Ans: A
Blooms: Understand
Feedback: For any straight-line demand curve, the associated marginal revenue curve has the
same vertical intercept as the demand curve.
70. Once a firm has determined the quantity of output it wishes to sell, the maximum price it can
charge for each unit is determined by:
A. the average cost of making the product.
B. the demand curve facing the firm.
C. the marginal cost of making the product.
D. the firm’s marginal revenue curve.
Ans: B
Blooms: Understand
Feedback: The demand curve dictates the maximum price a firm for each quantity produced.
71. Suppose the figure below illustrates the demand curve facing a monopolist.
At a price of $8 per unit, the total revenue for this monopolist is ______ per day, and the
marginal revenue earned from the last unit sold is ______.
30
A. $8; $8
B. $3,200; $8
C. $3,200; $4
D. $3,200; $0
Ans: D
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: At $8 the firm will sell 400 units for total revenue of $3,200. For any straight-line
demand curve, the associated marginal revenue curve has a horizontal intercept that is half the
horizontal intercept of the demand curve. Thus, the marginal revenue of the 400th unit is $0.
Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the
firm’s:
A. marginal cost is $8.
B. marginal cost is $0.
C. average total cost is $8.
D. marginal cost is less than $8.
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: At a price of $8 per unit, the firm will sell 400 units, and we know that the marginal
revenue of producing the 400th unit is $0 because for any straight-line demand curve, the
31
associated marginal revenue curve has a horizontal intercept that is half the horizontal intercept
of the demand curve. So if the firm maximizes its profit by charging $8 per unit, it must be the
case that the marginal cost of the 400th unit is zero.
If the monopolist decreases its price from $12 to $10, its total revenue will ______.
A. increase by $1000
B. decrease by $1000
C. increase by $600
D. decrease by $600
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: At $12 the firm will sell 200 units for total revenue of $2,400. At $10 the firm will
sell 300 units for total revenue of $3000.
74. If the demand curve facing the monopolist is P = 70 – 14Q, then the slope of its marginal
revenue curve is:
A. –28.
B. –14.
C. –7.
D. – 35.
Ans: A
Blooms: Understand
32
Feedback: The slope of the marginal revenue curve is twice the slope of the demand curve.
75. Because monopolists charge a price in excess of marginal cost, it must be the case that
monopolists:
A. earn a positive economic profit.
B. earn a negative economic profit.
C. produce more than the socially optimal level of output.
D. produce less than the socially optimal level of output.
Ans: D
Blooms: Understand
Feedback: The marginal benefit to society of the last unit produced is measured by price. Thus,
if price is greater than marginal cost, this implies that the marginal benefit to society of the last
unit produced is greater than the marginal cost to society of the last unit produced, so that society
would benefit if output were to increase.
76. When marginal revenue is zero:

A. profit is maximized.
B. total cost is minimized.
C. elasticity of demand is zero.
D. total revenue is maximized.
Ans: D
Blooms: Understand
Feedback: When marginal revenue is positive, total revenue is increasing, and when marginal
revenue is negative total revenue is decreasing. Thus, total revenue is maximized when marginal
revenue equals zero.
77. The monopolist will maximize profits at the output level for which:
A. price equals marginal cost.
B. price equals average total cost.
C. marginal revenue equals average total cost.
D. marginal revenue equals marginal cost.
Ans: D
Difficulty: 01 Easy
Blooms: Remember
33
Feedback: Following the Cost-Benefit Principle, all firms maximize their profit by choosing the
level of output at which marginal revenue equals marginal cost.
78. The profit maximizing rule P = MC applies to:

A. all firms.
B. monopolists only.
C. both perfectly competitive firms and imperfectly competitive firms.
D. perfectly competitive firms only.
Ans: D
Blooms: Understand
level of output at which marginal revenue equals marginal cost. Perfectly competitive firms are
the only firms for which price equals marginal revenue.
79. The profit maximizing rule MR = MC applies to:

A. all firms.
B. monopolists only.
C. perfectly competitive firms only.
D. imperfectly competitive firms only.
Ans: A
Blooms: Understand
80. If a monopolist’s marginal revenue exceeds its marginal cost at its current level of output,
then to maximize its profit the monopolist should:
A. do nothing.
B. decrease output in order to increase the gap between marginal revenue and marginal cost.
C. increase output until marginal revenue equals marginal cost.
D. increase output until price equals marginal cost.
Ans: C
Blooms: Understand
34
81. The figure below shows the demand curve, marginal revenue curve, marginal cost curve and
average total cost curve for a monopolist.
This monopolist maximizes its profit by producing ______ units per day and charging a price of
______ per unit.
A. 4; $6
B. 8; $6
C. 4; $18
D. 8; $14
Ans: C
Blooms: Understand
Feedback: The monopolist maximizes its profit by choosing the level of output at which
marginal revenue equals marginal cost, or 4 units per day. From the demand curve, we can see
that at this level of output, the monopolist should charge $18 per unit.
35
The socially optimal level of output is:

A. 4 units per day.
B. 5 units per day.
C. 8 units per day.
D. 10 units per day.
Ans: C
Topic: Why the Invisible Hand Breaks Down Under Monopoly
Blooms: Understand
Feedback: The socially optimal level of output occurs where the marginal benefit of an
additional unit of output equals the marginal cost of an additional unit of output. The marginal
benefit of an additional unit of output is the amount people are willing to pay for it, which is
given by the demand curve.
36
At this monopolist’s profit-maximizing level of output, it:

A. earns an economic profit of $16 per day.
B. incurs an economic loss of $16 per day.
C. earns an economic profit of $64 per day.
D. incurs an economic loss of $64 per day.
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The monopolist loses $4 on each of the 4 units sold.
37
At the socially optimal level of output, this monopolist would:

A. earn an economic profit of $16.
B. incur an economic loss of $16.
C. incur an economic loss of $64.
D. incur an economic loss of $112.
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The monopolist would lose $8 on each of 8 units sold.
38
86. Suppose the table below describes the relationship between price and quantity demanded for
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
The marginal revenue of the third unit of output is:

A. $24.
B. $8.
C. $6.
D. -$1.
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: At 2 units of output, total revenue is $18; at 3 units of output, it is $24.
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
The marginal revenue of the fifth unit of output is:

A. $30.
B. $6.
39
C. $2.
D. -$2.
Ans: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: At 4 units of output, total revenue is $28; at 5 units of output, it is $30.
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
If the marginal cost of producing each unit of output is $5, then this monopolist’s profit-
maximizing level of output is ______.
A. 5
B. 4
C. 3
D. 2
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The marginal revenue of each of the first three units is greater than $5, but the
marginal revenue of each of the subsequent units is less than $5. Thus, this monopolist should
produce three units of output.
40
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its
profit by charging ______ per unit.
A. $3
B. $5
C. $6
D. $8
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The marginal revenue of each of the first three units is greater than $5, but the
marginal revenue of each of the subsequent units is less than $5. Thus, this monopolist should
produce three units of output. At that level of output, the monopolist will charge $8 per unit.
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
If the marginal cost of producing each unit of output is $5, then the socially optimal level of
output is ______.
A. 3 units
41
B. 6 units
C. 7 units
D. 4 units
Ans: B
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: At 6 units of output, price equals marginal cost.
a monopolist.
Quantity Price
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
If the marginal cost of producing each unit of output is $5, the at the monopolist’s profit-
maximizing level of output, the monopolist produces ______ units of output than is socially
optimal.
A. 3 fewer
B. 3 more
C. 2 fewer
D. 1 more
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The monopolist’s profit-maximizing level of output (where MR = MC) is 3, and the
socially optimal level of output (where P = MC) is 6.
42
92. Suppose the figure below shows the demand curve, marginal revenue curve and marginal
cost curve for a monopolist.
The profit-maximizing level of output for this monopolist is ______ units per day.
A. F
B. G
C. H
D. I
Ans: A
Blooms: Understand
Feedback: MC = MR at F units of output.
43
The profit-maximizing price for this monopolist to charge is:
A. A.
B. B.
C. C.
D. E.
Ans: B
Blooms: Understand
Feedback: MC = MR at F units of output. From the demand curve, we can see that this
corresponds to a price of B.
44
At this monopolist’s profit-maximizing level of output, its total revenue equals the area:
A. 0HNC.
B. 0FJB.
C. 0FLE.
D. ELJB.
Ans: B
Blooms: Understand
Feedback: MC = MR at F units of output, and from the demand curve we can see that at that
level of output, the monopolist will charge a price of B. Total revenue equals price times
quantity.
45
The socially optimal level of output is ______ units per day.

A. F
B. G
C. H
D. I
Ans: C
Blooms: Understand
Feedback: The socially optimal level of output occurs where the marginal benefit of an
additional unit of output (which is given by the demand curve) equals its marginal cost.
46
This monopolist maximizes its profit by producing ______ textbooks per week and charging a
price of ______ per textbook.
A. 150; $20
B. 100; $40
C. 100; $80
D. 150; $40
Ans: C
Blooms: Understand
Feedback: The monopolist chooses a quantity at which MC = MR, and charges the price that
corresponds to that quantity on the demand curve.
101. The reason economists consider monopoly to be socially undesirable is that monopolists:
A. earn too much economic profit.
B. can charge any price they want.
C. exploit the inelastic nature of demand.
D. produce less than the socially optimal level of output.
Ans: D
Blooms: Understand
47
Feedback: Because profit-maximizing monopolists produce a level of output at which price is
greater than marginal cost, monopolists always produce less than the socially optimal level of
output.
102. Perfect competition is socially efficient and monopoly is not because under perfect
competition price is ______ while under monopoly price is ______.
A. equal to MC; greater than MC
B. less than MR; equal to MR
C. equal to MR; less than MR
D. equal to MC; less than MC
Ans: A
Blooms: Understand
Feedback: At a monopolist’s profit-maximizing level of output, price is greater than marginal
cost. Thus, the marginal benefit to society of the last unit produced is greater than its marginal
cost, implying that the monopolist is producing less than the socially optimal level of output. In
contrast, at a perfectly competitive firm’s profit-maximizing level of output, price is equal to
marginal cost.
103. If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then
the monopolist should:
A. lower its price.
B. increase its output.
C. leave its output and price unchanged.
D. decrease its output.
Ans: D
Blooms: Understand
Feedback: If marginal cost is greater than marginal revenue, then the monopolist should decrease
its output until marginal cost and marginal revenue are equal.
104. If a monopolist’s marginal revenue is $25 and its marginal cost is $19, then the monopolist
should:
A. raise its price.
B. increase its output.
C. leave its output and price unchanged.
D. decrease its output.
Ans: B
48
Blooms: Understand
Feedback: If marginal revenue is greater than marginal cost, then the monopolist should increase
its output until marginal cost and marginal revenue are equal.
105. Price discrimination means charging:

A. higher prices to women and minorities.
B. different prices for different products because production costs are different.
C. the same price to all buyers even if production costs are different.
D. different prices to different buyers for essentially the same good or service.
Ans: D
Difficulty: 01 Easy
Topic: Using Discounts to Expand the Market
Blooms: Remember
Feedback: Price discrimination is the practice of charging different buyers different prices for
essentially the same good or service.
106. A perfectly price discriminating monopolist charges each buyer:

A. exactly his or her marginal cost.
B. more than his or her reservation price.
C. exactly his or her reservation price.
D. the perfectly competitive equilibrium price.
Ans: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Perfect price discrimination is the practice of charging each buyer exactly his or her
reservation price.
107. Imperfect price discrimination occurs when a monopolist:

A. charges a single price to all buyers.
B. price discriminates but some buyers pay less than their reservation price.
C. price discriminates but some buyers pay more than their reservation price.
D. charges all buyers exactly their reservation price.
Ans: B
Blooms: Understand
49
Feedback: With imperfect price discrimination, the monopolist price discriminates but at least
some buyers are charged less than their reservation price.
108. Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small
resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has
no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
What is the socially optimal number of bikes for Island Bikes to rent out each day?
A. 6
B. 5
C. 4
D. 3
Ans: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The willingness to pay of each of the six customers is greater than the marginal cost
of renting out a bike.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
50
E 6
F 4
If Island Bikes charges a single price to all of its customers, then how many bikes will it rent out
each day?
A. 6
B. 5
C. 4
D. 3
Ans: D
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The third bike yields a marginal revenue of $4, which is greater than $3, but the fourth
bike yields a marginal revenue of -$4, which is less than $3. Thus, Island Bikes will rent 3 bikes
and charge $12 per bike.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
If Island Bikes charges a single price to all of its customers, then what price will it charge?
A. $4
B. $8
C. $12
D. $16
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
51
Feedback: The third bike yields a marginal revenue of $4, which is greater than $3, but the fourth
bike yields a marginal revenue of -$4, which is less than $3. Thus, Island Bikes will rent 3 bikes
and charge $12 per bike.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
If Island Bikes charges a single price to all of its customers, then what will be its daily economic
profit?
A. $26
B. $27
C. $33
D. $36
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: Island Bikes will rent 3 bikes and charge $12 per bike. Thus, their total revenue will
be $36, their total cost will be $9, and their economic profit will be $27.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
52
D 8
E 6
F 4
Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent
bikes before noon, while those whose reservation prices are below $10 never do so. If Island
bikes can charge a different price in the morning and in the afternoon, then in the morning, it will
rent out ______ bike(s) and charge ______ per bike.
A. 1; $22
B. 2; $16
C. 3; $12
D. 4; $8
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: Island Bikes can divide the original market into two submarkets: one in the morning
and one in the afternoon. The first submarket consists of customers A through C and the second
submarket consists of customers D through F. In the morning, Island Bikes will rent out 3 out
bikes and charge $12, and in the afternoon, Island Bikes will rent 2 out bikes and charge $6.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
bikes can charge a different price in the morning and in the afternoon, then in the afternoon, it
will rent out ______ bike(s) and charge ______ per bike.
A. 1; $8
B. 2; $6
C. 3; $4
D. 5; $10
53
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
submarket consists of customers D through F. In the morning, Island Bikes will rent out 3 bikes
and charge $12, and in the afternoon, Island Bikes will rent out 2 bikes and charge $6.
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
bikes charges different price in the morning and in the afternoon, then what will be its daily
economic profit?
A. $27
B. $32
C. $33
D. $39
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
submarket consists of customers D through F. In the morning, Island Bikes will rent out 3 bikes,
charge $12, and earn a profit of $27 = (3 × $12) – (3 × $3). In the afternoon, Island Bikes will
rent 2 out bikes, charge $6, and earn a profit of $9 = (2 × $6) – (2 × $3).
54
listed below.
Reservation Price
Customer
($/Rental)
A 22
B 16
C 12
D 8
E 6
F 4
bikes charges a different price in the morning and in the afternoon, then what will be the total
economic surplus?
A. $49
B. $41
C. $9
D. $3
Ans: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: Island Bikes will divide the original market into two submarkets: one in the morning
submarket consists of customers D through F. In the morning, Island Bikes will rent out 3 bikes
and charge $12, and in the afternoon, Island Bikes will rent 2 out bikes and charge $6. The
economic surplus on each bike is the consumer’s reservation price minus marginal cost. So total
economic surplus is ($22 - $3) + ($16 - $3) + ($12 - $3) + ($8 - $3) + ($6 - $3) = $49.
116. Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a
given class. The marginal cost of supplying each book is constant and equal to $10, and Campus
Books has no fixed costs. The table below shows the reservation prices of the eight students
enrolled in the class.
Reservation Price
Student
($/Book)
Q 60
55
R 54
S 48
T 42
U 36
V 30
W 24
X 18
How many books will Campus Books sell if it must charge a single price to all of its customers?
A. 3
B. 4
C. 5
D. 7
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: The fifth book yields a marginal revenue of $12, which is greater than $10, but the
sixth book yields a marginal revenue of $0, which is less than $10. Thus, Campus Books will
sell five books and charge $36 for each book
Reservation Price
Student
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
What price will Campus Books charge if it must charge a single price to all of its customers?
A. $36
B. $18
C. $24
D. $10
Ans: A
Difficulty: 03 Hard
56
Blooms: Analyze
AACSB: Analytic
Feedback: The fifth book yields marginal revenue of $12, which is greater than $10, but the sixth
book yields a marginal revenue of $0, which is less than $10. Thus, Campus Books will sell five
books and charge $36 for each book.
Reservation Price
Student
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
What will be Campus Books’ economic profit if it must charge a single price to all of its
customers?
A. $180
B. $130
C. $128
D. $120
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: To maximize its profit, Campus Books will sell 5 books at a price of $36 each, so
their total revenue will be $180 (= 5 × $36) and their total cost will be $50 (= 5 × $10), implying
a profit of $130.
Student Reservation Price
57
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
What is the socially optimal number of books?

A. 8
B. 5
C. 6
D. 7
Ans: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: All 8 students have a reservation price that is greater than $10.
Reservation Price
Student
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a
reservation price above $30 never bother with coupons, whereas those with a reservation price of
$30 or less always use them, then the bookstore will set the list price of the book to be ______
and the discounted price of the book to be ______.
A. $30; $24
B. $36; $30
58
C. $36; $24
D. $30; $18.
Ans: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Feedback: By using a coupon, the bookstore can divide the original market into two submarkets.
The first submarket consists of students Q though U and the second submarket consists of
students V though X. In the first submarket, the bookstore will sell 5 books at a price of $36
each, and in the second submarket, the bookstore will sell 2 books at a price of $24 each.
Reservation Price
Student
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
$30 or less always use them, then how many in total books will the bookstore sell?
A. 8
B. 7
C. 6
D. 5
Ans: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
each, and in the second submarket, the bookstore will sell 2 books at a price of $24 each.
59
Reservation Price
Student
($/Book)
Q 60
R 54
S 48
T 42
U 36
V 30
W 24
X 18
$30 or less always use them, then what will be the bookstore’s total economic profit?
A. $158
B. $154
C. $150
D. $130
Ans: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
each, and in the second submarket, the bookstore will sell 2 books at a price of $24 each. The
bookstore’s economic profit in the first submarket will be $130 (= $180 - $50), and its economic
profit in the second submarket will be $28 (= $48 - $20).
123. A perfectly price discriminating monopolist’s profit is ______ the profit of a monopolist
who charges the same price to all of its customers.
A. the same as
B. less than
C. higher than
D. sometimes less than and sometimes greater than.
Ans: C
60
Blooms: Understand
Feedback: Price discrimination allows firms to earn a higher profit.
124. Consider a monopolist who charges a single price to all of its customers. If this monopolist
starts price discriminating, its output will ______ and its profit will ______.
A. fall; rise
B. fall; fall
C. rise; fall
D. rise; rise
Ans: D
Blooms: Understand
Feedback: A firm that price discriminates will sell more output and earn a higher profit.
125. Suppose a monopolist produces two different products. If the marginal cost of producing
one is lower than the marginal cost of producing the other, and the monopolist charges a
different price for the two goods, then the monopolist is:
A. not price discriminating.
B. imperfectly price discriminating.
C. perfectly price discriminating.
D. not maximizing its profit.
Ans: A
Blooms: Understand
Feedback: Price discrimination refers to the practice of charging different buyers different prices
for essentially the same good or service, but in this case, the products are different.
126. Relative to a monopolist charging a single price to all consumers, price discrimination
______ total economic surplus.
A. has no effect on
B. sometimes increases and sometimes decreases
C. decreases
D. increases
Ans: D
61
Blooms: Understand
Feedback: All else equal, a monopolist that price discriminates will produce closer to the socially
optimal level of output than will a monopolist that charges a single price to all consumers.
128. In order to effectively price discriminate, one requirement is that a seller must be able to:
A. resell the product.
B. identify customers with different reservation prices.
C. avoid detection because price discrimination is illegal.
D. reduce costs when producing the discounted item.
Ans: B
Blooms: Understand
Feedback: To price discriminate, the firm must be able to differentiate customers by their
reservation prices.
129. Airlines that charge higher prices for seats in the first class cabin are:
A. not price discriminating because the product is not the same.
B. price discriminating because all passengers on the plane are traveling the same route.
C. perfect price discriminators.
D. using the hurdle method of price discrimination.
Ans: A
Blooms: Understand
Feedback: First-class seats are a different product from regular seats, so charging a higher price
to fly first class is not price discrimination.
130. Airlines that charge higher prices for customers who purchase their tickets at the last minute
are:
A. not price discriminating because the cost of the ticket is not the same.
B. price discriminating by identifying passengers with higher reservation prices.
C. perfect price discriminators.
D. lowering total economic surplus.
Ans: B
62
Blooms: Understand
Feedback: Passengers who are willing to purchase their tickets in advance typically have lower
reservation prices than those who purchase their tickets at the last-minute.
131. When a consumer must take some sort of additional action to receive a lower price, the
consumer is being subjected to:
A. "bait and switch" sales tactics.
B. perfect price discrimination.
C. the "hurdle" method of price discrimination.
D. the "rebate and wait" method of price discrimination.
Ans: C
Blooms: Understand
Feedback: The hurdle method of price discrimination requires buyers to overcome an obstacle in
order to obtain the discounted price.
132. A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk
informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. What
can one can infer about the consumer’s reservation price?
A. It was at least $300.
B. It was at most $280.
C. It was exactly $300.
D. It was at least $280 but less than $300.
Ans: A
Blooms: Understand
Feedback: The customer was willing to purchase the TV for $300, so his reservation price must
have been at least $300.
133. Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In
order for the rebate to be a perfect hurdle, it must be the case that:
A. buyers use the rebate if and only if they have a reservation price between $80 and $100.
B. all buyers with a reservation price greater than $80 use the rebate.
C. some buyers with a reservation price greater than $80 use the rebate.
D. buyers use the rebate if and only if their cost of filling out the rebate is less than $20.
Ans: A
63
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Feedback: A perfect hurdle is one that segregates buyers precisely according to their reservation
prices, imposing no cost on those who jump the hurdle.
134. Which of the following is NOT an example of the hurdle method of price discrimination?
A. Offering a mail-in rebate.
B. Permanently reducing all prices by 10%.
C. Charging less for airline tickets if the trip includes a Saturday night stayover.
D. Giving a discount on movie tickets to people with a student ID.
Ans: B
Blooms: Understand
Feedback: Everyday low prices are available to all shoppers; the other discounts require
overcoming a hurdle.
135. Monopolists use the hurdle method of price discrimination in order to:
A. separate consumers on the basis of their reservation prices.
B. lower their marginal cost.
C. increase the demand for their good.
D. produce the socially optimal level of output.
Ans: A
Blooms: Understand
Feedback: The hurdle method of price discrimination seeks to segregate buyers on the basis of
their reservation prices.
136. Which of the following is NOT an example of the hurdle method of price discrimination?
A. A coupon for $10 off any purchase of $50 or higher.
B. A mail-in rebate on a printer.
C. An early-bird discount for people order dinner before 5pm.
D. A lower price on strawberries when they are in season.
Ans: D
64
Blooms: Understand
Feedback: The lower price on strawberries is available to all buyers and is the result of an
increase in supply.
137. Relative to a single price monopolist, a price discriminating monopolist generates:

A. less total surplus.
B. more total surplus.
C. the same amount of total surplus, but lower profits.
D. the same amount of total surplus, but higher profits.
Ans: B
Blooms: Understand
AACSB: Analytic
Feedback: Price discrimination brings the level of output closer to the socially optimal quantity.
65

Principles of Microeconomics Brief Edition 3rd Edition Frank Test Bank

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Principles of Microeconomics Brief Edition 3rd Edition Frank Test Bank

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Principles of Microeconomics Brief

Edition 3rd Edition Frank Test Bank

1. A price setter is a firm that:

2. A pure monopoly exists when:

5. A monopolistically competitive firm is one:

12. If a firm faces a downward-sloping demand curve, then:

14. “Market power” refers to a firm's ability to:

15. A good is characterized by network economies if it:

17. Which of the following firms is most likely to be a pure monopolist?

22. Patents, which confer market power, are intended to:

24. Start-up costs:

26. A firm’s average total cost is equal to the firm’s:

28. A firm’s average fixed cost is equal to the firm’s:

27. Economies of scale exist when:

28. Economies of scale arise from:

31. A monopoly that results from economies of scale is called a(n):

33. A natural monopoly is a monopoly that arises from:

34. If a natural monopoly decreases the quantity of output it produces, then:

35. If a natural monopoly increases the quantity of output it produces, then:

Acme Manufacturing: TC = 100 + 3Q.

Acme Manufacturing: TC = 100 + 3Q.

Acme Manufacturing: TC = 100 + 3Q.

Mega Corp: TC = 5,000 + 100Q

Mega Corp: TC = 5,000 + 100Q

Mega Corp: TC = 5,000 + 100Q

Mega Corp: TC = 5,000 + 100Q

For both firms, average total cost:

Mega Corp: TC = 5,000 + 100Q

If each firm is producing 15 units, you would expect:

50. The primary objective of an imperfectly competitive firm is to:

51. Both a perfectly competitive firm and a monopolist find that:

Based on the data in the table, we know the firm should:

63. Suppose a monopolist faces the demand curve shown below.

64. Suppose a monopolist faces the demand curve shown below.

If you were to draw the monopolist’s marginal revenue curve, it would:

65. Suppose a monopolist faces the demand curve shown below.

66. Suppose a monopolist faces the demand curve shown below.

The marginal revenue of the 35th unit of output is:

67. Suppose a monopolist faces the demand curve shown below.

68. Suppose a monopolist faces the demand curve shown below.

69. Refer to the figure below.

76. When marginal revenue is zero:

78. The profit maximizing rule P = MC applies to:

79. The profit maximizing rule MR = MC applies to:

The socially optimal level of output is:

At this monopolist’s profit-maximizing level of output, it:

At the socially optimal level of output, this monopolist would:

The marginal revenue of the third unit of output is:

The marginal revenue of the fifth unit of output is:

The socially optimal level of output is ______ units per day.

105. Price discrimination means charging:

106. A perfectly price discriminating monopolist charges each buyer:

107. Imperfect price discrimination occurs when a monopolist:

Student Reservation Price

What is the socially optimal number of books?

137. Relative to a single price monopolist, a price discriminating monopolist generates:

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