37. Which of the following statements concerning monopoly is NOT true?

a) A market may be monopolistic because there are some legal barriers.

b) A monopoly has market power.
c) A monopoly is always undesirable.
d) There is some deadweight loss in a monopolistic market.
Answer: C Difficulty: Med

38. Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets?
a) Firms produce homogeneous goods.
b) There is free entry.
c) Long run profits are zero.
d) both b and c.
Answer: D Difficulty: Med

39. The source(s) of monopoly power for a monopoly may be:

a) economies of scale.
b) economies of scope.
c) patents.
d) all of the above.
Answer: D Difficulty: Med

40. Economies of scale exist whenever:

a) average total costs decline as output increases.
b) average total costs increase as output increases.
c) average total costs are stationary as output increases.
d) both b and c.
Answer: A Difficulty: Easy

41. The number of efficient plants compatible with domestic consumption of the refrigerator
industry in Sweden is 0.7. Which of the following implications is (are) correct?
a) In the absence of imports, the refrigerator industry in Sweden is monopolistic.
b) The refrigerator industry in Sweden is perfectly competitive.
c) The refrigerator industry in Sweden is monopolistically competitive.
d) None of the above.
Answer: A Difficulty: Med

42. A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30
+ 0.05 Q22. The demand it faces is Q = 500 - 10 P. What is the condition for profit
maximization?
a) MC1(Q1) = MC2(Q2) = P(Q1 + Q2).
b) MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
c) MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2).
d) MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).
Answer: B Difficulty: Med

Page 8 Michael R. Baye