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Chapter 07_Test Bank KEY
1. Market power exists if a firm can alter:
A. Its costs of production.
B. The market price.
C. Its own supply curve.
D. The production function.
If a firm can alter the market price by changing production it has market power.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Define what a monopoly is.
Topic: MONOPOLY STRUCTURE
2. If a seafood restaurant can raise the price of its fried shrimp without losing all of its customers,
then the restaurant definitely:
A. Has market power.
B. Is experiencing economies of scale.
C. Is using predatory pricing.
D. Has a monopoly.
The fewer customers that a seafood restaurant loses when it raises its price the more market
power it has.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
3. Which of the following firms is likely to have the greatest market power?
A. A farmer who can sell as much lettuce as he can grow.
B. A single soft drink company serving a campus with no barriers to entry.
C. The sole producer of the latest computer microchip technology.
D. A regulated natural monopoly selling natural gas service.
Since the sole producer of the latest computer microchip technology would pose a significant
barrier to entry by a competing firm that producer would have a lot of market power.
AACSB: Reflective Thinking

Blooms: Analyze
4. The total quantities of a good that people are willing and able to buy at alternative prices
defines:
A. Market equilibrium.
B. Marginal revenue.
7-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
C. Market supply.
D. Market demand.
The demand schedule or the demand curve of all buyers of a good or service is called market
demand.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
5. Which of the following is true about market demand?

A. It is typically horizontal or flat.
B. It is downward sloping.
C. It is inconsistent with the law of demand.
D. It represents the quantity of a good people are willing, but not necessarily able, to buy.
Since market demand represents an inverse relationship between price and quantity demanded it
is downward sloping.
AACSB: Analytic
Blooms: Understand
6. The demand curve for an individual monopolist:

A. Does not exist.
B. Slopes upward to the right.
C. Is the same as the market demand curve.
D. Is the same as the marginal revenue curve.
Since the number of firms in a monopolistic industry is one the individual demand curve is the
market demand curve.
AACSB: Analytic
Blooms: Understand
7. A patent:
A. Is a government grant of exclusive ownership of an innovation.
B. Requires a firm to share its innovations with others.
C. Protects a perfectly competitive firm from competition.
D. Is an illegal method to protect an innovative idea.
The government grants patents in order to encourage innovation even though it gives the owner
an exclusive market.
7-2
AACSB: Analytic
Blooms: Remember
8. Which of the following might be used to protect a monopoly from competition?

A. A horizontal demand curve.
C. A patent.
D. A contestable market.
The government grants patents in order to encourage innovation even though it gives the owner
an exclusive market.
AACSB: Analytic
Blooms: Understand
9. If the entire output of a market is produced by a single seller, the firm:

A. Is a monopoly.
B. Is competitive.
C. Is an oligopolist.
D. Faces a perfectly vertical demand curve.
A monopoly is control of the production and distribution of a product or service by one firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
10. An industry dominated by one firm is:

A. Monopolistic competition.
B. Perfect competition.
C. A monopoly.
D. An oligopoly.
A monopoly is control of the production and distribution of a product or service by one firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
11. Which of the following is likely to be a monopolist?

A. A small firm with a patent granting it the exclusive right to produce a drug.
B. A large firm, such as HP, that produces a substantial portion of the printer market.
7-3
C. Bell Helicopter which is one of the largest producers of helicopters in the world.
D. A major car manufacturer such as General Motors.
An exclusive right to use a process or produce or sell a particular product for a designated period
of time is a patent and a firm that has this right is a monopoly in the market for that particular
drug.

Blooms: Understand
12. Which of the following is likely to be a monopolist?

A. A potato chip company that sells lots of chips and competes with other chip producers.
B. A farmer who specializes in growing organic fruits and vegetables.
C. The sole producer of a new medical device for people with limited mobility.
D. The chemical company in a small town that employs most of the town's workforce.
The sole producer who is in control of the production and distribution of a product or service
characterizes a monopolist.

Blooms: Understand
13. Which of the following is not true for a monopoly?

A. The demand curve for the monopoly and the market are the same.
B. It has no direct competitors.
C. It can use its market power to charge higher prices than a competitive firm.
D. It is a price taker.
Since a monopolist has control of both the production and distribution of a product or service
they are a price maker.
AACSB: Analytic
Blooms: Understand
14. Monopolists are price:

A. Takers as are perfectly competitive firms.
B. Takers, but perfectly competitive firms are price makers.
C. Makers, but perfectly competitive firms are price takers.
D. Makers as are perfectly competitive firms.
7-4
Unlike a firm in a competitive industry whose output is small relative to the total market, a
monopolist is the market supply and therefore sets the price.
AACSB: Analytic
Blooms: Understand
15. Which of the following is not a characteristic of a monopoly?

A. High barriers to entry
B. Differentiated product
C. Ownership of essential resources
D. Large economics of scale
In general a monopolistic firm’s product is unique since it is the only producer.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
16. For a monopolist, the demand curve facing the firm is:
A. The same as for the perfectly competitive firm.
B. The same as the market demand curve.
C. Always below marginal revenue.
D. Perfectly elastic.
Since a monopolist represents 100% of the market, the firm’s individual demand curve is the
AACSB: Analytic
Blooms: Understand
17. The demand curve for a monopolist:

A. Is steeper than the marginal revenue curve.
B. Lies below the marginal revenue curve at every point but the first.
C. Is the same as the marginal revenue curve.
D. Lies above the marginal revenue curve at every point but the first.
Since the law of diminishing marginal utility means that marginal revenue must be falling with
each additional unit, average revenue (market demand) must also be falling and will be greater
than marginal revenue at any point on the curve.

Blooms: Analyze
Difficulty: 3 Hard
7-5
18. Since a monopoly has market power:

A. Its demand curve is upward sloping.
B. Its marginal revenue curve is below its demand curve.
C. It must hold price constant in order to sell an additional unit of output.
D. Its costs of production are minimal.
Unlike a competitive producer whose marginal revenue, average revenue and price are the same
and flat, the monopolist sees the downward sloping market demand curve (average revenue) and
since it is falling the marginal (additional) revenue must be below the average revenue.

Blooms: Analyze
Difficulty: 3 Hard
19. The change in total revenue that results from a one-unit increase in quantity sold is:
A. Marginal cost.
C. Marginal profit.
D. Total revenue.
The change in total revenue that results from the sale of one additional unit of the firm’s product.
AACSB: Analytic
Blooms: Remember
Learning Objective: 07-02 Explain why price exceeds marginal revenue in monopoly.
20. For a monopolist, marginal revenue is:

A. Equal to price, just as it is for a perfectly competitive firm.
B. Constant up to the rate of output that maximizes total revenues.
C. Always less than price, after the first unit.
D. The same as the demand curve.
If every unit could be sold at the same price marginal revenue would equal average revenue
(price) but since the demand curve is downward sloping the marginal revenue must lie below the
average revenue curve.

Blooms: Understand
21. In order to sell one additional unit of output, a profit-maximizing monopolist must:
A. Increase the size of its factory.
7-6
B. Reduce marginal cost.
C. Increase marginal revenue.
D. Reduce the price of all units sold.
Since the monopolist faces a downward sloping demand curve only by reducing the price will
the quantity demanded increase.

Blooms: Understand
22. For a monopolist, after the first unit of output, marginal revenue is always:
A. Constant.
B. Increasing.
C. Less than price.
D. Greater than marginal cost.
Since a monopolist faces a downward sloping demand curve it must reduce the price in order to
sell more quantity which means that the additional revenue of each additional unit will be less
the previous unit.

Blooms: Understand
23. The marginal revenue of a monopolist is:

A. Less than price because a monopolist is a price taker.
B. Less than price because to sell more output the firm must reduce the price on all units sold.
C. Above price because the firm is a price setter.
D. Always equal to price.
Since a monopolist must reduce the price of all units sold in order to sell one more unit, the
additional (marginal) revenue must fall.

Blooms: Analyze
Difficulty: 3 Hard
24. Suppose a monopoly firm produces software and can sell 10 items per month at a price of
$50 each. In order to increase sales by one item per month, the monopolist must lower the price
of its software by $1 to $49. The marginal revenue of the 11th item is:
A. $1.
B. $39.
C. $49.
7-7
D. $50.
Marginal revenue is defined as the change in total revenue ($539 - $500) divided by the one
additional unit.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
25. Suppose a monopoly firm produces a medical device and can sell 15 items per month at a
price of $2,000 each. In order to increase sales by one item per month, the monopolist must
lower the price of its medical device by $100 to $1,900. The marginal revenue of the 16th item
is:
A. $100.
B. $400.
C. $1,900.
D. $2,000.
Marginal revenue is defined as the change in total revenue ($30,400 - $30,000) divided by the
one additional unit.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
26. Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions
for $25 each. In order to sell 101 prescriptions, the monopolist must lower the price to $24 per
prescription. The marginal revenue of the 101st prescription is:
A. -$76.
B. $24.
C. $25.
D. $2424.
Marginal revenue is defined as the change in total revenue ($2,424 - $2,500) divided by the one
additional unit.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
27. Which of the following is true for a monopolist?

A. It is a price taker.
B. Profit is maximized where marginal cost equals marginal revenue.
C. The firm faces a horizontal or flat demand curve.
7-8
D. It will earn zero economic profit in the long run.
As with all firms in all market structures profit is maximized where marginal revenue equals
marginal costs.

Blooms: Understand
Learning Objective: 07-03 Describe how a monopoly sets output and price.
Topic: MONOPOLY BEHAVIOR
28. Which of the following do a monopolist and a competitive firm have in common?
A. Predatory pricing.
B. Barriers to entry.
C. Marginal cost pricing.
D. Profit-maximization rule.
As with all firms in all market structures profit is maximized where marginal revenue equals
marginal costs.

Blooms: Understand
29. Why would a monopolist never set a price on a point in the inelastic portion of the demand
curve?
A. Marginal revenue would be negative and therefore well below the marginal cost curve.
B. The point where marginal revenue equals marginal cost would be below the shutdown point.
C. The demand curve would be below the average total cost curve.
D. The monopolist would be operating at a loss.
Since marginal cost is positive and a firm wants to operate where marginal revenue equals
marginal cost that intersection would have to be before the point where marginal revenue was
negative.

Blooms: Evaluate
Difficulty: 3 Hard
30. If the price is $10 and marginal revenue equals marginal cost at $7 at a quantity of 400 lbs. If
the firm’s profit at that point is $800, find the average total cost.
A. $7
B. $8
C. $9
D. $10
7-9
If MC = MR at 400lbs then total revenue would be $10 times 400lbs or $4,000. So if at that point
the firm’s profit was $800 then that total cost would be $3,200 and the average total cost $8.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
31. A monopolist sets price at a point on the _______ curve, corresponding to the rate of output
determined by the intersection of _______.
A. Demand; marginal revenue and marginal cost.
B. Marginal revenue; marginal revenue and marginal cost.
C. Average total cost; price and marginal cost.
D. Demand; average total cost and marginal cost.
Maximum profit is at the point where marginal revenue equals marginal cost and the profit per
unit would be the difference between the price and the average total cost.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
32. A monopolist sets its price:

A. Below the demand curve.
B. Without constraints since there is no competition.
C. At the rate of output where marginal revenue equals marginal cost.
D. At the minimum of the long-run average total cost curve.
AACSB: Analytic
Blooms: Understand
33. The price charged by a profit-maximizing monopolist occurs at:

A. The minimum of the average total cost curve.
B. The price where marginal cost equals marginal revenue.
C. A price on the demand curve above the intersection where marginal revenue equals marginal
cost.
7-10
D. A price on the average cost curve below the point where marginal revenue equals marginal
cost.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
34. In terms of pricing, which of the following is not true for a monopolist?
A. In the long-run economic profit is impossible.
B. Marginal revenue is always less then the price charged.
C. If marginal revenue is greater then marginal cost increasing output will increase profits
(decrease loss).
D. Maximum profit (minimum loss) occurs where marginal revenue equals marginal cost.
Since a monopolist is protected from outside competition economic profits are possible in the
long-run.

Blooms: Understand
35. Which of the following is true for a monopoly?

A. The intersection of total revenue and total cost establishes the profit-maximizing rate of
output.
B. The demand curve indicates the highest price consumers are willing to pay for the rate of
output.
C. Several different prices are compatible with the profit-maximizing rate of output.
D. The total revenue curve indicates the highest price consumers are willing to pay for the rate of
output.
Maximum profit is at the point where marginal revenue equals marginal cost and the price on the
demand curve would be the highest price at that level of output.
AACSB: Analytic
Blooms: Understand
36. Total profit can be calculated as:

A. Average total cost multiplied by price.
B. Total revenue divided by the quantity sold.
C. The difference between price and average total cost multiplied by the quantity sold.
7-11
D. Price and average total cost added together and then multiplied by the quantity sold.
Since the price is equal to the average revenue then the profit is the difference between the
average revenue minus the average cost times the units sold.
AACSB: Analytic
Blooms: Understand
37. For a monopoly in long-run equilibrium, economic profits are likely to be:
A. Greater than zero.
B. Zero.
C. Less than zero.
D. Predatory.
Since a monopoly will operate at a point where marginal revenue equals marginal cost and at this
point the average revenue will be greater than the average cost, the firm will experience
economic profit and without competition is likely to not change.
AACSB: Analytic
Blooms: Understand
38. A monopolist:
A. Maximizes profit at the output where price equals marginal cost.
B. Charges a higher price than a competitive firm, ceteris paribus.
C. Is a price taker since it has market power.
D. Cannot earn an economic profit in the long run
Barriers to entry allow a monopolist to charge a higher price and thereby earn an economic
profit.
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-04 Illustrate how monopoly and competitive outcomes differ.
Topic: BARRIERS TO ENTRY
39. Which of the following statements is true, assuming the same cost and demand conditions?
A. A monopoly produces less output than a competitive firm.
B. A monopoly cannot earn an economic profit in the long run.
C. A monopoly charges a lower price than a competitive firm.
D. A monopoly maximizes profit where price equals marginal cost.
7-12
Since a monopolist demand curve is downward sloping whereas a firm in a competitive market is
flat, the marginal revenue curve for a monopolist will intersect with the marginal cost curve
sooner and therefore the monopolist will charge a higher price and produce a lower quantity.

Blooms: Analyze
Difficulty: 3 Hard
40. A monopoly realizes larger profits than a comparable competitive market by charging a
_______ price and producing _______ output.
A. Higher; the same level of
B. Higher; more
C. Lower; more
D. Higher; less
Since a monopolist demand curve is downward sloping whereas a firm in a competitive market is
flat, the marginal revenue curve for a monopolist will intersect with the marginal cost curve
sooner and therefore the monopolist will charge a higher price and produce a lower quantity.
AACSB: Analytic
Blooms: Understand
41. Obstacles that make it difficult or impossible for would-be producers to enter a market are
known as:
A. Barriers to entry.
B. Monopoly profits.
C. Entry blockades.
D. Entry tariffs.
Anything that artificially prevents the entry of firms into an industry is called barriers to entry.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
42. Which of the following is not true about barriers to entry?

A. They allow a firm to control or restrict the amount of goods supplied in the market.
B. They allow a firm to earn economic profit in the long run.
C. They cause price to be lower and output higher than if they didn't exist.
D. They make it difficult for potential producers to enter a given market.
Barriers to entry restricts competition and therefore tend to cause the price to be higher and
output lower than what otherwise might be.
7-13
AACSB: Analytic
Blooms: Understand
43. Under both monopoly and perfect competition, a firm

A. a price taker.
B. a price maker.
C. operates where marginal revenue equal marginal cost.
D. will in the long-run earn economic profits.
The point where marginal revenue equals marginal cost will yield the largest profit for a firm.
AACSB: Analytic
Blooms: Understand
44. Which of the following is not an effective barrier to entry?

A. Low capital requirements.
B. Exclusive licensing.
C. Patent Protection.
D. Threat of entry.
Low capital requirements make it easier for a firm to enter a market.

Blooms: Understand
45. Which of the following helps to keep potential competitors out of a monopoly market?
A. Bundled products.
B. The profit motive.
C. Rising average total costs.
D. A high price for the good.
Bundled products are an effective barrier to entry because it forces a firm to introduce all of the
products instead of just one which means a higher entry (fixed) cost.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
46. Which of the following is not a barrier to entry into a monopoly market?
A. The exclusive right to produce a good.
7-14
B. The existence of substitute goods.
C. Legal action against new firms that enter the market.
D. A patent on important technology.
The presence of substitute goods in an industry insures competition.
AACSB: Analytic
Blooms: Understand
47. Which of the following is not a barrier to entry into a monopoly market?
A. A patent.
B. Economic profits.
C. Exclusive licensing.
D. A government franchise.
Economic profits are what a firm can expect as a consequence of barriers of entry.

Blooms: Understand
48. As noted in the text, which of the following allowed Polaroid to win the monopoly power
battle with Kodak?
A. A government franchise.
B. Natural monopoly.
C. A patent.
D. Exclusive licensing.
A federal judge finally concluded that Kodak had violated Polaroid’s patent rights.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
49. Which of the following practices is Microsoft accused of using to restrict competition?
A. The threat of legal action.
B. Bundling products.
C. Exclusive licensing.
D. Government franchises.
Bundling products such as Microsoft Employer and Office with Windows allowed Microsoft to
provide them to consumers for free so that other firms could not compete with those products.
7-15
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
50. As noted in the text, which of the following was used by Nintendo to control the video game
market?
A. A natural monopoly.
B. Economies of scale.
C. A government franchise.
D. Exclusive licensing.
Nintendo forbade game creators from writing software for competing firms which made it
difficult for potential competitors to acquire the factors of production.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
51. As noted in the text, which of the following protects the U.S. Postal Service as the provider
of first-class mail?
A. A government franchise.
B. A patent.
C. Marginal cost pricing.
D. Predatory pricing.
A government franchise is an effective barrier to entry.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
52. Which of the following is consistent with a competitive industry?

A. Marginal cost pricing.
B. High barriers to entry.
C. Economic profit in the long run.
D. Production and supplies are constrained.
In the short-run for a competitive firm the marginal cost curve determines output.
AACSB: Analytic
Blooms: Understand
Topic: COMPARATIVE OUTCOMES
53. Which of the following is similar for both a competitive industry and a monopoly?
7-16
A. The level of economic profits in the long run.
B. Continuous pressure to improve product quality.
C. Profits signal consumers' demand for more output.
D. In the long run, average total costs are minimized.
For a market system profits (or lack of) dictate the use of resources and the mix of output that
consumers want.

Blooms: Understand
54. In comparison to a competitive industry how is a monopoly different?

A. High prices and profits signal consumers’ demand for more output.
B. Firms try to operate where marginal cost equals marginal revenue.
C. The product is standardized or unique.
D. During price adjustments price equals marginal cost throughout the process.
Since a monopolist can view the downward sloping demand curve price must exceed marginal
cost because marginal cost will equal marginal revenue.

Blooms: Understand
55. Which of the following is consistent with a monopoly industry?

A. There are many firms.
B. Barriers to entry keep potential competitors out of the market.
C. There is pressure to reduce costs and improve product quality.
D. Zero economic profit in the long run.
Barriers to entry insure that the firm will remain a monopoly.
AACSB: Analytic
Blooms: Understand
56. Which of the following is not consistent with a monopoly industry?

A. Production and supplies are constrained.
B. Barriers to entry keep potential competitors out of the market.
C. There is no pressure to reduce costs or improve product quality
D. Many firms produce identical or similar products.
Many firms that produce identical or similar products is a characteristic of a competitive market.
7-17
AACSB: Analytic
Blooms: Understand
57. Compared to a competitive market with the same long-run costs and market demand, a
monopolist has:
A. Less pressure to reduce costs and less incentive to improve quality.
B. Less pressure to reduce costs and more incentive to improve quality.
C. More pressure to reduce costs and less incentive to improve quality.
D. More pressure to reduce costs and more incentive to improve quality.
Since a monopoly has a guaranteed market it tends to maintain the status quo.

Blooms: Understand
58. Which of the following does not have the power to set prices?
A. A duopoly.
B. A monopoly.
C. An oligopoly.
D. A perfect competitor.
Since a perfect competitor exists with many firms producing identical products it must accept the
market price.

Blooms: Remember
Difficulty: 1 Easy
59. Suppose two firms dominate a market and control price and output. This type of market is
called:
A. A duopoly.
B. A monopoly.
C. Monopolistically competitive.
D. An oligopoly.
A duopoly is a special form of an oligopoly in which two firms control the market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
60. Suppose a market is dominated by three firms. This type of market is called:
7-18
A. Perfect competition.
B. A monopoly.
C. Monopolistic competition.
D. An oligopoly.
An oligopoly is a market that is dominated by a small number of firms.

Blooms: Remember
Difficulty: 1 Easy
61. The market structure of the U.S. soft drink industry is most likely:
A. Perfectly competitive.
B. A monopoly.
D. An oligopoly.

Blooms: Understand
62. Which market structure is characterized by a few interdependent firms?

A. Monopolistic competition.
B. Oligopoly.
C. Monopoly.
D. Perfect competition.

Blooms: Remember
Difficulty: 1 Easy
63. Suppose a market has many firms and each firm has some brand image. This type of market
is called:
A. Duopoly.
B. Monopoly.
C. Monopolistic competition.
D. Oligopoly.
Since each firm has some brand image it is able to have some control over price.
7-19
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
64. A market made up of many firms, each of which has some distinct brand image, is called:
A. A price-setting market.
B. A monopolistically competitive market.
C. A perfectly competitive market.
D. An oligopoly.
Monopolistically competitive firms place considerable emphasis on advertising, brand names

and trademarks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
65. The market structure of the U.S. fast food industry is most likely:
A. Perfectly competitive.
B. A monopoly.
D. An oligopoly.
The fast food industry is a good example of using non-price competition through the use of
advertising, brand names and trademarks.

Blooms: Understand
66. Firms that have significant market power tend to:

A. Produce at minimum average total costs.
B. Pursue cost reductions.
C. Pursue product improvements.
D. Inhibit economic growth.
Firms with significant market power tend to like the status quo.

Blooms: Remember
Learning Objective: 07-05 Discuss the pros and cons of monopoly structures.
67. Marginal cost pricing refers to the:

A. Offer of goods at prices equal to their marginal cost.
7-20
B. Sale of goods at the highest possible price.
C. Rate of output at which marginal cost equals marginal revenue.
D. Offer of goods at a price above marginal cost.
For a competitive firm the supply curve is the marginal cost curve and a firm will always try to
operate at a point where marginal revenue (price) equals marginal cost.
AACSB: Analytic
Blooms: Understand
68. Which of the following is an advantage of the competitive market structure?

A. Competitive firms have greater ability to pursue research and development.
B. Larger companies can produce goods more efficiently than smaller firms.
C. Competitive firms practice marginal cost pricing.
D. Competitive firms make better use of economies of scale.
For a competitive firm the supply curve is the marginal cost curve and a firm will always try to
operate at a point where marginal revenue (price) equals marginal cost.

Blooms: Understand
69. In which of the following industries is marginal cost pricing most likely?
A. Wheat.
B. Automobiles.
C. Breakfast cereals.
D. Computer software.
The more competitive the industry the more likely the firm will use marginal cost pricing
because the supply curve is the marginal cost curve and a firm will always try to operate at a
point where marginal revenue (price) equals marginal cost

Blooms: Understand
70. In which of the following industries is marginal cost pricing most likely?
A. Laundry detergent.
B. Toothpaste.
C. Air travel.
D. Corn.
7-21
The more competitive the industry the more likely the firm will use marginal cost pricing
because the supply curve is the marginal cost curve and a firm will always try to operate at a
point where marginal revenue (price) equals marginal cost

Blooms: Understand
71. Which of the following is an argument in support of monopolies?

A. They increase output and raise prices, contributing to greater consumption of scarce
resources.
B. They are protected from competition so they have greater ability to pursue research and
development.
C. They contribute to efficient production when there are diseconomies of scale.
D. They provide the economic profit necessary for survival and efficient production in a market.
One marginal argument in favor of monopolies is their ability to do research and development.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
Topic: ANY REDEEMING QUALITIES?
72. The argument that concentration of market power enhances research and development efforts
may be weak because:
A. Monopolies cannot afford basic research.
B. No one has attempted to gather any empirical evidence.
C. A monopoly may have no clear incentive to pursue new research and development.
D. No existing monopoly has a research and development program.
Monopolies tend to favor the status quo and so they may even impede research and development.

Blooms: Understand
73. An industry in which one firm can achieve economies of scale over the entire range of output
is referred to as:
A. A natural monopoly.
B. Perfectly competitive.
C. A neutral monopoly.
D. A contestable market.
Modern technology in some industries is such that economies of scale are extensive and this is
called a natural monopoly.
7-22
Blooms: Remember
Difficulty: 1 Easy
74. If an increase in the size of a factory results in reductions in minimum average costs, this is
known as:
B. Diminishing marginal returns.
C. Rising average total cost.
D. Economies of scale.
called a natural monopoly
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
75. Which of the following is an argument in support of market power?

B. Economies of scale.
C. Price fixing.
D. Predatory pricing.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
76. In some situations a monopoly might be considered more desirable than a perfectly
competitive firm:
A. Because a monopoly has more incentive to keep costs down.
B. Because a monopoly is the best way to increase output above the competitive level of
production.
C. If economies of scale exist and can only be realized by a single firm.
D. Since price is less than marginal revenue for a monopoly.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
7-23
77. A natural monopoly is a firm that:

A. Produces a large volume of output and drives out most of its competitors.
B. Can produce the entire market supply more efficiently than any number of smaller firms.
C. Has government assistance in erecting high barriers to entry.
D. Guarantees the lowest price for consumers.
AACSB: Analytic
Blooms: Understand
78. Consumers may not experience the benefits of economies of scale if a natural monopoly:
A. Raises price and fails to pass cost savings on to consumers.
B. Engages in marginal cost pricing.
C. Raises output beyond efficient levels.
D. Is regulated by the government.
One good reason for the regulation of monopolies is that they may raise the price or fail to pass
cost savings on to the consumers.

Blooms: Understand
79. A contestable market is:

A. A perfectly competitive market.
B. An imperfectly competitive situation with high barriers to entry.
C. An imperfectly competitive situation that is subject to entry.
D. A market with only one producer.
How contestable a market depends not so much on its structure as on entry barriers.
AACSB: Analytic
Blooms: Understand
80. Monopoly may not be a problem in contestable markets if:

A. The structure of a market is competitive.
B. Firms can exit from the market.
C. Antitrust regulations are enforced.
7-24
D. Potential competition exists.
If entry barriers are modest, a firm may enter the industry if the profits are very high.
AACSB: Analytic
Blooms: Understand
81. Carla’s Crop Dusting Service charges competitive prices even though it has no competition.
This is most likely because:
A. There are no economies of scale in the industry.
B. It operates in a contestable market.
C. It is a natural monopoly.
D. It exercises predatory pricing.
so long as Carla’s keeps prices competitive is can expect no competition.

Blooms: Understand
82. If you want to fly to Los Angeles, a place most airlines fly in and out of, the airline industry
is likely _____, but if you want to fly to a small town in Texas, where only one airline flies, the
airline industry is likely _____.
A. Competitive; duopolistic
B. Competitive; monopolistic
C. Monopolistic; competitive
D. Monopolistic; oligopolistic
The airline industry or any industry will act more competitively if conditions warrant it.

Blooms: Understand
Topic: POLICY PERSPECTIVES
83. Temporary price reductions designed to drive out competition are called:
B. Monopoly pricing.
C. Predatory pricing.
D. Price fixing.
A monopolist may use temporary price reductions to drive a firm out of the market or to
discourage a firm from entering the market.
7-25
AACSB: Analytic
Blooms: Understand
84. If American Airlines engages in predatory pricing, it might:

A. Lower fares when a new carrier enters the market and then raise fares as soon as the new
carrier gains sufficient business.
B. Raise fares when a new carrier enters the market and then lower fares once the new carrier
leaves the market.
C. Lower fares when a new carrier enters the market and then raise fares once the new carrier is
driven out of business.
D. Lower fares permanently once a new carrier enters the market in order to keep up in the
expanding airline industry.
A monopolist may use temporary price reductions to drive a firm out of the market or to
discourage a firm from entering the market.
AACSB: Analytic
Blooms: Understand
85. Table 7.1—Monopoly costs and revenue
In Table 7.1, profit maximization is achieved at a production rate of:
A. 1 plane per month.

B. 2 planes per month.
C. 3 planes per month.
D. 4 planes per month.
So long as the additional revenue is greater than the additional cost the firm’s profit will increase
AACSB: Analytic
Blooms: Understand
7-26
In Table 7.1, the maximum profit that can be achieved is:
A. $7 million per month.

B. $10 million per month.
C. $11 million per month.
D. $21 million per month.
The maximum profit will occur at the point where marginal revenue is just greater than or equal
to marginal cost.

Blooms: Understand
A monopolist achieves the most profitable rate of output by applying which of the following
rules?
A. Average variable cost equals price.

B. Average total cost equals price.
C. Marginal revenue equals marginal cost.
D. Average total cost and average variable cost are both at a minimum.
So long as marginal revenue is greater than marginal cost profit must increase.
7-27
Blooms: Understand
In Table 7.2, profit maximization is achieved at a rate of:
A. 1 unit of output.
B. 2 units of output.
C. 3 units of output.
D. 4 units of output.
At three units of output the additional revenue is $60 and the additional cost is $60 and so that
will be the point of maximum profit.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
In Table 7.2, using the profit-maximization rule, a monopolist will charge a price of:
A. $90.
7-28
B. $80.
C. $70.
D. $60.
At a price higher than $80 the additional revenue will be less than the additional cost.

Blooms: Understand
In Table 7.2, at the profit-maximizing rate of output, marginal cost is:
A. $50.
B. $60.
C. $70.
D. $80.
The change in cost between a price of $90 and a price of $80 is $60 which is equal to the
additional revenue.

Blooms: Understand
7-29
In Table 7.2, at the profit-maximizing rate of output, marginal revenue is:
A. $20.
B. $40.
C. $60.
D. $80.
At three units of output the marginal revenue is $60 which is equal to the marginal cost.

Blooms: Understand
92. The following table shows some costs and prices faced by a company that produces
submarines.
Table 7.3
7-30
In Table 7.3, profit maximization is achieved at a production rate of:
A. 1 submarine per year.

B. 3 submarines per year.
C. 4 submarines per year.
D. 5 submarines per year.
At a rate of three submarines per year the additional revenue is equal to the additional cost.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
submarines.
Table 7.3
In Table 7.3, a profit-maximizing monopolist will produce where:
A. Marginal cost equals marginal revenue.

B. Price equals marginal cost.
C. Total cost is minimized.
D. Total revenue is maximized.
At three units of output marginal cost equals marginal revenue and profits are maximized.
7-31
Blooms: Understand
submarines.
Table 7.3
In Table 7.3, at the profit-maximizing rate of output, marginal cost is equal to _____ and
marginal revenue is equal to _____.
A. $30 million; $90 million

B. $50 million; $50 million
C. $40 million; $70 million
D. $70 million; $30 million
At three units of output marginal cost equals marginal revenue and profits are maximized.

Blooms: Understand
submarines.
7-32
Table 7.3
In Table 7.3, at an output rate of 5 submarines per year, marginal revenue is equal to:
A. -$30 million.
B. $10 million.
C. $90 million.
D. $250 million.
If the firm increases output from 4 to 5 submarines per year the additional cost would be $90 and
the additional revenue would only be $10 resulting in a $10 million loss.

Blooms: Understand
submarines.
Table 7.3
7-33
In Table 7.3, at an output rate of 4 submarines per year, marginal revenue is equal to:
A. $30 million.
B. $60 million.
C. $70 million.
D. $240 million.
If the firm increases output from 3 to 4 submarines per year the additional cost would be $70 and
the additional revenue would be $30 resulting in profits dropping by the difference or $40.

Blooms: Understand
97. Figure 7.1
7-34
In Figure 7.1, the profit-maximizing level of output for a monopolist is:
A. 2 units.
B. 3 units.
C. 4 units.
D. Between 3 and 4 units.
At 3 units of quantity demanded the market price would be $7 according to the demand schedule.
Refer To: Figure 7.1

Blooms: Apply
Difficulty: 3 Hard
7-35
98. Figure 7.1
In Figure 7.1, the price charged by a profit-maximizing monopolist is:
A. $5.00.
B. $7.00.
C. $9.00.
D. Between $6.00 and $7.00.
At 3 units of quantity demanded the market price would be $7 according to the demand schedule.

Blooms: Apply
Difficulty: 3 Hard
99. Figure 7.1

7-36
In Figure 7.1, at the profit maximizing level of output for a monopolist, marginal cost is:
A. $5.00.
B. $7.00.
C. $9.00.
At 3 units of output the marginal cost would equal the marginal revenue of $5. Refer To: Figure
7.1

Blooms: Apply
Difficulty: 3 Hard
100. Figure 7.1

7-37
In Figure 7.1, if this industry is competitive, the profit-maximizing level of output is:
A. 2 units.
B. 3 units.
C. 4 units.
If this industry was competitive then all of the firms would see a flat demand curve at the market
price of between $6 and $7 and produce a collective output of between 3 and 4 units. Refer To:
Figure 7.1

Blooms: Apply
Difficulty: 3 Hard
101. Figure 7.1
7-38
In Figure 7.1, if this industry is competitive, the profit-maximizing price is:
A. $5.00.
B. $7.00.
C. $9.00.
price of between $6 and $7 and produce a collective output of between 3 and 4 units.

Blooms: Apply
Difficulty: 3 Hard
7-39
102. Figure 7.2
A. 3 units.
B. 4 units.
C. Between 3 and 4 units.
At 3 units of output marginal revenue is equal to marginal cost and profit is maximized.

Blooms: Apply
Difficulty: 3 Hard
103. Figure 7.2

7-40
A. $9.00.
B. $10.00.
C. $10.50.
D. $11.00.
Marginal revenue and marginal cost are equal at an output of 3. Plugging 3 into the demand
equation gives a price of $11. Refer To: Figure 7.2

Blooms: Apply
Difficulty: 3 Hard
104. Figure 7.2
7-41
A. $9.00.
B. $10.00.
C. $10.50.
D. $11.00.
At an output of 3 marginal revenue and the marginal cost are both $9 and so profit is maximized
for a monopolist. Refer To: Figure 7.2

Blooms: Apply
Difficulty: 3 Hard
105. Figure 7.2
7-42
In Figure 7.2, profit per unit for a profit-maximizing monopolist is closest to:
A. $1.00.
B. $3.50.
C. $7.50.
D. $8.00.
The profit per unit would be the difference between the market demand curve and the average
total cost curve of about $3.50. Refer To: Figure 7.2

Blooms: Apply
Difficulty: 3 Hard
106. Figure 7.2
7-43
In Figure 7.2, if this industry is competitive, the profit-maximizing level of output is:
A. 3 units.
B. 4 units.
C. Between 3 and 4 units.
price of between $10 and $11 and collectively produce an output of between 3 and 4 units. Refer
To: Figure 7.2

Blooms: Apply
Difficulty: 3 Hard
107. Figure 7.2
7-44
A. $9.
B. $11.
C. Between $9 and $10.
D. Between $10 and $11.
price of between $10 and $11 and collectively produce an output of between 3 and 4 units.

Blooms: Apply
Difficulty: 3 Hard
108. Figure 7.3
7-45
A. 3 units.
B. 4 units.
C. 5 units.
D. 6 units.
At 4 units of output (where MR=MC) the price as determined by the market demand curve
would be $9. Refer To: Figure 7.3

Blooms: Apply
Difficulty: 3 Hard
109. Figure 7.3
7-46
A. $6.
B. $7.
C. $8.
D. $9.
At 4 units of output (where MR=MC) the price as determined by the market demand curve
would be $9. Refer To: Figure 7.3

Blooms: Apply
Difficulty: 3 Hard
110. Figure 7.3
7-47
A. $6.
B. $7.
C. $8.
D. $9.
Marginal cost is equal to marginal revenue at an output of 4 where marginal cost is $6. Refer To:
Figure 7.3

Blooms: Apply
Difficulty: 3 Hard
111. In Figure 7.3, profit per unit for a profit-maximizing monopolist is:
A. $3.
B. $6.
C. $7.
D. $9.
The profit per unit would be the difference between the market price and the average total cost
where the marginal revenue is equal to the marginal cost. Refer To: Figure 7.3

Blooms: Apply
Difficulty: 3 Hard
7-48
112. In Figure 7.3, if this industry is competitive, the profit-maximizing level of output is:
A. 3 units.
B. 4 units.
C. 5 units.
D. 6 units.
price of $8 and would collectively produce an output of 5 units. Refer To: Figure 7.3

Blooms: Apply
Difficulty: 3 Hard
113. Figure 7.3
A. $6.
B. $7.
C. $8.
D. $9.
price of $8 and collectively produce an output of 5 units. Refer To: Figure 7.3
7-49
Blooms: Apply
Difficulty: 3 Hard
114. A text NEWSWIRE article about Microsoft reported: "Microsoft mounted a deliberate
assault upon entrepreneurial efforts that…could well have prevented the introduction of
competition…" This passage suggests that Microsoft was able to erect barriers to entry and
behave like:
A. A perfectly contestable market.
B. A perfectly competitive market.
C. A natural monopoly.
D. A monopoly.
A monopoly will attempt to erect barriers to entry to keep firms out of the market.

Blooms: Analyze
Difficulty: 3 Hard
115. A NEWSWIRE article in the text is titled "OPEC Keeps Output Target on Hold Despite
Weak Economy". When OPEC member nations work collectively to set their combined rate of
output, they are attempting to duplicate ______ outcomes.
A. Monopoly
B. Perfect competition
C. Monopolistic competition
D. Oligopoly
Oligopolies often attempt to collude so as to reap the benefits of a monopoly.

Blooms: Understand
116. A NEWSWIRE article in the text, titled "Music Firms Settle Lawsuit" discusses price fixing
by music companies and retailers. Which market structure is most likely to be successful in price
fixing?
A. Monopolistic competition but not perfect competition.
B. Perfect competition but not monopoly.
C. Oligopoly but not perfect competition.
D. Perfect competition but not monopolistic competition.
Since an oligopoly is composed of a small number of firms, it is easier to be successful in price

fixing.

7-50
Blooms: Understand
117. A monopolist has market power because it faces a downward-sloping demand curve.
TRUE
Unlike a firm operating in a competitive market the monopolist is able to adjust the quantity to
affect the market price.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
118. Although there are other pizza restaurants in town, Pecos' Pizza Place is the oldest and
largest so it is a monopoly.
FALSE
Pecos’ Pizza Place is likely operating in a monopolistic competitive industry.
AACSB: Analytic
Blooms: Understand
119. The demand curve for a monopolist's product is the same as the market demand curve for
the product.
TRUE
Since a monopolist’s is the only firm in the market the firm’s demand curve is the same as the
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
120. Marginal revenue is the additional revenue from producing one more unit of output.
TRUE
The change in total revenue that results from one additional unit of output.
AACSB: Analytic
7-51
Blooms: Remember
Difficulty: 1 Easy
121. The marginal revenue curve for a monopolist is greater than the price because the
monopolist faces a downward sloping demand curve for its product.
FALSE
The marginal revenue curve for a monopolist is always less than the price because with each
additional unit of output the marginal revenue is declining which results from the downward
sloping market demand curve.
AACSB: Analytic
Blooms: Understand
122. For a monopoly a firms’ marginal revenue is always equal to price.
FALSE
With pure competition a firm faces a horizontal demand curve which means that both the
marginal revenue and price are horizontal however the monopolist is in a market structure where
it is the only seller and so the additional revenue will always be less than the average revenue
(demand curve).
AACSB: Analytic
Blooms: Understand
123. According to the profit-maximization rule, a firm should produce at the rate of output where
marginal revenue equals marginal cost.
TRUE
At any point past the point where at a rate of output marginal revenue equals marginal cost the
additional revenue added will be less than the additional cost added and total profit will decline.
AACSB: Analytic
Blooms: Understand
124. For a monopoly, profits are maximized at the output level where price and marginal cost are
equal.
7-52
FALSE
For a monopoly profits are maximized at an output level where marginal revenue and marginal
cost are equal and the profit would equal the price minus average total cost multiplied by the
units of output.
AACSB: Analytic
Blooms: Understand
125. For both perfectly competitive and monopoly firms, price will exceed marginal cost at the
profit-maximizing output.
FALSE
All firms in any industry attempt to operate at a point where marginal revenue equals marginal
cost to maximize profits but for the perfect competitor price, which equals marginal revenue, will
equal marginal cost.

Blooms: Understand
126. In order to sell additional output, a monopolist must lower its price.
TRUE
Since the marginal utility of an additional unit declines a consumer will not purchase it unless the
price is lower.
AACSB: Analytic
Blooms: Understand
127. A monopolist produces more output at a lower price than a competitive market would,
ceteris paribus.
FALSE
A monopolist produces less output at a higher price than a competitive market would since its
marginal revenue curve crosses the marginal cost curve at a lower output.
AACSB: Analytic
Blooms: Understand
7-53
128. If a market changes from perfectly competitive to monopolistic, output will increase and the
price will decrease, ceteris paribus
FALSE
A monopolist produces less output at a higher price than a competitive market would since its
marginal revenue curve crosses the marginal cost curve at a lower output.

Blooms: Understand
129. Barriers to entry are obstacles that make it difficult or impossible for additional producers to
enter a market.
TRUE
Barriers to entry are an effective way to block all potential competition.

Blooms: Remember
Difficulty: 1 Easy
130. Barriers to entry are not strong enough to protect monopoly profits.
FALSE
Barriers to entry are an effective way to block all potential competition.

Blooms: Remember
Difficulty: 1 Easy
131. Patents, legal harassment, and bundling products are all examples of barriers to entry in
monopoly markets.
TRUE
7-54
There are a number of barriers to entry and patents, legal harassment, and bundling products are
examples.

Blooms: Remember
Difficulty: 1 Easy
132. Monopoly profits are an example of a barrier to entry in monopoly markets.
FALSE
Economic profits are a characteristic of a monopoly market.

Blooms: Remember
Difficulty: 1 Easy
133. In a competitive industry, barriers to entry prevent new suppliers from entering the market.
FALSE
A competitive industry is characterized by low barriers to entry.

Blooms: Remember
Difficulty: 1 Easy
134. For a profit-maximizing monopolist, price exceeds marginal cost at all times.
TRUE
For a profit maximizing firm marginal revenue must equal marginal cost in order to maximize
profits. For the monopolist, price, which is determined by demand, exceeds marginal revenue
and therefore marginal cost.
AACSB: Analytic
Blooms: Understand
135. In an oligopoly, one firm controls the entire market.
FALSE
An oligopoly is composed of a small number of firms

7-55
Blooms: Remember
Difficulty: 1 Easy
136. An oligopolist may decide to coordinate with others in the industry in order to maximize
profits.
TRUE
When oligopolies coordinate with one another in order to maximize profits, it is called collusion.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
137. In monopolistic competition there is more price-setting power than in perfect competition.
TRUE
In monopolistic competition considerable emphasis is placed on advertising, brand names and

trademarks in order to have more price-setting power.

Blooms: Remember
Difficulty: 1 Easy
138. Monopolies tend to inhibit technology and innovation by keeping competition out of the
market.
TRUE
In general monopolies prefer the status quo and do not want innovation to alter the
characteristics of the market.
AACSB: Analytic
Blooms: Understand
139. In order to survive the competition, monopolies must engage in research and design
activity.
FALSE
7-56
In general monopolies prefer the status quo and do not want innovation to alter the
characteristics of the market.
AACSB: Analytic
Blooms: Understand
140. Economies of scale occur when the long-run average cost curve slopes downward.
TRUE
One of the advantages of a monopoly is that it can accumulate large amounts of capital in order
to keep long-run average cost low.
AACSB: Analytic
Blooms: Understand
141. When there are economies of scale, a firm can simply increase capital and unit costs will
decline.
TRUE
One of the advantages of a monopoly is that it can accumulate huge amounts of capital in order
to keep long -run average cost low.
AACSB: Analytic
Blooms: Understand
142. A natural monopoly uses legal harassment and bundling of products to keep others out of
the market.
FALSE
A natural monopoly uses economies of scale to keep others out of the market.
AACSB: Analytic
Blooms: Understand
143. Even when a market appears to be a monopoly it can be contestable if there are many
potential entrants.
7-57
TRUE
Many times a firm will not use monopoly pricing power in order to keep competing firms out of
a market.
AACSB: Analytic
Blooms: Understand
144. Monopoly markets cannot be contestable since there is only one firm.
FALSE
Any market given enough time for technology to change is contestable.
AACSB: Analytic
Blooms: Understand
145. Why does a monopolist demand curve lie above the marginal revenue curve whereas in a
competitive market the demand curve and marginal revenue curve are equal? Would it be
possible that the marginal revenue curve and demand curve could ever be the same for a
monopolist?
Since to the monopolist the individual demand curve and the market demand curve are the same,
then the monopolist sees a downward sloping demand curve which means that the marginal
revenue must lie below the demand curve in order to bring it down. It would not be possible for
the curves to ever be the same because the demand curve depicts the relationship between
quantity and price and only when the price fell would quantity demanded increase so therefore
the marginal revenue curve would lie below the demand curve.
AACSB: Analytic
Blooms: Understand
146. List some of the barriers to entry for a monopolist. Explain how each barrier can preserve a
monopoly.
a) Barriers to entry are such things as patent protection, exclusive licensing and bundled
products. Other barriers to entry are economies of scale and high capital requirements to enter
the industry. The important point about barriers is that they make it difficult for a firm to enter an
industry. b) A patent is a legal protection from the government and is similar to exclusive
licensing that would be issued by another firm. Bundled products are used to force consumers to
use all of the firm’s products, not just the ones that they want. Some industries require huge
7-58
amounts of fixed capital to make it economically feasible to operate and some industries require
a large amount of capital just to enter.

Blooms: Understand
147. Use the following demand schedule for a monopolist to calculate total revenue, marginal
revenue and the price elasticity of demand between each price level. Using the information from
the schedule graph the demand curve, marginal revenue curve and the total revenue and identify
the portion of the demand curve that is elastic, and inelastic.
Instructions: Round your answers to two decimal places.
Price Elasticity of
Quantity Total Marginal
Price Demand
Demanded Revenue Revenue
$10.00 0 $0.00
900.00 19.00
9.00 100 900.00
700.00 5.67
8.00 200 1,600.00
500.00 3.00
7.00 300 2,100.00
100.00 1.86
6.00 400 2,400.00
-100.00 1.22
5.00 500 2,500.00
-300.00 0.82
4.00 600 2,400.00
-300.00 0.54
3.00 700 2,100.00
-500.00 0.33
2.00 800 1,600.00
-700.00 0.18
1.00 900 900.00
-900.00 0.05
0.00 1,000 0.00
7-59
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
148. List and explain some of the benefits of a monopoly? Will a monopolist always charge the
highest possible price?
a) Some of the benefits of a monopoly include research and development since it takes much
capital to fund and only a large company that does not have to worry about competition can
afford to do so. Also monopolies have the advantage of economies of scale in that a large
company can produce a standardized product at a low unit (average) cost.
b) A monopolist will not charge the highest price possible since as price rises quantity falls.
Additionally the firm seeks to maximize profit by setting MR=MC and charging the price
determined by demand. A higher or lower price would reduce profits.

Blooms: Understand
149. In the following industries explain what barriers to entry each has in order to allow it to be a
monopoly.
a) City of Eugene Water and Electric Board (EWEB)
b) Seattle Seahawks Football Team
c) U.S. Postal Service
EWEB has a government franchise and economies of scale, the Seattle Seahawks has an
exclusive license to operate and the Postal Service is also a government franchise with a
standardized service.

Blooms: Understand
150. If monopolies faced competition from other firms, then its demand curve would become
more horizontal.
7-60
TRUE
Competition will make the demand curve more elastic.

Blooms: Remember
Difficulty: 1 Easy
151. If a monopoly’s MR for a product is $25 and the MC is $18, the firm should do which of
the following?
A. Sell more output and lower the price
B. Sell less output and raise the price
C. Sell the current amount of output and do not change price
D. Sell more output but do not change the price
If MR>MC, the firm would be well advised to reduce the price of their product and increase
output until the optimal level of output occurs where MR=MC. The monopoly will maximize its
profits by doing so.
AACSB: Analytic
Blooms: Understand
152. If the market price is $65, MC - $35, MR = $35 and ATC = $39, the monopolist will:
A. operate at a loss
B. operate at a profit
C. have zero profits
D. have zero profits
If the monopolist produces the quantity where MR = MC and if Price > ATC, then the
monopolist will operate at a profit.
AACSB: Analytic
Blooms: Remember
153. Compared to perfect competition, the monopoly will produce more output and charge a
higher price.
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FALSE
Monopolies have market power and no competition. It is not in their best financial interest to
over- produce and lower prices of their product.

Blooms: Understand
154. Explain why cartels resemble monopolies. Why would you not see the formation of cartels
in the perfectly competitive market?
Cartels collectively set their combined rate of output so to resemble a monopoly. There is too
much competition in perfectly competitive markets for "get together" and act a one company.

Blooms: Understand
155. Contrast the market of monopolistic competition with oligopolies.
Firms that are monopolistic competitive has limited market power whereas the oligopoly firm
has considerable market power. Oligopolistic firms recognize their mutual interest in higher
prices and profits. Because of competition, monopolistically competitively firms are unlikely to
agree to restricting quantities and increasing prices of their products.

Blooms: Understand
156. The demand curve facing a monopoly:

A. is equal to the industry demand curve.
B. is horizontal at the going market price.
C. is steeper than the industry demand curve.
D. is flatter than the industry demand curve.
The monopolists is the industry..

Blooms: Remember
Difficulty: 1 Easy
157. A major criticism of monopolies is that they

A. inhibit technological innovation.
7-62
B. limit consumption choices
C. experience economies of scale.
D. Both A and B are true.
Monpopolists have no incentive to innovate or offer more consumption choices because the have
no competition.
AACSB: Analytic
Blooms: Understand
158. Why do monopolies experience diminishing marginal returns as they increase output?
A. Price always equals marginal revenue for monopolies.
B. Monopolies must lower the price in order to increase quantity demanded.
C. They maximize profits at the rate of output where marginal revenue is greater than marginal
cost.
D. All of the above are correct.
Monopolies determine output at the point where MR = MC. However, they determine the price
at this output level from the demand curve. Even monopolists must be aware of the market
demand curve (and the law of demand) for their product.
AACSB: Analytic
Blooms: Understand
159. In 2009, European courts deemed Microsoft’s behavior monopolistic because it was
practicing:
A. legal harassment.
B. exclusive licensing.
C. bundling of products.
D. All of the above are true.
In 2009, European Union regulators required Microsoft to give consumers a choice of web
browsers.
AACSB: Analytic
Blooms: Understand
160. If a firm converts a previously competitive industry into a monopoly without any changes in
the cost curves, it will:
A. increase output and price to generate more profit.
B. reduce output and raise price to generate more profit.
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C. keep output the same but increase price to generate more profit.
D. reduce price and increase output to keep potential competitors from entering the industry.
Assuming equal costs, a monopolist produces a smaller output and charges a higher price than a
competitive industry.

Blooms: Understand
161. The market structure for the airline industry is determined by:
A. the number of carriers servicing a given route.
B. the fares charged by competing airlines.
C. the number of routes available.
D. the price charge for flights.
The number of carriers flying between two airports dictates the level of competition.
AACSB: Analytic
Blooms: Understand
162. When a monopoly operates in a contestable market:
A. it charges the same price as an ordinary monopoly.
B. it is unable to charge a price above cost without inducing entry by a rival firm.
C. it is able to form a cartel with the other large firms and charge prices considerably above cost.
D. Both A and B are true.
A contestable market is an imperfectly competitive industry subject to potential entry if prices or

profits increase
AACSB: Analytic
Blooms: Understand
163. Which of the following statements is true?

A. Competitive firms produce at the rate of output for which marginal revenue equals marginal
cost, but monopolists produce at a rate of output for which marginal revenue is greater than
marginal cost.
B. The competitive price is usually higher than the monopoly price.
C. Both the monopolist and the competitive firm operate at the rate of output for which marginal
revenue equals marginal cost.
7-64
D. Monopolistic theory has no relevance to the real world.
The profit-maximizing is the same for both market structures: Produce the rate of output where
marginal revenue equals marginal cost. .

Blooms: Understand
164. If firms are earning positive economic profits:

A. entry would tend to erode those profits in competitive industries but not in monopolistic
industries.
B. BARRIERS TO ENTRY would permit those profits to persist.
C. firms must be producing where marginal revenue equals marginal cost, regardless of industry
structure.
D. All of the above statements are true.
All of the above are true given the existence of positive economic profits.
AACSB: Analytic
Blooms: Understand
165. Marginal revenue is the:

A. additional revenue from selling one more of a good.
B. change in profits from a one-unit increase in the quantity sold.
C. extra money received when the least important goods are sold.
D. All of the above are true.
All of these describe marginal revenue, the extra revenue from selling one more good.

Blooms: Remember
Difficulty: 1 Easy
166. Which of the following is not an example of a natural monopoly?

A. Local telephone service
B. Cable TV
C. Public utilities
D. Agriculture
Agriculture is an example of perfect competition.

Blooms: Remember
Difficulty: 1 Easy
7-65
167. An industry structure with many firms, each of which has some distinct brand image, is
called:
A. monopoly.
B. competition.
C. monopolistic competition.
D. oligopoly.
Monopolistic competition emphasizes product differentiation.

Blooms: Remember
Difficulty: 1 Easy
168. Drug companies are willing to spend millions of dollars on developing new drugs because
A. their research will drive their competitors out of business.
B. they can patent the new drug and have a monopoly on its production and sale.
C. they can raise the prices on older drugs whose patents have expired.
D. they can produce unlimited quantities of the new drug.
Patents grant temporary monopolies, so drug manufactures are willing to invest is research and
development of a new drug from which they will be the sole supplier. A patent is a government
grant of exclusive ownership of an innovation.
AACSB: Analytic
Blooms: Understand
169. How do monopolists set the output level and price for their products?
A. Output at the market equilibrium quantity; price at market equilibrium price
B. Output at MR = MC; price at market equilibrium price
C. Output at market equilibrium quantity; price at MR = MC
D. Output at MR = MC; price on demand curve
The rate of output is set at MC=MR. Price is determined on the demand curve at the highest
price consumers are willing to pay for that level of output.
AACSB: Analytic
Blooms: Understand
170. A natural monopoly achieves _____ over the entire range of market supply.
A. higher costs
7-66
B. cost inefficiencies
C. economies of scale
D. maximum profits
A natural monopoly achieves economies of scale "naturally".
AACSB: Analytic
Blooms: Understand
Chapter 07_Test Bank Summary
Category # of Questions
AACSB: Analytic 86
AACSB: Reflective Thinking 82
Accessibility: Keyboard Navigation 139
Blooms: Analyze 16
Blooms: Apply 19
Blooms: Evaluate 1
Blooms: Remember 39
Blooms: Understand 95
Difficulty: 1 Easy 35
Difficulty: 2 Medium 98
Difficulty: 3 Hard 35
Learning Objective: 07-01 Define what a monopoly is. 30
Learning Objective: 07-
13
02 Explain why price exceeds marginal revenue in monopoly.
Learning Objective: 07-03 Describe how a monopoly sets output and price. 45
Learning Objective: 07-
55
04 Illustrate how monopoly and competitive outcomes differ.
Learning Objective: 07-05 Discuss the pros and cons of monopoly structures. 27
Topic: ANY REDEEMING QUALITIES? 21
Topic: BARRIERS TO ENTRY 25
Topic: COMPARATIVE OUTCOMES 29
Topic: MONOPOLY BEHAVIOR 20
Topic: MONOPOLY STRUCTURE 40
7-67
Topic: POLICY PERSPECTIVES 35
7-68
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RELATIONS OF TREES TO WATER.
There is a spot which I used to visit some years ago, that seemed to
me one of the most enchanting of natural scenes. It was a level plain
of about ten acres, surrounded by a narrow stream that was fed by a
steep ridge forming a sort of amphitheatre round more than half its
circumference. The ridge was a declivity of near a hundred feet in
height, and so steep that you could climb it only by taking hold of the
trees and bushes that covered it. The whole surface consisted of a
thin stratum of soil deposited upon a slaty rock; but the growth of
trees upon this slope was beautiful and immense, and the water that
was constantly trickling from a thousand fountains kept the ground
all the year green with mosses and ferns, and gay with many varieties
of flowers. The soil was so rich in the meadow enclosed by this ridge,
and annually fertilized by the débris washed from the hills, that the
proprietor every summer filled his barns with hay, which was
obtained from it without any cultivation.
I revisited this spot a few years since, after a long period of
absence. A new owner, “a man of progress and enterprise,” had felled
the trees that grew so beautifully on the steep sides of this elevation,
and valley and hill have become a dreary and unprofitable waste. The
thin soil that sustained the forest, no longer protected by the trees
and their undergrowth, has been washed down into the valley,
leaving nothing but a bald, rocky surface, whose hideousness is
scarcely relieved by a few straggling vines. The valley is also ruined;
for the inundations to which it is subject after any copious rain
destroy every crop that is planted upon it, and render it
impracticable for tillage. It is covered with sand heaps; the little
stream that glided round it, fringed with azaleas and wild roses, has
disappeared, and the land is reduced to a barren pasture.
The general practice of the pioneers of civilization on this
continent was to cut down the wood chiefly from the uplands and the
lower slopes of the hills and mountains. They cleared those tracts
which were most valuable for immediate use and cultivation.
Necessity led them to pursue the very course required by the laws of
nature for improving the soil and climate. The first clearings were
made chiefly for purposes of agriculture; and as every farm was
surrounded by a rampart of woods, it was sheltered from the force of
the winds and pleasantly open to the sun. But when men began to fell
the woods to supply the demands of towns and cities for fuel and
lumber, these clearings were gradually deprived of their shelter, by
levelling the surrounding forest and opening the country to the
winds from every quarter. But the clearing of the wood from the
plains, while it has rendered the climate more unstable, has not been
the cause of inundations or the diminution of streams. This evil has
been produced by clearing the mountains and lesser elevations
having steep or rocky sides; and if this destructive work is not
checked by legislation or by the wisdom of the people, plains and
valleys now green and fertile will become profitless for tillage or
pasture, and the advantages we shall have sacrificed will be
irretrievable in the lifetime of a single generation. The same
indiscriminate felling of woods has rendered many a once fertile
region in Europe barren and uninhabitable, equally among the cold
mountains of Norway and the sunny plains of Brittany.
Our climate suffers more than formerly from summer droughts.
Many ancient streams have entirely disappeared, and a still greater
number are dry in summer. Boussingault mentions a fact that clearly
illustrates the condition to which we may be exposed in thousands of
locations on this continent. In the island of Ascension there was a
beautiful spring, situated at the foot of a mountain which was
covered with wood. By degrees the spring became less copious, and
at length failed. While its waters were annually diminishing in bulk,
the mountain had been gradually cleared of its forest. The
disappearance of the spring was attributed to the clearing. The
mountain was again planted, and as the new growth of wood
increased, the spring reappeared, and finally attained its original
fulness. More to be dreaded than drought, and produced by the same
cause,—the clearing of steep declivities of their wood,—are the
excessive inundations to which all parts of the country are subject.
If it were in the power of man to dispose his woods and tillage in
the most advantageous manner, he might not only produce an
important amelioration of the general climate, but he might diminish
the frequency and severity both of droughts and inundations, and
preserve the general fulness of streams. If every man were to pursue
that course which would protect his own grounds from these evils, it
would be sufficient to bring about this beneficent result. If each
owner of land would keep all his hills and declivities, and all slopes
that contain only a thin deposit of soil or a quarry, covered with
forest, he would lessen his local inundations from vernal thaws and
summer rains. Such a covering of wood tends to equalize the
moisture that is distributed over the land, causing it, when showered
upon the hills, to be retained by the mechanical action of the trees
and their undergrowth of shrubs and herbaceous plants, and by the
spongy surface of the soil underneath them, made porous by mosses,
decayed leaves, and other débris, so that the plains and valleys have
a moderate oozing supply of moisture for a long time after every
shower. Without this covering, the water when precipitated upon the
slopes, would immediately rush down over an unprotected surface in
torrents upon the space below.
Every one has witnessed the effects of clearing the woods and
other vegetation from moderate declivities in his own neighborhood.
He has observed how rapidly a valley is inundated by heavy showers,
if the rising grounds that form its basin are bare of trees and planted
with the farmer’s crops. Even grass alone serves to check the rapidity
with which the water finds its way to the bottom of the slope. Let it
be covered with bushes and vines, and the water flows with a speed
still more diminished. Let this shrubbery grow into a forest, and the
valley would never be inundated except by a long-continued and
flooding rain. Woods and their undergrowth are indeed the only
barriers against frequent and sudden inundations, and the only
means in the economy of nature for preserving an equal fulness of
streams during all seasons of the year.
At first thought, it may seem strange that the clearing of forests
should be equally the cause both of drought and inundations; but
these apparently incompatible facts are easily explained by
considering the different effects produced by woods standing in
different situations. An excess of moisture in the valleys comes from
the drainage of the hills, and the same conditions that will cause
them to be dried up at certain times will cause them to be flooded at
others. Nature’s design seems to be to preserve a constant moderate
fulness of streams and standing water. This purpose she
accomplishes by clothing the general surface of the country with
wood. When man disturbs this arrangement, he may produce evil
consequences which he had never anticipated. We are not, however,
to conclude that we may not improve the soil and climate by
changing the original condition of this wooded surface. The clearing
of the forest may be reduced to a science whose laws are as sure and
unexceptionable as those of mechanics and hydraulics. Though it has
not gained much attention from the public mind, it is well
understood by the learned who have made this branch of vegetable
meteorology their special study. Our danger lies in neglecting to
apply these laws to operations in the forest, and in preferring to
obtain certain immediate commercial advantages, at the risk of
inflicting evils of incalculable extent upon a coming generation.
THE LINDEN-TREE.
The Lime or Linden-tree is generally known among our

countrymen as the Bass, and was not, before the present century,
employed as a wayside tree. The old standards seen in our ancient
villages are European Limes. During the past thirty years the
American tree has been very generally planted by roadsides, in
avenues and pleasure-grounds, and few trees are more highly valued
in these situations. But the American has less beauty than the
European tree, which is clothed with softer foliage, has a smaller leaf,
and a neater and more elegant spray. Our native Lime bears larger
and more conspicuous flowers, in heavier clusters, but of inferior
sweetness. Both species are remarkable for their size and longevity.
The Lime in Great Britain is a tree of first magnitude, frequently
rising to the height of eighty or ninety feet, with a trunk of
proportional diameter. The American species is not inferior to it in
size or altitude. Some of the largest trees in Western New York are
Limes.
The Lime has in all ages been celebrated for the fragrance of its
flowers and the excellence of the honey made from them. The famous
Mount Hybla was covered with Lime-trees. The aroma from its
flowers is like that of mignonette; it perfumes the whole atmosphere,
though never disagreeable from excess, and is perceptible to the
inhabitants of all the beehives within the circuit of a mile. The Lime
is also remarkable for a general beauty of proportion, a bright
verdure contrasting finely with the dark-colored branches, and an
outline regular and symmetrical without formality. When covered
with leaves, it bears some resemblance in outward form to the maple,
but surpasses it, when leafless, in the beauty of its ramification. The
leaves are roundish heart-shaped, of a clear and lively green in
summer, but acquiring a spotted and rusty look in autumn, and
adding nothing to the splendors of that season. In the spring,
however, no tree of our forest displays a more beautiful verdure
before it acquires the uniform dark green of the summer woods.
The branches of the Lime have a very dark-colored surface,
distinguishing it from other trees that agree with it in size and
general appearance. The bark of the maple, for example, is light and
of an ashen-gray tint, and that of the poplars a sort of greenish clay-
color. This dark hue renders the spray of the Lime very conspicuous,
after a shower, and in spring, when all the leaves are of a light and
brilliant green; but these incidental beauties are not very lasting. The
branches, being alternate, are very minutely subdivided, and their
extremities neatly drawn inwards, so that in a denuded state it is one
of our finest winter ornaments. The spray of the beech is more airy,
that of the elm more flowing, and that of the oak more curiously
netted and interwoven; but the spray of the Lime is remarkable for
its freedom from all defect.
George Barnard, who, being a painter, looks upon trees as they are
more or less adapted to his own art, remarks:—
“When young, or indeed up to an age perhaps of sixty or seventy
years, the Lime has a formal appearance, with little variation in its
masses of foliage; but let some accident occur, such as the breaking
down of a large branch, or the removal of a neighboring tree, it then
presents a charming picture.”
One of the curiosities of the Lime-tree that deserves notice is a
certain winged appendage to the seed, which is a round nut about the
size of a pea. This is attached to a long stem, from the end of which,
joined to it obliquely, descends a ribbon-like bract, causing it, when
it falls, to spin round and travel a long distance upon the wind. If the
tree stands on the borders of a pond, where the seeds fall upon the
surface, this winged appendage performs the part of a sail, and
causes the seeds to be wafted to different points of the opposite
shore.
THE KALMIA.
The Kalmia, on account of its superficial resemblance to the green

bay-tree, often called the American laurel, is more nearly allied to the
heath. The name of Kalmia, which is more musical than many others
of similar derivation, was given to this genus of evergreen shrubs by
Linnæus, in honor of Peter Kalm, a distinguished botanist and one of
his pupils. This is exclusively an American family of plants,
containing only five species, three of which are natives of New
England soil and two of them among our most common shrubs.
THE MOUNTAIN LAUREL.
Not one of our native shrubs is so generally admired as the
Mountain Laurel; no other equals it in glowing and magnificent
beauty. But the “patriots” who plunder the fields of its branches and
flowers for gracing the festivities of the “glorious Fourth” will soon
exterminate this noble plant from our land. There are persons who
never behold a beautiful object, especially if it be a flower or a bird,
without wishing to destroy it for some selfish, devout, or patriotic
purpose. The Mountain Laurel is not so showy as the rhododendron,
with its deeper crimson bloom; but nothing can exceed the minute
beauty of its individual flowers, the neatness of their structure, and
the delicacy of their shades as they pass from rose-color to white on
different bushes in the same group. The flower is monopetalous,
expanded to a cup with ten angles and scalloped edges. “At the
circumference of the disk on the inside,” says Darwin, “are ten
depressions or pits, accompanied with corresponding prominences
on the outside. In these depressions the anthers are found lodged at
the time when the flower expands. The stamens grow from the base
of the corolla, and bend outwardly, so as to lodge the anthers in the
cells of the corolla. From this confinement they liberate themselves,
during the period of flowering, and strike against the sides of the
stigma.” This curious internal arrangement of parts renders the
flower very beautiful on close examination. The flowers are arranged
in flat circular clusters at the terminations of the branches.
We seldom meet anything in the forest more attractive than the
groups of Mountain Laurel, which often cover extensive slopes,
generally appearing on the edge of a wood, and becoming more
scarce as they extend into the interior or wander outwardly from the
border. But if we meet with an opening in the wood where the soil is
favorable,—some little sunny dell or declivity,—another still more
beautiful group opens on the sight, sometimes occupying the whole
space. The Mountain Laurel does not constitute the undergrowth of
any family of trees, but avails itself of the protection of a wood where
it can flourish without being overshadowed by it. In the groups on
the outside of the wood, the flowers are usually of a fine rose-color,
fading as they are more shaded, until in the deep forest we find them,
and the buds likewise, of a pure white. I am not acquainted with
another plant that is so sensitive to the action of light upon the color
of its flowers. The buds, except in the dark shade, before they
expand, are of a deeper red than the flowers, and hardly less
beautiful.
The Mountain Laurel delights in wet places, in springy lands on
rocky declivities where there is an accumulation of soil, and in
openings surrounded by woods, where the land is not a bog, but wet
enough to abound in ferns. In such places the Kalmia, with its bright
evergreen leaves, forms elegant masses of shrubbery, even when it is
not in flower. Indeed, its foliage is hardly less conspicuous than its
flowers. I believe the Kalmias are not susceptible of modification by
the arts of the florist. Nature has endowed them with a perfection
that cannot be improved.
THE LOW LAUREL, OR LAMBKILL.
The low Laurel, or small Kalmia, is plainly one of nature’s favorite
productions; for, the wilder and ruder the situation, the more
luxuriant is this plant and the more beautiful are its flowers. These
are of a deep rose-color, arranged in crowded whorls around the
extremities of the branches, with the recent shoot containing a tuft of
newly formed leaves surmounting each cluster of flowers. This plant,
though not celebrated in horticultural literature or song, is one of the
most exquisite productions of nature. Many other shrubs which are
more showy are not to be compared with this in the delicate
structure of its flowers and in the beauty of their arrangement and
colors. Of this species the most beautiful individuals are found on the
outer edge of their groups.
There has been much speculation about the supposed poisonous
qualities of this plant and its allied species. Nuttall thought its
flowers the source of the deleterious honey discovered in the nests of
certain wild bees. There is also a general belief that its leaves are
poisonous to cattle and flocks. But all positive evidence is wanting to
support any of these notions. The idea associated with the name of
this species is a vulgar error arising from a corruption of the generic
name, from which Lambkill may be thus derived,—Kalmia, Kallamia,
Killamia, Killam, Lambkill. There is no other way of explaining the
origin of its common English name. I have never been able to
discover an authentic account, and have never known an instance of
the death of a sheep or a lamb from eating the leaves of this plant. It
is an error having its origin in a false etymology; and half the notions
that prevail in the world with regard to the medical virtues and other
properties of plants have a similar foundation.
It is stated in an English manual of Medical Botany that the brown
powder that adheres to the petioles of the different species of Kalmia,
Andromeda, and Rhododendron is used by the North American
Indians as snuff.
KALMIA.
MOTIONS OF TREES.
While Nature, in the forms of trees, in the color of their foliage and
the gracefulness of their spray, has displayed a great variety of
outline and tinting, and provided a constant entertainment for the
sight, she has increased their attractions by endowing them with a
different susceptibility to motion from the action of the winds. In
their motions we perceive no less variety than in their forms. The
different species differ like animals; some being graceful and easy,
others stiff and awkward; some calm and intrepid, others nervous
and easily agitated. Perhaps with stricter analogy we might compare
them to human beings; for we find trees that represent the man of
quiet and dignified deportment, also the man of excited manners and
rapid gesticulations. Some trees, like the fir, having stiff branches
and foliage, move awkwardly backward and forward in the wind,
without any separate motions of their leaves. While we admire the
symmetrical and stately forms of such trees, we are reminded of men
who present a noble personal appearance, accompanied with
ungainly manners.
Some trees, having stiff branches with flexible leaves, do not bend
to a moderate breeze, but their foliage readily yields to the motion of
the wind. This habit is observed in the oak and the ash, in all trees
that have a pendulous foliage and upright or horizontal branches.
The poplars possess this habit in a remarkable degree, and it is
proverbial in the aspen. It is also conspicuous in the common pear-
tree and in the small white birch. Other trees, like the American elm,
wave their branches gracefully, with but little apparent motion of
their leaves. We observe the same habit in the weeping willow, and
indeed in all trees with a long and flexible spray. The wind produces
by its action on these a general sweeping movement without any
rustle. It is easy to observe, when walking in a grove, that the only
graceful motions come from trees with drooping branches, because
these alone are long and slender.
The very rapid motion of the leaves of the aspen has given origin to
some remarkable superstitions. The Highlanders of Scotland believe
the wood of this tree to be that of which the holy cross was made, and
that its leaves are consequently never allowed to rest. Impressed with
the awfulness of the tragedy of the crucifixion, they are constantly
indicating to the winds the terrors that agitate them. The small white
birch displays considerable of the same motion of the leaves; but we
take little notice of it, because they are softer and produce less of a
rustling sound. The flickering lights and shadows observed when
walking under these trees, on a bright noonday, have always been
admired. All these habits awaken our interest in trees and other
plants by assimilating them to animated things.
Much of the beauty of the silver poplar comes from its glittering
lights, when it presents the green upper surface of its foliage,
alternating rapidly with the white silvery surface beneath. This we
may readily perceive even in cloudy weather, but in the bright
sunshine the contrasts are very brilliant. In all trees, however, we
observe this glittering beauty of motion in the sunshine. The under
part of leaves being less glossy than the upper part, there is in the
assemblage the same tremulous lustre that appears on the rippled
surface of a lake by moonlight.
We observe occasionally other motions which I have not described,
such as the uniform bending of the whole tree. In a strong current of
wind, tall and slender trees especially attract our attention by
bending over uniformly like a plume. This habit is often seen in the
white birch, a tree that in its usual assemblages takes a plumelike
form. When a whole grove of white birches is seen thus bending over
in one direction from the action of a brisk wind, they seem like a
procession of living forms. In a storm we watch with peculiar interest
the bending forms of certain tall elms, such as we often see in
clearings, with their heads bowed down almost to the ground by the
force of the tempest. It is only the waves of the ocean and the tossing
of its billows that can afford us so vivid an impression of the
sublimity of a tempest as the violent swaying of a forest and the
roaring of the winds among the lofty tree-tops.
The motions of an assemblage of trees cannot be observed except
from a stand that permits us to look down upon the surface formed
by their summits. We should then perceive that pines and firs, with
all the stiffness of their branches, display a great deal of undulating
motion. These undulations or wavy movements are particularly
graceful in a grove of hemlocks, when they are densely assembled
without being crowded. It is remarkable that one of the most graceful
of trees belongs to a family which are distinguished by their stiffness
and formality. The hemlock, unlike other firs and spruces, has a very
flexible spray, with leaves also slightly movable, which are constantly
sparkling when agitated by the wind. If we look down from an
opposite point, considerably elevated, upon a grove of hemlocks
when they are exposed to brisk currents of wind, they display a
peculiar undulating movement of the branches and foliage, made
more apparent by the glitter of their leaves.
The surface of any assemblage of trees when in motion bears a
close resemblance to the waves of the sea. But hemlocks represent its
undulations when greatly agitated, without any broken lines upon its
surface. Other firs display in their motions harsher angles and a
somewhat broken surface of the waves. We see the tops of these trees
and their extreme branches awkwardly swaying backwards and
forwards, and forming a surface like that of the sea when it is broken
by tumultuous waves of a moderate height. The one suggests the idea
of tumult and contention; the other, that of life and motion
combined with serenity and peace.
THE TULIP-TREE.
The Tulip-tree is pronounced by Dr. Bigelow “one of the noblest

trees, both in size and beauty, of the American forest.” It certainly
displays the character of immensity,—a quality not necessarily allied
with those features we most admire in landscape. It is not very unlike
the Canada poplar, and is designated by the name of White Poplar in
the Western States. The foliage of this tree has been greatly extolled,
but it has the heaviness which is apparent in the foliage of the large-
leaved poplars, without its tremulous habit. The leaves, somewhat
palmate in their shape, are divided into four pointed lobes, the
middle rib ending abruptly, as if the fifth lobe had been cut off. The
flowers, which are beautiful, but not showy, are striped with green,
yellow, and orange. They do not resemble tulips, however, so much
as the flowers of the abutilon and althea.
This tree is known in New England rather as an ornamental tree
than as a denizen of the forest. Its native habitats are nearly the same
with those of the magnolia, belonging to an allied family. There is not
much in the proportions of this tree to attract our admiration, except
its size. But its leaves are glossy and of a fine dark green, its branches
smooth, and its form symmetrical. It is a tree that agrees very well
with dressed grounds, and its general appearance harmonizes with
the insipidity of artificial landscape. It is wanting in the picturesque
characters of the oak and the tupelo, and inferior in this respect to
the common trees of our forest.
THE MAGNOLIA.
The Magnolia, though, excepting one species, a stranger to New

England soil, demands some notice. Any one who has never seen the
trees of this genus in their native soil can form no correct idea of
them. I would not say, however, that they would fall short of his
conceptions of their splendor. When I first beheld one of the large
magnolias, though it answered to my previous ideas of its
magnificence, I thought it a less beautiful tree than the Southern
cypress, and less picturesque than the live-oak, the black walnut, and
some other trees I saw there. The foliage of the Magnolia is very large
and heavy, and so dark as to look gloomy. It is altogether too sombre
a tree in the open landscape, and must add to the gloom of any wood
which it occupies, without yielding to it any other striking character.
There are several species of Magnolia cultivated in pleasure-
grounds, the selection being made from those bearing a profusion of
flowers. The only one that grows wild in New England is of small
stature, sometimes called the Beaver-tree. It inhabits a swamp near
Gloucester, about twenty miles from Boston. This place is its
northern boundary. The flowers are of a dull white, without any
beauty, but possessed of a very agreeable fragrance, causing them to
be in great demand. The Magnolia wood is annually stripped both of
flowers and branches, and the trees will probably be extirpated
before many years by this sort of vandalism.
THE LOCUST.
The waysides in the Middle States do not contain a more beautiful

tree than the Locust, with its profusion of pinnate leaves and
racemes of flowers that fill the air with the most agreeable odors. In
New England the Locust is subject to the ravages of so many
different insects that it is commonly stinted in its growth, its
branches withered and broken, and its symmetry destroyed. But the
deformities produced by the decay of some of its important limbs
cannot efface the charm of its fine pensile foliage. In winter it seems
devoid of all those proportions we admire in other trees. It rears its
tall form, withered, shapeless, and deprived of many valuable parts,
without proportional breadth, and wanting in any definite character
of outline. Through all the early weeks of spring we might still
suppose it would never recover its beauty. But May hangs on those
withered boughs a green drapery that hides all their deformity; she
infuses into their foliage a perfection of verdure that no other tree
can rival, and a beauty in the forms of its leaves that renders it one of
the chief ornaments of the groves and waysides. June weaves into
this green leafage pendent clusters of flowers of mingled brown and
white, filling the air with fragrance, and enticing the bee with odors
as sweet as from groves of citron and myrtle.
The finely cut and delicate foliage of the Locust and its jewelled
white flowers, hanging gracefully among its dark green leaves, yield
it a peculiar style of beauty, and remind us of some of the finer
vegetation of the tropics. The leaflets, varying in number from nine
to twenty-five on a common stem, have a singular habit of folding
over each other in wet and dull weather and in the night, thus
displaying a sensitiveness that is remarkable in all the acacia family.
The Locust is not highly prized by landscape gardeners, who cannot
reconcile its defects to their serpentine walks and their velvety lawns.
But I am not sure that the accidental deformities of the Locust may
not contribute to its picturesque attractions, when, for example, from
its furrowed and knotted trunk a few imperfect limbs project, and
suspend over our heads a little canopy of the finest verdure.
Phillips says of the Locust, that, when planted in shrubberies, it
becomes the favorite resort of the nightingale, to avail itself of the
protection afforded by its thorns. There are many other small birds
that seek the protection of thorny bushes for their nests. On the
borders of woods, a barberry or hawthorn bush is more frequently
selected by the catbird and the yellow-throat than any other shrub. I
have observed that the indigo-bird shows a remarkable attachment
to the Locust, attracted, perhaps, by some favorite insect that lives
upon it. The only nests of this bird I have ever discovered were in the
branches of the Locust. It is worthy of notice, that, notwithstanding
its rapid and thrifty growth in favorable situations, this tree never
occupies exclusively any large tracts of country. It is found only in
small groups, scattered chiefly on the outside of woods containing
different species. The foliage of the Locust, like that of other
leguminous plants, is very fertilizing to the soil, causing the grassy
turf that is shaded by this tree to be always green and luxuriant.
THE HONEY LOCUST.
The Honey Locust is not an uncommon tree in the enclosures of
suburban dwellings, and by the waysides in many parts of the
country. Some of them have attained a great height, overtopping all
our shade-trees except the elm and the oak. This tree in June bears
flowers without any beauty, hanging from the branches in small
greenish aments. The outer bark peels from the trunk, like that of the
shellbark hickory. The thorns investing the trunk as well as the
boughs are very singular, consisting of one long spine with two and
sometimes more shorter ones projecting out of it, like two little
branches, near its base. Three is the prevailing number of these
compound thorns. Hence the name of Three-Thorned Acacia applied
to the Honey Locust.
This tree bears some resemblance to the common Locust; but its
leaflets are smaller, and of a lighter green. It is not liable, however, to
the attacks of insects, and is seen, therefore, in all its normal and
beautiful proportions. It displays much of the elegance of the tropical
acacias in the minute division and symmetry of its compound leaves.
These are of a light and brilliant green, and lie flat upon the
branches, giving them a fan-like appearance, such as we observe in
the hemlock. Though its principal branches are given out at an acute
angle, many of them are horizontal, extending outwards with
frequent contortions. The Honey Locust derives its name from the
sweetness of the pulp that envelops the seeds contained in their large
flat pods. This tree is not an uncommon hedge plant in
Massachusetts, but it is not found in the New England forest. Its
native region is the wide valley between the Alleghanies and the
Mississippi River.
RELATIONS OF TREES TO THE
ATMOSPHERE.
I have not much faith in the science of ignorant men; for the
foundations of all knowledge are laid in books; and those only who
have read and studied much can possess any considerable store of
wisdom. But there are philosophers among laboring swains, whose
quaint observations and solutions of nature’s problems are
sometimes worthy of record. With these men of untutored genius I
have had considerable intercourse, and hence I oftener quote them
than the learned and distinguished, whom I have rarely met. The
ignorant, from want of knowledge, are always theorists; but genius
affords its possessor, how small soever his acquisitions, some
glimpses of truth which may be entirely hidden from the mere
pedant in science. My philosophic friend, a man of genius born to the
plough, entertained a theory in regard to the atmosphere, which,
though not strictly philosophical, is so ingenious and suggestive that
I have thought an account of it a good introduction to this essay.
My friend, when explaining his views, alluded to the well-known
fact that plants growing in an aquarium keep the water supplied with
atmospheric air—not with simple oxygen, but with oxygen chemically
combined with nitrogen—by some vital process that takes place in
the leaves of plants. As the lungs of animals decompose the air which
they inspire, and breathe out carbonic-acid gas, plants in their turn
decompose this deleterious gas, and breathe out pure atmospheric
air. His theory is that the atmosphere is entirely the product of
vegetation, and that nature has no other means of composing it; that
it is not simply a chemical, but a vital product; and that its
production, like its preservation, depends entirely on plants, and
would be impossible without their agency. But as all plants united
are not equal in bulk to the trees, it may be truly averred that any

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AACSB: Reflective Thinking

5. Which of the following is true about market demand?

6. The demand curve for an individual monopolist:

8. Which of the following might be used to protect a monopoly from competition?

9. If the entire output of a market is produced by a single seller, the firm:

10. An industry dominated by one firm is:

11. Which of the following is likely to be a monopolist?

AACSB: Reflective Thinking

12. Which of the following is likely to be a monopolist?

AACSB: Reflective Thinking

13. Which of the following is not true for a monopoly?

14. Monopolists are price:

15. Which of the following is not a characteristic of a monopoly?

In general a monopolistic firm’s product is unique since it is the only producer.

17. The demand curve for a monopolist:

AACSB: Reflective Thinking

18. Since a monopoly has market power:

AACSB: Reflective Thinking

20. For a monopolist, marginal revenue is:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

23. The marginal revenue of a monopolist is:

AACSB: Reflective Thinking

27. Which of the following is true for a monopolist?

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

A. Demand; marginal revenue and marginal cost.

B. Marginal revenue; marginal revenue and marginal cost.

C. Average total cost; price and marginal cost.

D. Demand; average total cost and marginal cost.

32. A monopolist sets its price:

33. The price charged by a profit-maximizing monopolist occurs at:

AACSB: Reflective Thinking

35. Which of the following is true for a monopoly?

36. Total profit can be calculated as:

AACSB: Reflective Thinking

42. Which of the following is not true about barriers to entry?

43. Under both monopoly and perfect competition, a firm

D. will in the long-run earn economic profits.

44. Which of the following is not an effective barrier to entry?

Low capital requirements make it easier for a firm to enter a market.

AACSB: Reflective Thinking

The presence of substitute goods in an industry insures competition.

AACSB: Reflective Thinking

A government franchise is an effective barrier to entry.

52. Which of the following is consistent with a competitive industry?

AACSB: Reflective Thinking

54. In comparison to a competitive industry how is a monopoly different?

AACSB: Reflective Thinking

55. Which of the following is consistent with a monopoly industry?

Barriers to entry insure that the firm will remain a monopoly.