Question 1

A monopolist faces the demand curve $$P = 6 - Q. $$What is the marginal revenue (MR) function for this firm?

Accepted Answer

$$MR = 6 - 2Q$$

Question 2

Suppose a monopolist has marginal cost $$MC = 2$$ and faces the demand curve $$P = 6 - Q. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 3$$

Question 3

Which of the following best describes the Lerner Index of monopoly power?

Accepted Answer

$$L = (P - MC)/P$$

Question 4

If the elasticity of demand facing a monopolist is $$E_d = -2$$ and marginal cost is $$MC = 10$$, what price should the monopolist charge according to the rule of thumb for pricing?

Accepted Answer

$$P = \frac{10}{1 + (1/2)} = 6.67$$

Question 5

Which of the following is NOT a source of monopoly power?

Accepted Answer

The presence of perfect information

Question 6

A natural monopoly is characterized by which of the following?

Accepted Answer

Declining average and marginal costs over the relevant range of output

Question 7

What is the effect of an excise tax $$t$$ per unit on a monopolist’s profit-maximizing condition?

Accepted Answer

$$MR = MC + t$$

Question 8

Which of the following best describes rent seeking?

Accepted Answer

Spending money in socially unproductive efforts to acquire, maintain, or exercise monopoly power

Question 9

In a monopsony, the marginal expenditure (ME) curve lies ______ the average expenditure (AE) curve because ______.

Accepted Answer

above; the monopsonist must pay a higher price for all units to buy more

Question 10

Which of the following is true about the social costs of monopoly power?

Accepted Answer

Monopoly power leads to deadweight loss and reduced consumer surplus

Question 11

If a monopolist’s marginal cost is $$MC = 4$$ and the price elasticity of demand is $$E_d = -2$$, what is the Lerner Index?

Accepted Answer

$$L = 0.5$$

Question 12

Which of the following is an example of a monopsony?

Accepted Answer

A government as the sole purchaser of military equipment

Question 13

Which of the following factors does NOT increase monopsony power?

Accepted Answer

A highly elastic supply curve

Question 14

In a bilateral monopoly, what determines the final price and quantity?

Accepted Answer

Bargaining between the single buyer and single seller

Question 15

Which of the following is a primary goal of antitrust laws?

Accepted Answer

To promote a competitive economy by prohibiting actions that restrain competition

Question 16

A monopolist’s profit-maximizing rule is to produce where:

Accepted Answer

$$MR = MC$$

Question 17

If a monopolist faces a downward-sloping demand curve, what happens to marginal revenue as output increases?

Accepted Answer

Marginal revenue decreases and can become negative

Question 18

Which of the following is an example of price regulation eliminating deadweight loss in a monopoly?

Accepted Answer

Setting price equal to marginal cost

Question 19

Which of the following is illegal under antitrust laws?

Accepted Answer

Predatory pricing

Question 20

If a monopolist’s demand curve is $$P = 10 - Q$$ and marginal cost is constant at $$MC = 4$$, what is the profit-maximizing price?

Accepted Answer

$$P = 7$$

Monopoly and Monopsony: Market Power in Microeconomics

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