Question 1

Which of the following is NOT a characteristic of a monopoly?

Accepted Answer

There are many sellers competing in the market.

Question 2

Suppose a pharmaceutical company holds a patent for a life-saving drug. Which type of barrier to entry does this represent?

Accepted Answer

Government: Patent protection

Question 3

A monopolist faces the following inverse demand curve: $$P = 100 - 2Q. $$What is the marginal revenue (MR) function for this monopolist?

Accepted Answer

$$MR = 100 - 4Q$$

Question 4

If a monopolist’s marginal cost (MC) is constant at $$20$$ and the inverse demand curve is $$P = 80 - Q$$, what quantity will the monopolist produce to maximize profit?

Accepted Answer

$$Q = 20$$

Question 5

Which of the following best explains why marginal revenue is less than price for a monopolist?

Accepted Answer

The monopolist must lower the price on all units sold to sell an additional unit.

Question 6

A local utility company is the only provider of electricity in a region due to high infrastructure costs. This is an example of which cause of monopoly?

Accepted Answer

Natural: Economies of scale

Question 7

If the price elasticity of demand for a monopolist’s product is very low (inelastic), what does this imply about the monopolist’s market power?

Accepted Answer

The monopolist has high market power.

Question 8

Which of the following equations correctly represents the profit-maximizing rule for a monopolist?

Accepted Answer

$$MR = MC$$

Question 9

Compared to a perfectly competitive market, a monopoly will:

Accepted Answer

Produce less output at a higher price.

Question 10

Suppose a monopolist’s total revenue function is $$TR = 120Q - 2Q^2$. What is the marginal revenue (MR) function?

Accepted Answer

$$MR = 120 - 4Q$$

Question 11

Which of the following best describes deadweight loss (DWL) in a monopoly market?

Accepted Answer

The loss in consumer and producer surplus due to the monopolist producing less than the socially optimal quantity.

Question 12

If a monopolist’s average cost (AC) is above the demand curve at all output levels, what will happen in the long run?

Accepted Answer

The monopolist will incur losses and may exit the market.

Question 13

Which of the following is a real-world example of a natural monopoly?

Accepted Answer

A city water supply company

Question 14

If the demand for a monopolist’s product becomes more elastic, what happens to the deadweight loss (DWL) associated with monopoly?

Accepted Answer

DWL decreases

Question 15

A monopolist faces the inverse demand curve $$P = 50 - Q$$ and has constant marginal cost $$MC = 10. $$What price will the monopolist charge at the profit-maximizing output?

Accepted Answer

$$P = 30$$

Question 16

Which of the following statements about monopoly and consumer surplus is correct?

Accepted Answer

Consumer surplus is lower under monopoly than under perfect competition.

Question 17

Suppose a monopolist’s demand curve is $$P = 60 - 2Q$$ and marginal cost is $$MC = 12. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 10$$

Question 18

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

Accepted Answer

Perfectly elastic demand for the product

Question 19

If a monopolist is maximizing profit and marginal cost increases, what will happen to the monopolist’s price and quantity?

Accepted Answer

Price will increase and quantity will decrease.

Question 20

Which of the following best describes the relationship between marginal revenue (MR) and the slope of the demand curve for a monopolist?

Accepted Answer

The MR curve is twice as steep as the demand curve.

Monopoly: Market Power, Behavior, and Social Costs

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