Question 1

Which of the following best explains why the GLP-1 drug market is considered a natural monopoly?

Accepted Answer

Because high fixed costs and economies of scale make it most efficient for one large firm to supply the market.

Question 2

Suppose the average total cost (ATC) curve for a natural monopoly is downward sloping and the marginal cost (MC) is constant at $10. If the firm increases output from 6 to 12 units, what happens to the average cost, and why?

Accepted Answer

Average cost decreases because fixed costs are spread over more units.

Question 3

If the minimum efficient scale (MES) in the GLP-1 drug market is 20% of total market demand, what is the maximum number of firms that could theoretically operate efficiently?

Accepted Answer

$$5$$

Question 4

Which of the following is NOT a typical barrier to entry in the pharmaceutical industry, as discussed in the GLP-1 drug market?

Accepted Answer

Perfect competition

Question 5

A merger between two major railroads is proposed. Supporters claim it will lower costs and improve efficiency. What is a potential downside regulators are concerned about?

Accepted Answer

The merger could increase market concentration and reduce competition.

Question 6

In the context of monopoly theory, what is the effect of government negotiation (such as Medicare price negotiations) on deadweight loss in the GLP-1 drug market?

Accepted Answer

It reduces deadweight loss by lowering prices and increasing output.

Question 7

Which of the following best describes the concept of network effects as discussed in the Meta antitrust case?

Accepted Answer

Network effects make a platform more valuable as more users join, strengthening large firms.

Question 8

Why is it difficult to apply traditional antitrust tools, such as price increases, to digital markets like social networking platforms?

Accepted Answer

Because services are often free to users, so market power is exercised through data and advertising.

Question 9

Suppose a natural monopoly faces a demand curve $$P = 50 - Q$$ and has constant marginal cost $$MC = 10. If $$the government requires the firm to set $$P = MC$$, what is the resulting quantity and price?

Accepted Answer

$$Q = 40$$, $$P = 10$$

Question 10

Which of the following scenarios would make demand for a social networking platform more elastic, thereby limiting monopoly power?

Accepted Answer

New entrants like TikTok provide strong alternatives for users.

Question 11

If a pharmaceutical firm lowers its price and expands output, which of the following is a likely effect according to the 'scale game' described in the GLP-1 market?

Accepted Answer

The firm increases total revenue by attracting more patients and strengthens its market position.

Question 12

Which of the following best explains why a single firm is more efficient than multiple firms in a natural monopoly industry?

Accepted Answer

Because duplicating infrastructure increases average costs for all firms.

Question 13

After a patent expires on a GLP-1 drug, what is a likely outcome in the market, according to the discussion?

Accepted Answer

Competition increases, but large firms may retain advantages due to scale and brand reputation.

Question 14

In the context of the railroad merger, what is the trade-off regulators must consider?

Accepted Answer

The trade-off between efficiency gains and reduced competition.

Question 15

Which of the following is an example of a government policy that can reduce deadweight loss in a natural monopoly?

Accepted Answer

Negotiating lower prices and requiring higher output.

Question 16

If a firm in a natural monopoly market faces the following cost structure: $$ATC = \frac{100}{Q} + 10$$, what happens to average total cost as output $$Q$$ increases?

Accepted Answer

Average total cost decreases.

Question 17

Why do patents serve as a barrier to entry in the pharmaceutical industry?

Accepted Answer

They allow firms to recover high fixed costs by granting temporary monopoly power.

Question 18

Which of the following best describes the role of innovation in limiting long-term monopoly power in digital markets?

Accepted Answer

Innovation creates new competitors, making long-term dominance less certain.

Question 19

A natural monopoly is most likely to occur in which of the following industries?

Accepted Answer

Electric utilities

Question 20

If a firm has monopoly power, what does this imply about its ability to set prices relative to marginal cost?

Accepted Answer

The firm can set price above marginal cost.

Monopoly, Natural Monopoly, and Market Power: Applications in Pharmaceuticals, Railroads, and Digital Platforms

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