Question 1

Which of the following is a key difference between a perfectly competitive market and a monopoly?

Accepted Answer

A monopoly has barriers to entry and only one seller, while a perfectly competitive market has free entry and exit with many sellers.

Question 2

Suppose a monopolist faces a linear demand curve given by $$P = 20 - 2Q. $$What is the equation for the marginal revenue (MR) curve?

Accepted Answer

$$MR = 20 - 4Q$$

Question 3

A monopolist produces 3 units of output. At this level, the price is $$7$$ and total revenue is $$21. If $$producing 2 units yields a price of $$8$$ and total revenue of $$16$$, what is the marginal revenue of the third unit?

Accepted Answer

$$MR = 5$$

Question 4

Why is marginal revenue less than price for a monopolist?

Accepted Answer

Because producing and selling more units requires lowering the price on all units sold.

Question 5

If a monopolist’s cost per unit is $$8$$ and it charges a price of $$9$$ for 50,000 units, what is the monopolist’s profit?

Accepted Answer

$$50,000$$

Question 6

Which of the following best describes deadweight loss in a monopoly?

Accepted Answer

It is the loss in consumer and producer surplus due to the monopolist producing less than the efficient quantity.

Question 7

A monopolist faces the demand curve $$P = 12 - 0.04Q$$ and has constant marginal cost $$MC = 4. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 50$$

Question 8

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

Accepted Answer

Free entry and exit.

Question 9

If a regulatory agency wants to set a price so that a natural monopoly earns zero economic profit, it should set price equal to:

Accepted Answer

Average cost.

Question 10

Suppose the deadweight loss from monopoly in a market is calculated as $$DWL = \frac{1}{2} 	imes (P_m - MC) 	imes (Q_c - Q_m). If$$ $$P_m = 9$$, $$MC = 4$$, $$Q_c = 100,000$$, and $$Q_m = 50,000$$, what is the deadweight loss?

Accepted Answer

$$125,000$$

Question 11

Why might a government grant a patent to a pharmaceutical company?

Accepted Answer

To encourage innovation by allowing the company to earn monopoly profits for a limited time.

Question 12

Which of the following real-world examples best illustrates a monopsony?

Accepted Answer

A single large employer in a small town labor market.

Question 13

If a monopolist faces a demand curve $$P = a - bQ$$, what is the general formula for marginal revenue?

Accepted Answer

$$MR = a - 2bQ$$

Question 14

Which of the following is a likely consequence of price regulation that sets price equal to marginal cost for a natural monopoly?

Accepted Answer

The monopolist will incur losses because price is below average cost.

Question 15

Which of the following best explains why the price of HIV drugs is much higher than their marginal cost?

Accepted Answer

The demand for HIV drugs is highly inelastic, allowing the monopolist to set a high markup.

Question 16

Which of the following is an argument against patents as a form of monopoly?

Accepted Answer

Patents can create inefficiency and are not always necessary for innovation.

Question 17

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 18

If a monopolist is regulated to set price equal to average cost, what will be the monopolist’s economic profit?

Accepted Answer

Zero

Question 19

Which of the following is an example of a government-created monopoly?

Accepted Answer

The U.S. Postal Service’s exclusive right to deliver first-class mail.

Question 20

Which of the following best describes the welfare effect of monopoly compared to perfect competition?

Accepted Answer

Monopoly creates deadweight loss by reducing output below the efficient level.

Monopoly: Structure, Market Power, and Welfare Effects

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