Question 1

Which of the following best defines a monopoly?

Accepted Answer

A firm that is the only seller of a good or service for which there is not a close substitute.

Question 2

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

Accepted Answer

Perfect competition

Question 3

Suppose a firm faces the following demand and cost curves: $$P = 100 - 2Q$$, $$MC = 20. $$What is the profit-maximizing quantity for a monopoly?

Accepted Answer

Question 4

Which of the following is an example of a natural monopoly?

Accepted Answer

A local electricity provider with high fixed costs and low marginal costs.

Question 5

Why is marginal revenue always below the demand curve for a monopolist?

Accepted Answer

Because the monopolist must lower the price on all units sold to sell additional units.

Question 6

If a monopoly is earning economic profits in the short run, what will happen in the long run?

Accepted Answer

The monopoly will continue to earn economic profits due to barriers to entry.

Question 7

Which of the following best describes the deadweight loss caused by monopoly?

Accepted Answer

The loss of economic surplus due to fewer trades occurring than in perfect competition.

Question 8

A movie theater charges $$10 for adults, 8 $$for students, and $7 for seniors, even though the cost of showing the movie is the same for all. This is an example of:

Accepted Answer

Price discrimination

Question 9

Which of the following conditions is NOT necessary for a firm to successfully practice price discrimination?

Accepted Answer

The firm must be a price taker.

Question 10

Suppose a monopolist can perfectly price discriminate. What happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus becomes zero and deadweight loss is eliminated.

Question 11

Which of the following is a government policy aimed at reducing monopoly power and promoting competition?

Accepted Answer

Antitrust laws

Question 12

The Herfindahl-Hirschman Index (HHI) is used to:

Accepted Answer

Measure market concentration by summing the squares of market shares of all firms.

Question 13

A horizontal merger is most likely to:

Accepted Answer

Increase market power by combining firms in the same industry.

Question 14

If regulators set the price for a natural monopoly at the level where $$P = ATC$$, what is the likely outcome?

Accepted Answer

The firm earns zero economic profit and deadweight loss is minimized.

Question 15

Which of the following is an example of a barrier to entry created by control of a key resource?

Accepted Answer

Alcoa owning most of the world's supply of bauxite.

Question 16

Suppose a monopolist faces the following demand curve: $$P = 50 - Q$$, and marginal cost is constant at $$MC = 10. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 17

Which of the following statements about market power is TRUE?

Accepted Answer

Market power allows firms to charge a price greater than marginal cost.

Question 18

Which of the following is a potential benefit of market power according to Joseph Schumpeter?

Accepted Answer

It drives innovation and creates a 'gale of creative destruction' that benefits consumers.

Question 19

Why might price discrimination across time (such as hardcover vs. paperback book releases) be profitable for publishers?

Accepted Answer

It allows publishers to charge higher prices to consumers with greater willingness to pay.

Question 20

Suppose a monopoly faces the following cost and demand curves: $$ATC = 30$$, $$MC = 20$$, and the profit-maximizing price is $$P = 50 at$$ $$Q = 10. $$What is the monopoly's profit?

Accepted Answer

$$Profit = (P - ATC) 	imes Q = (50 - 30) 	imes 10 = 200$$

Monopoly and Antitrust Policy: Microeconomics Chapter 15 Study Notes

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