Question 1

Which of the following is NOT a necessary condition for a firm to be considered a monopoly in the context of this course?

Accepted Answer

There is free entry and exit in the market.

Question 2

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

Accepted Answer

$$MR = 20 - 4Q$$

Question 3

A monopolist faces the demand curve $$P = 10 - Q$$ and has a constant marginal cost $$MC = 2. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 4$$

Question 4

Why is marginal revenue (MR) always less than or equal to price (P) for a monopolist under uniform pricing?

Accepted Answer

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

Question 5

If a monopolist is maximizing profit and $$MR \u003e MC$$, what should the firm do?

Accepted Answer

Increase output.

Question 6

Which of the following best describes the deadweight loss (DWL) created by monopoly pricing?

Accepted Answer

It is the loss of total surplus due to units not produced where $$MSB \u003e MSC.$$

Question 7

A natural monopoly is most likely to occur when:

Accepted Answer

Average total cost decreases as output increases over the relevant range.

Question 8

If the government regulates a natural monopoly by setting price equal to average total cost (ATC), what is the likely outcome?

Accepted Answer

The monopoly will break even (zero economic profit).

Question 9

Which of the following is an example of third-degree price discrimination?

Accepted Answer

Offering a student discount at a movie theater.

Question 10

Under perfect (first-degree) price discrimination, which of the following is true?

Accepted Answer

Deadweight loss is eliminated.

Question 11

A monopolist practicing second-degree price discrimination will:

Accepted Answer

Offer a menu of options so consumers self-select based on their willingness to pay.

Question 12

Suppose a monopolist faces two market segments with different elasticities of demand. According to third-degree price discrimination, the monopolist will:

Accepted Answer

Charge a higher price in the segment with less elastic demand.

Question 13

If a monopolist's demand curve is $$P = 10 - Q$$ and marginal cost is $$MC = Q$$, what is the profit-maximizing output?

Accepted Answer

$$Q = 3.33$$

Question 14

Which of the following is a real-world justification for allowing a natural monopoly to exist?

Accepted Answer

It avoids the inefficiency of duplicating large fixed costs.

Question 15

A monopolist's profit is given by $$\pi = q \cdot (p - ATC). If$$ $$p \u003c ATC at $$the profit-maximizing quantity, what does this imply?

Accepted Answer

The monopolist is incurring an economic loss.

Question 16

Which of the following best explains why perfect price discrimination is rarely observed in real markets?

Accepted Answer

Firms lack perfect information about each consumer's willingness to pay.

Question 17

If a monopolist can perfectly price discriminate, what happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is eliminated.

Question 18

Which of the following is a plausible outcome if the government imposes a tax on a natural monopoly?

Accepted Answer

The monopolist will reduce output and pass the tax onto consumers.

Question 19

In the context of second-degree price discrimination, what is 'monopolistic screening'?

Accepted Answer

Designing product bundles so that consumers self-select based on their willingness to pay.

Monopoly and Price Discrimination: Microeconomics Study Guide

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