Question 1

Which of the following best explains why the marginal revenue (MR) curve for a single-price monopolist lies below its demand curve?

Accepted Answer

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

Question 2

Suppose a monopolist faces the following demand and cost conditions: $$P = 20 - Q$$, $$MC = 4$$, and $$ATC = 8 at $$all output levels. What is the profit-maximizing output and price?

Accepted Answer

Output: $$Q = 8$$, Price: $$P = 12$$

Question 3

Which of the following is a necessary condition for price discrimination to be possible?

Accepted Answer

The firm must be able to prevent arbitrage among consumers.

Question 4

A monopolist’s total revenue is given by $$TR = p 	imes Q. If $$the price is $$10$$ and the quantity sold is $$50$$, what is the average revenue (AR)?

Accepted Answer

$$AR = 10$$

Question 5

Which of the following best describes the inefficiency created by a monopoly compared to perfect competition?

Accepted Answer

A monopoly produces less output at a higher price, creating a deadweight loss.

Question 6

Which of the following is an example of a natural entry barrier that can allow monopoly profits to persist in the long run?

Accepted Answer

Large setup costs required to build infrastructure, such as electricity transmission lines.

Question 7

A cartel is most likely to be unstable because:

Accepted Answer

Cartel members have an incentive to cheat and increase their own output.

Question 8

Suppose a monopolist can perfectly price discriminate. What is the effect on consumer surplus and total output compared to a single-price monopoly?

Accepted Answer

Consumer surplus is zero and total output increases.

Question 9

Which of the following is NOT a requirement for successful price discrimination among market segments?

Accepted Answer

Marginal cost must be zero in all segments.

Question 10

If a monopolist’s marginal cost (MC) is constant at $$6$$ and the marginal revenue (MR) at the profit-maximizing output is $$6$$, what should the monopolist do?

Accepted Answer

Maintain current output because profit is maximized where $$MR = MC.$$

Question 11

Which of the following real-world examples best illustrates hurdle pricing as a form of price discrimination?

Accepted Answer

A manufacturer offering a rebate coupon inside the product package.

Question 12

According to Joseph Schumpeter, what is the long-run benefit of monopoly profits?

Accepted Answer

They provide incentives for innovation, leading to creative destruction.

Question 13

A competitive industry produces at the point where $$MC = MR = p. In $$contrast, a monopolist produces where:

Accepted Answer

$$MC = MR$$

Question 14

Which of the following is a created entry barrier?

Accepted Answer

Government regulation such as patents and copyright laws.

Question 15

If a monopolist’s average total cost (ATC) at the profit-maximizing output is less than the price, what can be said about the monopolist’s profit?

Accepted Answer

The monopolist is earning positive economic profit.

Question 16

Which of the following statements about cartels is correct?

Accepted Answer

Cartels are unstable because members have an incentive to cheat.

Question 17

A monopolist is considering price discrimination between two market segments, A and B. If segment A has less elastic demand than segment B, what should the monopolist do?

Accepted Answer

Charge a higher price in segment A.

Question 18

Which of the following is a consequence of price discrimination by the unit (perfect price discrimination)?

Accepted Answer

All consumer surplus is transferred to the seller.

Question 19

Which of the following is NOT an example of price discrimination?

Accepted Answer

A public utility charging the same rate to all customers.

Question 20

If a monopolist restricts output below the competitive level, what is the effect on economic surplus?

Accepted Answer

Economic surplus decreases, creating a deadweight loss.

Chapter 10 Monopoly, Cartels, and Price Discrimination: Study Notes

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