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, while a perfectly competitive market has free entry and exit.

Question 2

Suppose a monopolist faces the demand curve $$P = 12 - 0.1Q$$ and has a constant marginal cost of $$MC = 4. $$What is the profit-maximizing quantity?

Accepted Answer

Question 3

A monopolist faces a downward-sloping demand curve. What does this imply about the relationship between price and marginal revenue?

Accepted Answer

Marginal revenue is less than price.

Question 4

If a monopolist produces 2 units and sells them at $$8 each, what is the total revenue? Use the formula TR = P$$ 	imes Q$.

Accepted Answer

$$TR = 16$$

Question 5

If a monopolist increases output from 2 to 3 units and the price drops from $$8 to$$ $$7$$, what is the marginal revenue of the third unit? Use $$MR = TR(3) - TR(2).$$

Accepted Answer

$$MR = 5$$

Question 6

Why does a monopolist worry about 'spoiling the market' when expanding output?

Accepted Answer

Because increasing output lowers the price for all units sold, reducing marginal revenue.

Question 7

Given a linear demand curve $$P = a - bQ$$, what is the formula for the monopolist's marginal revenue curve?

Accepted Answer

$$MR = a - 2bQ$$

Question 8

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 9

In a competitive market, consumer surplus is maximized. Under monopoly, what happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus decreases and deadweight loss is created.

Question 10

Suppose a monopolist produces 50,000 units, charges $$9 per unit, and has an average cost of 8 $$per unit. What is the monopolist's profit? Use $$Profit = (P - AC) 	imes Q.$$

Accepted Answer

$$Profit = 50,000$$

Question 11

If the efficient quantity in a market is 100,000 units, but a monopolist produces only 50,000 units and charges $$9 per unit while the competitive price would be 4$$, what is the deadweight loss? Use $$DWL = \frac{1}{2} 	imes (P_{monopoly} - P_{competitive}) 	imes (Q_{efficient} - Q_{monopoly}).$$

Accepted Answer

$$DWL = 125,000$$

Question 12

Why do monopolists tend to set higher markups when demand is more inelastic?

Accepted Answer

Because consumers are less sensitive to price, allowing the monopolist to raise price above marginal cost.

Question 13

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

Accepted Answer

Electricity transmission

Question 14

What is a common public policy response to natural monopolies?

Accepted Answer

Regulation of prices

Question 15

Why might regulators set the price for a natural monopoly at $$P = AC$$ rather than $$P = MC$$?

Accepted Answer

Because $$P = AC$$ allows the monopolist to earn zero economic profit and stay in business.

Question 16

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

Accepted Answer

Free entry and exit

Question 17

Which of the following is a potential argument against patents?

Accepted Answer

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

Question 18

What is the reverse case of monopoly, known as monopsony?

Accepted Answer

Many sellers, one buyer

Question 19

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

Accepted Answer

Monopoly creates deadweight loss by producing less than the efficient quantity.

Question 20

Which policy is designed to prevent the creation of monopolies?

Accepted Answer

Antitrust policy

Monopoly: Structure, Market Power, and Welfare Effects

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