Question 1

Which of the following is NOT a necessary condition for a monopoly to arise in a market?

Accepted Answer

There are many sellers competing for market share.

Question 2

A natural monopoly occurs when:

Accepted Answer

Economies of scale allow one firm to supply the entire market at the lowest possible cost.

Question 3

Suppose a monopoly faces the following demand and cost conditions: The marginal cost (MC) is constant at $$10, and the demand curve is P = 40 - 2Q$. What is the profit-maximizing output for a single-price monopoly?

Accepted Answer

$$Q = 7.5$$

Question 4

For a single-price monopoly, marginal revenue (MR) is:

Accepted Answer

Less than price at every quantity.

Question 5

If a monopoly faces elastic demand, what happens to total revenue when it lowers its price?

Accepted Answer

Total revenue increases.

Question 6

Which equation correctly represents the profit-maximizing condition for a monopoly?

Accepted Answer

$$MR = MC$$

Question 7

Compared to perfect competition, a single-price monopoly will:

Accepted Answer

Produce less output and charge a higher price.

Question 8

Deadweight loss in monopoly arises because:

Accepted Answer

Price exceeds marginal cost, so some mutually beneficial trades do not occur.

Question 9

Which of the following is an example of a legal barrier to entry?

Accepted Answer

A government granting a patent to a pharmaceutical company.

Question 10

Price discrimination by a monopoly requires:

Accepted Answer

Identifying and separating different buyer types.

Question 11

Suppose an airline can perfectly price discriminate. What is the relationship between marginal revenue and price for each unit sold?

Accepted Answer

$$MR = P$$

Question 12

Which of the following statements about rent seeking is correct?

Accepted Answer

Rent seeking can use up resources and eliminate producer surplus.

Question 13

Under the marginal cost pricing rule for a regulated natural monopoly, what is the likely outcome for the firm?

Accepted Answer

The firm incurs an economic loss.

Question 14

Which regulatory approach gives a monopoly the incentive to minimize costs and operate efficiently?

Accepted Answer

Price cap regulation.

Question 15

If a monopoly is regulated to set price equal to average cost, what is the result?

Accepted Answer

The outcome is inefficient, but the deadweight loss is smaller than with no regulation.

Question 16

A single-price monopoly never produces an output at which demand is inelastic because:

Accepted Answer

It could increase profit by decreasing output.

Question 17

Which formula correctly calculates economic profit for a monopoly?

Accepted Answer

$$Economic\ profit = Total\ revenue - Total\ cost$$

Question 18

Suppose a monopoly faces the following demand: $$P = 100 - Q$$, and marginal cost is $$MC = 20. $$What price will the monopoly charge at the profit-maximizing output?

Accepted Answer

$$P = 60$$

Question 19

Which of the following is NOT considered price discrimination?

Accepted Answer

Offering quantity discounts that reflect lower costs at higher volumes.

Question 20

Which theory of regulation suggests that regulators may act in the self-interest of producers rather than the public?

Accepted Answer

Capture theory.

Monopoly: Structure, Pricing, and Regulation in Microeconomics

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