Question 1

Which of the following best describes the profit-maximizing condition for a monopolist?

Accepted Answer

Marginal revenue equals marginal cost.

Question 2

Suppose a monopolist faces the demand curve $$P = 6 - Q$$ and has a constant marginal cost of $$MC = 2. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q^* = 4$$

Question 3

The Lerner Index of monopoly power is given by which formula?

Accepted Answer

$$L = \frac{P - MC}{P}$$

Question 4

If a monopolist faces a demand elasticity of $$E_d = -2$$ and has a marginal cost of $$MC = 10$$, what price should it charge according to the rule of thumb for pricing?

Accepted Answer

$$P = \frac{MC}{1 + \frac{1}{E_d}} = \frac{10}{1 + \frac{1}{-2}} = 6.67$$

Question 5

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

Accepted Answer

The presence of a perfectly elastic supply curve.

Question 6

A monopolist's supply curve does not exist because:

Accepted Answer

The monopolist's output decision depends on both marginal cost and the shape of the demand curve.

Question 7

If a monopolist is subject to a per-unit tax $$t$$, how does its profit-maximizing condition change?

Accepted Answer

$$MR = MC + t$$

Question 8

In a multiplant monopoly, how should the firm allocate production between its plants?

Accepted Answer

Set marginal cost equal in both plants and total output where marginal revenue equals marginal cost.

Question 9

Which of the following best explains why the deadweight loss occurs under monopoly?

Accepted Answer

Monopolists restrict output below the competitive level, causing consumers and producers to lose surplus.

Question 10

Suppose the elasticity of demand for a brand of soft drink is $$E_d = -5. If $$the price increases by 1%, what is the expected percentage change in quantity demanded?

Accepted Answer

Quantity demanded will decrease by 5%.

Question 11

Which of the following is an example of a barrier to entry that can create monopoly power?

Accepted Answer

Patents and copyrights.

Question 12

A monopolist faces a demand curve $$P = 40 - Q$$ and a cost function $$C(Q) = 50 + Q^2$. What is the marginal cost?

Accepted Answer

$$MC = 2Q$$

Question 13

Which of the following statements about the Lerner Index is correct?

Accepted Answer

It measures the degree to which price exceeds marginal cost.

Question 14

In a bilateral monopoly, what is the expected effect on price compared to pure monopoly or pure monopsony?

Accepted Answer

Monopsony power and monopoly power tend to counteract each other, pushing price closer to marginal cost or marginal value.

Question 15

Which of the following practices is a clear violation of Section 1 of the Sherman Act?

Accepted Answer

Agreeing with a competitor to fix prices.

Question 16

If a monopolist faces a more elastic demand curve, what happens to its ability to mark up price over marginal cost?

Accepted Answer

Markup decreases.

Question 17

Which of the following is true about price regulation of a natural monopoly?

Accepted Answer

Setting price equal to marginal cost may result in losses for the firm.

Question 18

A monopsonist will purchase a quantity where:

Accepted Answer

Marginal expenditure equals marginal value.

Question 19

Which of the following is a plausible effect of aggressive competition among firms in a concentrated market?

Accepted Answer

Monopoly power decreases.

Market Power: Monopoly and Monopsony (Microeconomics Study Notes)

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