$Profit = (Price - ATC) \times Quantity$

Question 1

Which of the following is NOT a defining feature of a monopoly?

Accepted Answer

Many sellers in the market

Question 2

A natural monopoly is most likely to arise when:

Accepted Answer

There are large economies of scale relative to market demand

Question 3

Suppose a monopoly faces the following demand curve: $P = 100 - 2Q$. If the firm wants to maximize profit, it should produce the quantity where:

Accepted Answer

$MR = MC$

Question 4

Which of the following best explains why a monopoly's marginal revenue is less than the price of the good?

Accepted Answer

The firm must lower the price on all units sold to sell an additional unit

Question 5

A pharmaceutical company with a drug patent is an example of a monopoly due to:

Accepted Answer

Government regulation granting exclusive production rights

Question 6

If a monopoly's marginal cost is constant at $10$ and its demand curve is $P = 50 - Q$, what is the profit-maximizing quantity?

Accepted Answer

$Q = 20$

Question 7

Compared to perfect competition, a monopoly will:

Accepted Answer

Produce less output and charge a higher price

Question 8

Deadweight loss from monopoly arises because:

Accepted Answer

Some mutually beneficial trades between buyers and sellers do not occur

Question 9

Which of the following is a likely result of government regulation that sets the price for a natural monopoly equal to average total cost?

Accepted Answer

The monopoly earns zero economic profit

Question 10

In a monopsony labor market, the firm maximizes profit by hiring workers up to the point where:

Accepted Answer

$MRP = MCL$

Question 11

Which U.S. law specifically prohibits price discrimination that reduces competition?

Accepted Answer

Robinson-Patman Act of 1936

Question 12

A bilateral monopoly consists of:

Accepted Answer

A single buyer and a single seller

Question 13

If a monopoly faces a downward-sloping demand curve, which of the following is true?

Accepted Answer

Marginal revenue is less than price for all positive quantities

Question 14

Which of the following is LEAST likely to operate as a monopoly?

Accepted Answer

A farm in a large farming region

Question 15

A monopoly's profit can be calculated as:

Accepted Answer

$Profit = (Price - ATC) 	imes Quantity$

Question 16

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

Accepted Answer

Ownership of a key resource

Question 17

If a monopoly is regulated to charge a price equal to marginal cost, what is a likely outcome?

Accepted Answer

The firm may incur losses if average total cost exceeds marginal cost

Question 18

Which of the following best describes the effect of a minimum wage in a monopsony labor market?

Accepted Answer

It can increase both the equilibrium wage and quantity of labor employed

Question 19

A monopoly's profit-maximizing rule is to produce where:

Accepted Answer

$MR = MC$

Question 20

Which of the following is true about the demand curve faced by a perfectly competitive firm?

Accepted Answer

It is perfectly elastic at the market price

Market Power: Monopoly and Monopsony – Study Notes

Study Guide - Practice Questions