Question 1

Which of the following best describes a monopoly?

Accepted Answer

A firm that is the only seller of a good or service for which there is not a close substitute.

Question 2

Which of the following is NOT a barrier to entry that can lead to monopoly power?

Accepted Answer

Low fixed costs and easy market entry.

Question 3

Suppose a firm is the only supplier of electricity in a region and faces large fixed costs but low marginal costs. What type of monopoly is this?

Accepted Answer

Natural monopoly

Question 4

If a monopolist wants to maximize profit, it should produce the quantity where:

Accepted Answer

$MR = MC$

Question 5

Why is marginal revenue ($MR$) always below the demand curve for a monopolist?

Accepted Answer

Because the monopolist must lower the price to sell additional units, reducing revenue from existing units.

Question 6

Consider a market that transitions from perfect competition to monopoly. What happens to consumer surplus and economic surplus?

Accepted Answer

Consumer surplus decreases and economic surplus decreases due to deadweight loss.

Question 7

Which formula is used to calculate the Herfindahl-Hirschman Index (HHI) for market concentration?

Accepted Answer

$HHI = \sum_{i=1}^{N} s_i^2$ where $s_i$ is the market share percentage of firm $i$

Question 8

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charging different prices to students, seniors, and adults for the same movie.

Question 9

For price discrimination to be possible, which of the following conditions must be met?

Accepted Answer

Firms must have market power, be able to identify different groups, and prevent arbitrage.

Question 10

Suppose a monopolist can perfectly price discriminate. What is the effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is eliminated.

Question 11

A government regulator sets the price for a natural monopoly at the level where the firm earns zero economic profit. What is the likely outcome?

Accepted Answer

The quantity supplied is closer to the efficient level, and deadweight loss is minimized.

Question 12

Which of the following is a real-world example of a monopoly created by control of a key resource?

Accepted Answer

The Aluminum Company of America (Alcoa) controlling most of the bauxite supply.

Question 13

What is the main argument in favor of maintaining the USPS's mailbox monopoly?

Accepted Answer

Universal service provision, allowing delivery to rural areas that would otherwise not be profitable.

Question 14

Which of the following best explains network externalities as a barrier to entry?

Accepted Answer

The usefulness of a product increases as more consumers use it, making it hard for new entrants to compete.

Question 15

If a monopolist faces the following demand and cost functions: $P = 100 - 2Q$ and $MC = 20$, what is the profit-maximizing quantity?

Accepted Answer

20

Question 16

Which of the following is NOT a reason why the deadweight loss from monopoly is relatively small in the U.S. economy?

Accepted Answer

Market power is rare in most industries.

Question 17

Which of the following is a horizontal merger?

Accepted Answer

Two firms in the same industry combine to form a larger firm.

Question 18

What is the effect of price discrimination on overall economic efficiency?

Accepted Answer

It is ambiguous; price discrimination can increase or decrease deadweight loss depending on the situation.

Question 19

Which antitrust law was passed in 1936 to outlaw price discrimination that reduced competition?

Accepted Answer

Robinson-Patman Act

Monopoly and Antitrust Policy: Microeconomics Chapter 15 Study Notes

Study Guide - Practice Questions