Question 1

Which of the following best describes a monopoly?

Accepted Answer

A firm that is the only seller of a good or service with no close substitutes.

Question 2

Which of the following is NOT a reason why monopolies exist?

Accepted Answer

Low barriers to entry allow many firms to compete.

Question 3

A natural monopoly occurs when:

Accepted Answer

Economies of scale are so large that one firm can supply the entire market at a lower average total cost than two or more firms.

Question 4

Refer to the fourth image provided. What area represents the deadweight loss from monopoly?

Accepted Answer

The area between points B and C, to the right of the monopoly quantity.

Question 5

Which equation should a monopoly use to determine its profit-maximizing quantity?

Accepted Answer

Set $$MR = MC$$

Question 6

What is the effect of monopoly on consumer surplus and producer surplus?

Accepted Answer

Monopoly decreases consumer surplus and increases producer surplus.

Question 7

Which of the following is an example of a government-created monopoly?

Accepted Answer

A public franchise granted to a company to provide water in a city.

Question 8

What is the purpose of antitrust laws?

Accepted Answer

To eliminate collusion and promote competition among firms.

Question 9

If a monopoly faces a highly elastic demand for its product, what is likely to happen if it raises its price significantly?

Accepted Answer

It will lose many customers.

Question 10

Which of the following best describes network externalities?

Accepted Answer

The usefulness of a product increases as more people use it.

Question 11

Refer to the first image provided. If the market is supplied by one firm at point A, what does this indicate about average total cost (ATC)?

Accepted Answer

ATC is lower than if two firms supplied the market.

Question 12

Which of the following is true about monopolistic competition in the long run?

Accepted Answer

Firms earn zero economic profits.

Question 13

A copyright grants exclusive rights to:

Accepted Answer

Produce and sell a creation such as a book, film, or piece of music for the creator's lifetime plus 70 years.

Question 14

Which of the following is a consequence of monopoly market power?

Accepted Answer

Firms can charge a price greater than marginal cost.

Question 15

If a monopoly produces where $$MR = MC$$, but the price is set above $$MC$$, what is the result?

Accepted Answer

Deadweight loss occurs.

Question 16

Which of the following is NOT a way the government can block entry into a market?

Accepted Answer

Allowing free access to all firms.

Question 17

What is the main reason monopolies are considered inefficient for society?

Accepted Answer

They produce less than the socially optimal quantity, causing deadweight loss.

Question 18

Which act was the first major antitrust law passed in the United States?

Accepted Answer

Sherman Antitrust Act (1890)

Question 19

If a monopoly is regulated by a price ceiling, what is the likely effect?

Accepted Answer

The monopoly will be forced to charge a lower price, increasing consumer surplus.

Question 20

Which of the following is a plausible real-world example of a monopoly due to network externalities?

Accepted Answer

Microsoft Windows operating system.

Chapter 15

Study Guide - Practice Questions