Question 1

Which of the following best describes a pure monopoly?

Accepted Answer

An industry with a single firm that produces a product for which there are no close substitutes and significant barriers to entry.

Question 2

A monopolist faces a downward-sloping demand curve. If the demand curve is $$P = a + bQ$$, what is the formula for marginal revenue (MR)?

Accepted Answer

$$MR = a - 2bQ$$

Question 3

Why does a monopoly not have a supply curve independent of the demand curve?

Accepted Answer

Because the monopolist sets both price and quantity, and output depends on both marginal cost and the demand curve.

Question 4

Which of the following is NOT a barrier to entry for monopolies?

Accepted Answer

Free entry and exit

Question 5

Suppose a monopoly faces the following demand curve: $$P = 10 - Q. $$What is the marginal revenue curve?

Accepted Answer

$$MR = 10 - 2Q$$

Question 6

In a perfectly competitive market with constant returns to scale, what is the relationship between price and long-run average cost?

Accepted Answer

Price equals long-run average cost.

Question 7

What is deadweight loss in the context of monopoly?

Accepted Answer

The social cost associated with the distortion in consumption from a monopoly price.

Question 8

A natural monopoly occurs when:

Accepted Answer

A single firm can produce at a lower average cost than multiple firms due to large economies of scale.

Question 9

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charges lower prices for children and elderly people.

Question 10

If a monopolist can perfectly price discriminate, what happens to consumer surplus?

Accepted Answer

Consumer surplus becomes zero.

Question 11

Which federal act was passed in 1890 to address monopolistic practices in the United States?

Accepted Answer

The Sherman Act

Question 12

What is the 'rule of reason' in antitrust policy?

Accepted Answer

A criterion to determine whether a particular action is illegal or legal within the terms of the Sherman Act.

Question 13

Which of the following best describes rent-seeking behavior?

Accepted Answer

Actions taken by households or firms to preserve economic profits.

Question 14

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 15

Suppose a monopoly has $$MC = 2$$ and faces the demand curve $$P = 10 - Q. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 4$$

Question 16

Which of the following is a consequence of government failure in the context of monopoly?

Accepted Answer

The government becomes the tool of the rent seeker, making resource allocation less efficient.

Question 17

What is the 'no-arbitrage condition' in price discrimination?

Accepted Answer

Firms must prevent customers from reselling products to ensure effective price discrimination.

Question 18

Network externalities are important in monopoly markets because:

Accepted Answer

They increase the value of a product to a consumer as more people use it.

Question 19

If a monopoly reduces output from the competitive level, what happens to total welfare?

Accepted Answer

Total welfare decreases due to deadweight loss.

Question 20

Which of the following is a real-world example of a natural monopoly?

Accepted Answer

A local water utility company serving an entire city.

Monopoly and Antitrust Policy: Microeconomics Study Notes

Study Guide - Practice Questions