Question 1

Which of the following best describes a natural monopoly?

Accepted Answer

A market where 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 2

Suppose the USPS maximizes profit by selling 6 stamps per day at a price of $$0.55 each. If the average total cost of producing 6 stamps is 0.35$$, what is the total profit earned by the USPS?

Accepted Answer

$1.20

Question 3

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

Accepted Answer

Perfectly elastic demand for the product.

Question 4

A monopoly maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 5

Refer to the table of stamp sales. What is the marginal revenue of selling the 7th stamp?

Accepted Answer

$$0.20$$

Question 6

Which of the following is a requirement for a firm to successfully practice price discrimination?

Accepted Answer

The firm must be able to prevent resale among consumers.

Question 7

What is the main economic inefficiency caused by monopoly, as shown in the diagrams?

Accepted Answer

Deadweight loss is created because output is restricted below the efficient level.

Question 8

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

Accepted Answer

It is reduced to zero.

Question 9

Which of the following best explains why airlines can successfully price discriminate between business and leisure travelers?

Accepted Answer

Business travelers are less sensitive to price and have inflexible schedules, while leisure travelers are more sensitive to price and can buy tickets in advance.

Question 10

Which antitrust law was the first to prohibit 'restraint of trade' and outlaw monopolization in the United States?

Accepted Answer

Sherman Act

Question 11

Suppose a market has a Herfindahl-Hirschman Index (HHI) of 2,600 after a merger, and the merger increases the HHI by 150 points. According to federal guidelines, what is the likely regulatory response?

Accepted Answer

The merger may be challenged.

Question 12

Why does a monopoly's marginal revenue curve lie below its demand curve?

Accepted Answer

Because lowering price to sell more units reduces revenue on all previous units sold.

Question 13

Which of the following is an example of a network externality?

Accepted Answer

The value of a social media platform increasing as more people join.

Question 14

If a monopolist sets a price above marginal cost, what is the result compared to perfect competition?

Accepted Answer

There is a deadweight loss due to reduced output.

Question 15

Which of the following is true about the effects of monopoly on economic surplus?

Accepted Answer

Monopoly decreases consumer surplus, increases producer surplus, and creates deadweight loss.

Question 16

A firm is granted a patent for a new invention. What is the most likely short-run effect on the market for this product?

Accepted Answer

The firm will have monopoly power and can set prices above marginal cost.

Question 17

Which of the following best describes arbitrage in the context of price discrimination?

Accepted Answer

Buying a product at a low price and reselling it at a higher price.

Question 18

Why might the government allow a natural monopoly to exist but regulate its prices?

Accepted Answer

Because competition would lead to higher average costs and inefficiency.

Question 19

Which of the following is a likely outcome if a monopolist can perfectly price discriminate?

Accepted Answer

Deadweight loss is eliminated and all surplus is captured by the monopolist.

Question 20

Which of the following is NOT a reason why government might block entry into a market?

Accepted Answer

To increase competition among firms.

Monopoly and Antitrust Policy: Microeconomics Study Notes

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