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 main reason monopolies arise?

Accepted Answer

Low fixed costs in the industry

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 can two or more firms.

Question 4

Which equation determines the profit-maximizing quantity for a monopolist?

Accepted Answer

$$MC = MR$$

Question 5

Suppose a monopoly faces the following demand and marginal cost curves: $$P = 100 - 2Q$$ and $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 40$$

Question 6

If a monopoly sets its price above marginal cost, what is the likely effect on economic efficiency?

Accepted Answer

Economic efficiency decreases due to deadweight loss.

Question 7

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charges students less than adults for tickets.

Question 8

For price discrimination to be possible, which condition must be met?

Accepted Answer

The firm must have market power.

Question 9

Perfect price discrimination results in:

Accepted Answer

Zero consumer surplus and maximum profit for the firm.

Question 10

Which of the following is a government policy used to regulate monopolies?

Accepted Answer

Antitrust laws

Question 11

The Herfindahl-Hirschman Index (HHI) is used to:

Accepted Answer

Measure market concentration by squaring the percentage market shares of each firm and summing the results.

Question 12

If a market transitions from perfect competition to monopoly, what happens to price and quantity?

Accepted Answer

Price increases and quantity decreases.

Question 13

Which of the following is a plausible real-world example of a monopoly due to control of a key resource?

Accepted Answer

A company owning nearly all the world’s supply of bauxite for aluminum production.

Question 14

Network externalities can lead to monopoly power because:

Accepted Answer

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

Question 15

A public franchise is:

Accepted Answer

A government designation that a firm is the only legal provider of a good or service.

Question 16

Which of the following best explains why the U.S. Postal Service maintains its mailbox monopoly?

Accepted Answer

To fulfill the universal service obligation, allowing delivery to rural areas that would otherwise not be profitable.

Question 17

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

Accepted Answer

The firm will make a loss.

Question 18

Which of the following is a plausible effect of price discrimination in airline ticket pricing?

Accepted Answer

Business travelers pay higher prices than leisure travelers due to lower price sensitivity.

Question 19

Which equation represents the deadweight loss from monopoly?

Accepted Answer

$$DWL = \frac{1}{2} (P_m - P_c)(Q_c - Q_m)$$

Question 20

Which statement about the long-run profits of a monopoly is correct?

Accepted Answer

Monopolists can earn profits in the long run because barriers to entry prevent competition.

Monopoly and Antitrust Policy: Microeconomics Study Notes

Study Guide - Practice Questions