Question 1

Why is marginal revenue less than price for a profit-maximizing monopolist?

Accepted Answer

Because the monopolist must lower the price on all units sold to sell an additional unit, reducing revenue from previous units.

Question 2

Suppose a monopolist faces the following demand curve: $$p = 20 - 2Q. $$What is the marginal revenue (MR) function?

Accepted Answer

$$MR = 20 - 4Q$$

Question 3

Which of the following is NOT a natural barrier to entry that can allow a monopoly to persist?

Accepted Answer

Patent protection

Question 4

A monopolist will maximize profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 5

In the short run, a monopolist will shut down production if:

Accepted Answer

$$p \u003c AVC$$

Question 6

Compared to perfect competition, a monopoly will:

Accepted Answer

Produce less output and charge a higher price

Question 7

What is the deadweight loss associated with monopoly?

Accepted Answer

The loss of economic surplus due to the monopolist restricting output below the competitive level

Question 8

Which of the following is an example of a created barrier to entry?

Accepted Answer

Patent laws granting exclusive rights

Question 9

According to Joseph Schumpeter, what is the role of monopoly profits in economic progress?

Accepted Answer

They provide incentives for innovation and technological change, leading to creative destruction.

Question 10

A cartel is most similar to which market structure in terms of its pricing and output decisions?

Accepted Answer

Monopoly

Question 11

Why are cartels inherently unstable in the long run?

Accepted Answer

Because each member has an incentive to cheat by increasing its own output

Question 12

Which of the following is NOT a necessary condition for price discrimination to be profitable?

Accepted Answer

All consumers must have identical willingness to pay

Question 13

A movie theatre charges lower prices for seniors and children. This is an example of:

Accepted Answer

Price discrimination among market segments

Question 14

If a monopolist can perfectly price discriminate, what is the outcome?

Accepted Answer

The monopolist produces every unit for which $$p \geq MC$$

Question 15

Which of the following best describes hurdle pricing?

Accepted Answer

Creating an obstacle that consumers must overcome to get a lower price

Question 16

Suppose a monopolist faces two market segments: Segment A with less elastic demand and Segment B with more elastic demand. If the monopolist price discriminates, which segment will face a higher price?

Accepted Answer

Segment A

Question 17

Which of the following statements about price discrimination is TRUE?

Accepted Answer

Price discrimination can increase total economic surplus if it leads to higher output.

Question 18

A monopolist’s marginal revenue is negative when:

Accepted Answer

Demand is inelastic

Question 19

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

Accepted Answer

A firm with a patent on a new drug

Question 20

If a monopolist’s average total cost (ATC) is less than the price it charges at the profit-maximizing output, what can we conclude?

Accepted Answer

The monopolist is making a positive economic profit

Monopoly, Cartels, and Price Discrimination – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards