Question 1

Which of the following best explains why a natural monopoly arises in certain industries, such as water distribution or electricity supply?

Accepted Answer

Because a single firm can supply the entire market at a lower average total cost than multiple firms due to economies of scale.

Question 2

Suppose a monopolist faces the following demand curve: $$P = 100 - 2Q$$, and its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity for the monopolist?

Accepted Answer

$$Q = 30$$

Question 3

Which of the following statements about the marginal revenue (MR) curve for a monopoly is correct?

Accepted Answer

The MR curve lies below the demand curve because the monopolist must lower the price on all units to sell more.

Question 4

A pharmaceutical company holds a patent on a new drug. Which type of barrier to entry does this represent?

Accepted Answer

Government-created monopoly

Question 5

If a monopoly firm is producing at a quantity where marginal cost is less than marginal revenue, what should the firm do to maximize profit?

Accepted Answer

Increase production until marginal cost equals marginal revenue.

Question 6

Which of the following best describes the deadweight loss associated with monopoly?

Accepted Answer

It is the area between the demand curve and the marginal cost curve for units not produced by the monopoly.

Question 7

A monopoly charges a price of $$P = 50$$, has an average total cost of $$ATC = 30$$, and sells $$Q = 100$$ units. What is the monopoly's profit?

Accepted Answer

$$2,000$$

Question 8

Which of the following is NOT a necessary condition for a firm to successfully price discriminate?

Accepted Answer

The firm must produce at the minimum point of its average total cost curve.

Question 9

Suppose a natural monopoly is regulated to set price equal to marginal cost. What is a likely outcome?

Accepted Answer

The monopoly will incur losses because average total cost exceeds marginal cost.

Question 10

Which of the following is an example of price discrimination in real life?

Accepted Answer

A movie theater charging lower prices for children and seniors.

Question 11

Why does a monopoly not have a supply curve?

Accepted Answer

Because the monopoly's quantity supplied depends on both marginal cost and the demand curve, not just price.

Question 12

If a monopoly can perfectly price discriminate, what happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is eliminated.

Question 13

Which of the following is a likely effect of antitrust laws such as the Sherman Act and Clayton Act?

Accepted Answer

They promote competition by preventing mergers and breaking up companies.

Question 14

Suppose a monopoly faces the following demand and cost conditions: $$P = 80 - Q$$, $$MC = 20$$, and $$ATC = 30 at $$the profit-maximizing quantity. What price will the monopoly charge?

Accepted Answer

$$P = 50$$

Question 15

Which of the following best explains why monopoly profit is not necessarily a social cost?

Accepted Answer

Because monopoly profit is a transfer from consumers to producers, not a loss of total surplus.

Question 16

A competitive market produces at the point where $$P = MC. In $$contrast, a monopoly produces at the point where:

Accepted Answer

$$MR = MC$$ and $$P \u003e MC$$

Question 17

Which of the following is a potential disadvantage of public ownership of a monopoly compared to private ownership?

Accepted Answer

Public employees may have less incentive to minimize costs.

Question 18

Which of the following is a reason why some economists argue that the government should sometimes do nothing about monopoly pricing?

Accepted Answer

Because the costs of regulation or public ownership may exceed the benefits.

Question 19

Which of the following is NOT an example of price discrimination?

Accepted Answer

A bakery selling all loaves of bread at the same price to every customer.

Question 20

Suppose a monopoly faces a downward-sloping demand curve and a constant marginal cost. If the government breaks up the monopoly and the market becomes perfectly competitive, what will happen to the price and quantity in the market?

Accepted Answer

Price will decrease and quantity will increase.

Monopoly: Characteristics, Pricing, Welfare, and Public Policy

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