Question 1

Which of the following best explains why the GLP-1 drug market exhibits characteristics of a natural monopoly?

Accepted Answer

Because the market has extremely high fixed costs and strong economies of scale, making it more efficient for a single or few large firms to supply the market.

Question 2

Suppose the average total cost (ATC) curve for a natural monopoly is downward sloping and the marginal cost (MC) is constant at $10. If the firm increases output from 6 to 12 units, what happens to the average total cost, and why?

Accepted Answer

The ATC decreases because high fixed costs are spread over more units, illustrating economies of scale.

Question 3

If the minimum efficient scale (MES) in the GLP-1 drug market is 20% of total market demand, what is the maximum number of firms that could theoretically operate efficiently in this market?

Accepted Answer

$$5$$

Question 4

Which of the following is NOT a typical barrier to entry in the pharmaceutical industry, as discussed in the context of the GLP-1 drug market?

Accepted Answer

Perfect information and zero transaction costs

Question 5

A natural monopoly is most likely to occur in which of the following industries?

Accepted Answer

Railroads

Question 6

If a natural monopoly is forced by government regulation to set price equal to marginal cost ($$P = MC$$), what is a likely outcome?

Accepted Answer

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

Question 7

In the context of the proposed merger between Union Pacific and Norfolk Southern, which economic trade-off are regulators most concerned about?

Accepted Answer

The trade-off between efficiency gains from economies of scale and the potential reduction in competition.

Question 8

Which of the following best describes the effect of network effects in digital platform markets, such as social networking?

Accepted Answer

Network effects increase the value of the platform as more users join, strengthening the market position of large firms.

Question 9

Why is it difficult to apply traditional antitrust tools, such as price analysis, to digital markets where services are offered for free?

Accepted Answer

Because competition in digital markets is based on innovation, data, and user engagement rather than price.

Question 10

Suppose a monopoly faces a linear demand curve $$P = 100 - 2Q$$ and has constant marginal cost $$MC = 20. $$What is the profit-maximizing quantity for the monopolist?

Accepted Answer

$$Q = 20$$

Question 11

If government negotiation leads to lower prices and higher output in the GLP-1 drug market, what is the likely effect on deadweight loss and total welfare?

Accepted Answer

Deadweight loss decreases and total welfare increases.

Question 12

Which of the following best explains why large pharmaceutical firms may retain market power even after patents expire?

Accepted Answer

Because large firms benefit from economies of scale, established distribution networks, and brand reputation.

Question 13

In the Meta antitrust case, why did the court rule in favor of Meta rather than the FTC?

Accepted Answer

Because the FTC failed to prove that Meta currently holds monopoly power given strong competition from other platforms.

Question 14

If a firm in a natural monopoly market splits into two smaller firms, what is the likely effect on average total cost and market efficiency?

Accepted Answer

Average total cost increases and market efficiency decreases.

Question 15

Which of the following is an example of a government policy that can reduce deadweight loss in a monopoly market?

Accepted Answer

Negotiating lower prices and requiring higher output.

Question 16

Suppose the demand for a monopolist’s product becomes more elastic due to the entry of a strong competitor. What is the likely effect on the monopolist’s pricing power?

Accepted Answer

The monopolist’s pricing power decreases.

Question 17

Which of the following best describes the concept of economies of scale?

Accepted Answer

As output increases, average total cost decreases.

Question 18

A pharmaceutical firm holds a patent on a new drug. Which of the following best describes the economic rationale for granting patents?

Accepted Answer

To allow firms to recover high fixed costs of innovation by granting temporary monopoly power.

Question 19

If a natural monopoly’s average total cost curve is given by $$ATC = \frac{100}{Q} + 10$$ and marginal cost is $$MC = 10$$, what happens to $$ATC as$$ $$Q$$ increases?

Accepted Answer

$$ATC$$ decreases as $$Q$$ increases.

Question 20

Which of the following is a likely long-term effect of strong network effects in a digital platform market?

Accepted Answer

The largest platform becomes increasingly dominant, making entry difficult for new competitors.

Monopoly, Natural Monopoly, and Market Power: Applications in Pharmaceuticals, Railroads, and Digital Platforms

Study Guide - Practice Questions

Study Guide - Flashcards