Question 1

Which of the following is NOT a characteristic of a monopoly market structure?

Accepted Answer

Easy entry and exit for new firms

Question 2

A monopolist is considered a price maker because:

Accepted Answer

It faces a downward-sloping demand curve and can select price-output combinations

Question 3

Given the demand curve $P = 8 - Q$ and marginal revenue curve $MR = 8 - 2Q$, at what quantity does marginal revenue equal zero?

Accepted Answer

$Q = 4$

Question 4

For a single-price monopolist, profit is maximized at the output level where:

Accepted Answer

$MC = MR$

Question 5

If a monopolist’s price is below average variable cost ($AVC$) at the profit-maximizing output, what should the firm do in the short run?

Accepted Answer

Shut down production

Question 6

A natural monopoly exists when:

Accepted Answer

Long-run average cost declines throughout the entire market demand

Question 7

In a monopoly, the relationship between price, marginal benefit, and marginal cost at the profit-maximizing output is:

Accepted Answer

$P = MB > MC$

Question 8

Which of the following best describes the deadweight loss created by a monopoly?

Accepted Answer

The reduction in consumer and producer surplus due to underproduction

Question 9

X-inefficiency in a monopoly refers to:

Accepted Answer

Operating above the lowest point of the long-run average cost curve due to lack of competitive pressure

Question 10

Contrived scarcity is a situation where:

Accepted Answer

A monopolist produces less than the competitive output to raise prices and profits

Question 11

Rent seeking in the context of monopoly refers to:

Accepted Answer

Attempts to capture economic profit or surplus through lobbying or buying monopoly rights

Question 12

Which of the following is a necessary condition for a firm to successfully price discriminate?

Accepted Answer

The firm must be able to segment the market

Question 13

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

Accepted Answer

It is eliminated

Question 14

Suppose a monopolist faces the following cost and demand conditions: $ATC = 3$, $P = 17$, $Q = 380$. What is the monopolist’s economic profit?

Accepted Answer

$5,320$

Question 15

Which regulatory policy sets the price equal to marginal cost for a natural monopoly?

Accepted Answer

Marginal cost pricing rule

Question 16

What is a potential downside of rate of return regulation for monopolies?

Accepted Answer

It may incentivize managers to inflate costs for personal benefit

Question 17

Why might governments allow monopolies in industries such as pharmaceuticals?

Accepted Answer

To incentivize innovation by granting temporary monopoly profits

Question 18

If a monopoly has economies of scope, what does this imply?

Accepted Answer

Average total cost decreases as the range of goods produced increases

Question 19

In the long run, what could prevent a monopolist from maintaining economic profits?

Accepted Answer

Entry of new competitors or changes in market conditions

Question 20

Which of the following statements about price discrimination is TRUE?

Accepted Answer

It can increase efficiency if done perfectly

Monopoly: Structure, Behavior, and Policy in Microeconomics

Study Guide - Practice Questions