Download Practice Questions_Ch11 - U of L Class Index

Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 11
1. For a monopolist to earn an economic profit in the long run, which of the following
must happen?
A) There are barriers to entry.
B) Average total costs must fall.
C) Welfare loss due to monopoly must increase.
D) Fixed costs must be eliminated.
Use the following to answer question 2:
Price of
Product ($)
$18
$16
$14
$12
$10
$8
$6
$4
$2
Quantity Demanded
per year
20
40
60
80
100
120
140
160
180
2. Refer to the table above that shows the demand schedule for a product sold by a
monopolist. Marginal revenue is zero
A) when price is $10.
B) when price is above $10.
C) when price is below $10.
D) for every price.
Page 1
Price
Use the following to answer question 3:
MC
A
B
C
D
MR
Quantity
3. Refer to the graph above. Which area represents the welfare loss due to a monopolist?
A) A.
B) A + B.
C) B + C.
D) A + B + C.
Use the following to answer question 4:
10
Price
8
MC ATC
6
D
4
MR
2
0
10
20
30
40
Output per day
50
4. Refer to the graph above. If the firm maximizes profit, the marginal cost of its product
will be
A) $10.
B) $ 8.
C) $ 6.
D) $ 4.
Page 2
Use the following to answer question 5:
Price
$20
13.50
10
MC
7
M arket
Dem and
MR
325
500
750
1000
Quantity
5. Refer to the graph above. If this graph represents a competitive market, then the
equilibrium price and quantity will be
A) $13.50 and 325, respectively.
B) $7 and 325, respectively.
C) $10 and 500, respectively.
D) $7 and 750, respectively.
6. Of the following, the most likely example of price discrimination is when
A) a firm sells different shoes for different prices.
B) hotels charge different rates for the same rooms when conventions are held.
C) restaurants charge different prices for chicken and beef.
D) supermarkets charge different prices for oranges and apples.
7. The DeBeers Company is a profit-maximizing monopolist that exercises monopoly
power in the distribution of diamonds. If the company earns positive economic profits
this year, then the price of diamonds will
A) be equal to the marginal cost of diamonds.
B) be equal to the average total cost of diamonds.
C) exceed the marginal cost of diamonds but be equal to the average total cost of
diamonds.
D) exceed both the marginal cost and the average total cost of diamonds.
8. Why do some stores offer senior citizen discounts on Tuesday?
A) Most stores are perfect competitors in their geographic region.
B) Senior citizens have perfectly inelastic demand curves, while other shoppers do not.
C) Senior citizens have more elastic demands compared to other shoppers.
D) Senior citizens have less elastic demands compared to other shoppers.
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Price
Use the following to answer question 9:
MC
ATC
a
P3
P2
c
b
P1
d
D
MR
Q
0
1
Q
Quantity
2
9. Refer to the graph above. Which of the following statements about the market
represented is true?
A) A monopolist would charge a price P2 and produce output Q2.
B) A monopolist would charge price P1 and produce output Q1.
C) A competitive market would charge price P2 and produce output Q2.
D) A monopolist would earn a profit per unit equal to P3 minus P2.
Use the following to answer question 10:
Price
$5
MC
$4
$3.5
$3
$2.5
$2
$1.25
$1
D
MR
$0
15
25 30
50
Quantity
10. Refer to the graph above. If the monopoly firm maximizes profit, consumers will pay
_____ per unit and consumer surplus will be _____.
A) $2.00; 45
B) $2.50; 18.75
C) $3.50; 11.25
D) $3.50; 22.5
Page 4
Use the following to answer question 11:
Price
$8
$7
B
A
$6
$5
G
$4
C
F
M C=AC
$3
D
$2
MR
$1
J
$0
H
0
50
100
150
200
Quantity per day
11. Refer to the graph above. If hamburger dinners are produced by a pure monopoly firm
that maximizes profit, the deadweight loss of monopoly will be represented by the area
A) $100.
B) $200.
C) $300.
D) $0.
Price
Use the following to answer question 12:
MC
P1
A
P2
B
C
P3
D
Dem and
MR
Q1
Q2
Q3
Quantity
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12. Refer to the graph above. If a price control is used to eliminate deadweight loss, then the
new price and quantity in this market will be
A) P1 and Q1, respectively.
B) P2 and Q1, respectively.
C) P2 and Q2, respectively.
D) P3 and Q3, respectively.
13. Having government buy patent rights has been suggested as an alternative to regulating
the price charged by a patent-holding monopolist. The problems associated with this
alternative include all of the following EXCEPT
A) government would have to increase taxes to cover the cost of the buyout.
B) it would be difficult for government to determine which patents to buy.
C) it could have negative incentive effects.
D) it would reduce the incentive for companies to engage in research and development.
14. A natural monopoly is a monopoly
A) that exists because of economies of scale.
B) that is created by natural law.
C) where natural legal barriers prevent entry.
D) in which patents exist.
Price
Use the following to answer question 15:
MC
P1
ATC
P2
P3
P4
MR
0
Q1 Q2 Q3 Q4
D
Quantity
15. Refer to the graph above. The profit-maximizing monopolist would sell its output at
price
A) P1.
B) P2.
C) P3.
D) P4.
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16. Monopoly is a market structure where
A) one firm makes up the entire market.
B) a few firms dominate the market.
C) many firms produce differentiated products.
D) many firms produce identical products.
17. A profit-maximizing monopolist will
A) produce an output level at which MR > MC.
B) produce at an output level at which P > MC.
C) always earn an economic profit in the short run.
D) increase production when MR < MC.
Use the following to answer question 18:
10
Price
8
MC ATC
6
D
4
MR
2
0
10
20
30
40
Output per day
50
18. Refer to the graph above. If the firm seeks to maximize profit, it should set a price equal
to
A) $10.
B) $ 8.
C) $ 6.
D) $ 4.
19. Under normal monopoly P > MC, which implies that
A) the total cost to society of producing output is less than the total benefit.
B) the total benefit to society of producing output is less than the cost.
C) the marginal cost to society of increasing output is lower than the marginal benefit
of increasing output.
D) the marginal cost to society of increasing output is greater than the marginal benefit.
Page 7
Use the following to answer question 20:
$10
Average Cost
$8
$6
$4
AC
0
333 500 667
1000
Quantity
20. Refer to the above graph of average costs for an industry. If there were 2 firms each
producing 500 units, per-unit costs would be
A) $6.
B) $8.
C) $10.
D) $800.
21. A monopolist
A) earns a profit in the short run and the long run.
B) earns a profit in the short run but not the long run.
C) can earn profits or incur losses in the short run.
D) can never incur losses.
Price
Use the following to answer question 22:
A
B
C
D
De m and
2.5
5
7.5
10
Quantity
Page 8
22. Refer to the graph above. Given the demand curve, the marginal revenue curve is
A) A, which intersects the x-axis at 1/4 the quantity where the demand curve intersects
the x-axis.
B) B, which intersects the x-axis at 1/2 the quantity where the demand curve intersects
the x-axis.
C) C, which intersects the x-axis at 3/4 the quantity where the demand curve intersects
the x-axis.
D) D, which intersects the x-axis at the same quantity where the demand curve
intersects the x-axis.
23. For a natural monopoly
A) marginal costs are zero.
B) average total costs are always falling.
C) diseconomies of scale are strong.
D) marginal costs are always above average total costs.
Use the following to answer question 24:
$9
$8
$7
Price
$6
$5
$4
$3
$2
$1
MR
$0
0
400 500
D
AC
MC
900 1,000
Quantity
24. Refer to the graph above. If regulators wanted this firm to earn only a normal profit,
they would set price equal to
A) $1.
B) $2.
C) $3.
D) $4.50.
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25. Despite the fact that the Quick-Buzz Coffee Company provides a coupon in the local
newspaper that can be redeemed for $1 off the price of its best-selling coffee beans, not
all buyers actually use the coupon. From this we know that
A) all coffee drinkers have a highly elastic demand.
B) all coffee drinkers have a highly inelastic demand.
C) the coffee drinkers who use the coupons have less elastic demand than the coffee
drinkers who pay full price.
D) the coffee drinkers who use the coupons have more elastic demand than the coffee
drinkers who pay full price.
Use the following to answer question 26:
Price
$8
$7
B
A
$6
$5
G
$4
C
F
M C=AC
$3
D
$2
MR
$1
J
$0
0
H
50
100
150
200
Quantity per day
26. Refer to the graph above. If hamburger dinners are produced by a perfectly competitive
industry, then, in long-run equilibrium
A) output will be the same as it would under monopoly.
B) price will equal marginal cost.
C) price will equal $6.
D) price will be greater than marginal revenue.
Page 10
Use the following to answer question 27:
Price
$5
MC
$4
$3.5
$3
$2.5
$2
$1.25
$1
D
MR
$0
15
25 30
50
Quantity
27. Refer to the graph above. If the monopoly firm maximizes profit, it will produce _____
units of output and producer surplus will be _____.
A) 15; 28.125
B) 15; 16.875
C) 25; 15.625
D) 30; 60
Price
Use the following to answer question 28:
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
MC
AC
D
MR
0
300
600 700 800
Quantity per day
Page 11
28. Refer to the graph above. Assuming that the firm maximizes profit, the marginal
revenue of its last unit of output will be
A) $16.
B) $12.
C) $ 8.
D) $10.
29. A monopoly firm selling textbooks to students in a small town is currently maximizing
profits by charging a price of $50 per book. It follows that the marginal cost of
textbooks
A) is equal to $50.
B) is less than $50.
C) is greater than $50.
D) is greater than the average total cost.
30. Monopolies that exist because economies of scale create a barrier to entry are called
A) normal monopolies.
B) natural monopolies.
C) price-discriminating monopolies.
D) government monopolies.
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