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Monopoly vs. Perfect Competition
Which of the following is most likely to occur if a single-price monopolist is replaced by a perfectly competitive market?
(A)Prices will increase.
(B)The deadweight loss will decrease.
(C)Profits will increase.
(D)Output will decrease.
(E)The firm’s cost curves will shift upward.
A firm is producing the allocatively efficient level of output if
(A)total revenue is equal to total cost
(B)marginal revenue is equal to marginal cost
(C)price is equal to average total cost
(D)price is equal to marginal cost
(E)price is equal to total cost
If the monopolist in this graph is unregulated, its profit-maximizing price and output level would lead to a deadweight
loss equal to area
(A)RUV
(B)RTV
(C)RTW
(D)TUV
(E)UVW
Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly's price and output
will be which of the following?
(A)Price = The same ; Output = Higher
(B)Price = Higher ; Output = The same
(C)Price = Higher ; Output = Lower
(D)Price = Lower ; Output = The same
(E)Price = Lower ; Output = Higher
One difference between a firm in a perfectly competitive market and an unregulated monopoly is that the
(A)perfectly competitive firm can increase the quantity it sells at the market price, whereas the monopoly must lower its
price to sell more
(B)perfectly competitive firm sells differentiated products, whereas the monopoly sells a homogeneous product
(C)price elasticity of demand for a monopoly is much higher than that for a perfectly competitive firm
(D)monopolist seeks to maximize profits, whereas the perfectly competitive firm maximizes revenues
(E)monopolist can never change a price, whereas the perfect competitor can
A monopolist is inefficient from society's point of view because
(A)it overproduces output and charges a price above marginal cost
(B)it underproduces output and charges a price above marginal cost
(C)it sometimes colludes with other firms to obtain higher prices
(D)the price the monopolist charges is too low and it does not advertise
(E)consumers must pay whatever price the monopolist charges
What are the major reasons why a monopoly is inefficient?
(A)It has no incentive to become efficient.
(B)It produces too much and wastes a lot of resources.
(C)It charges customers whatever price it wants and becomes too profitable.
(D)It does not produce enough and charges a price greater than marginal cost.
(E)It produces products that aren’t safe unless it’s regulated by government.
If this were a perfectly competitive market with identical costs to this graph, what would be the equilibrium price and
quantity?
(A)Price = 0V ; Quantity = Q5
(B)Price = 0W ; Quantity = Q6
(C)Price = 0Y ; Quantity = Q5
(D)Price = 0X ; Quantity = Q7
(E)Price = 0Y ; Quantity = Q8
What is true for a monopoly but NOT true for a firm in a perfectly competitive market?
(A)It has a downward-sloping demand curve.
(B)Demand = Average Revenue.
(C)P < MR when profits are maximized.
(D)Profits are maximized when MC = MR.
(E)In the long-run, it earns zero economic profit.
What is one reason why monopolies are considered inefficient?
(A)They don’t produce enough and therefore resources are underallocated in that market
(B)They produce at an output level where marginal cost > price
(C)They produce more output than does a competitive industry
(D)They produce too much and therefore resources are overallocated in that market
(E)They produce at an output level where marginal cost < marginal revenue
How is a monopoly different than a perfectly competitive firm?
(A)It has a marginal revenue curve that is below its demand curve
(B)It has an average fixed cost curve that is perfectly vertical
(C)It does not have a U-shaped marginal cost curve
(D)It always experiences economic loss
(E)It operates in the unit elastic segment of its demand curve
Compared to perfectly competitive firms, monopolies are inefficient because they
(A)produce output where average total cost > average revenue
(B)produce the exact amount of output than is socially desirable
(C)charge a price < marginal revenue
(D)charge a price < average total cost
(E)charge a price > marginal cost
Which is true for a firm that’s perfectly competitive but NOT true for a monopoly?
(A)Price = average revenue.
(B)The demand for the firm's product is perfectly inelastic.
(C)Significant barriers to entry.
(D)The firm can’t impact the market price for its product.
(E)To sell more, the firm must lower its price.
Allocative efficiency will not be achieved when
(A)price = average total cost
(B)profits exist in a competitive market in the short-run
(C)businesses are price makers
(D)there’s an inelastic market demand curve in a competitive industry
(E)there’s an elastic market demand curve in a competitive industry