Question 1

In the short run a pure monopolist will charge the highest price the market will bear for its product.

Accepted Answer

A) True 
 B)False

Question 2

A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by

Accepted Answer

A)   4 units per day.
B)   3 units per day.
C)   2 units per day.
D)   1 unit per day.

Question 3

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

Accepted Answer

A)   produce more output and charge a higher price.
B)   produce more output and charge a lower price.
C)   reduce both output and price.
D)   raise both output and price.

Question 4

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

Accepted Answer

A)   $1 or less.
B)   $.75 or less.
C)   $1.75 or less.
D)   $2 or less.

Question 5

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

Accepted Answer

A) True 
 B)False

Question 6

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

Accepted Answer

A) True 
 B)False

Question 7

Assuming no change in product demand, a pure monopolist

Accepted Answer

A)   can increase price and increase sales simultaneously because it dominates the market.
B)   adds an amount to total revenue that is equal to the price of incremental sales.
C)   should produce in the range where marginal revenue is negative.
D)   must lower price to increase sales.

Question 8

For a monopolist, maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.

Accepted Answer

A) True 
 B)False

Question 9

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

Accepted Answer

A)   equal to its price.
B)   the price at which that unit is sold less the price reductions that apply to all other units of output.
C)   the price at which that unit is sold plus the price increases that apply to all other units of output.
D)   indeterminate unless marginal cost data are known.

Question 10

Given a linear demand curve, at which combination of price and marginal revenue (P, MR)  is the price elasticity of demand greater than 1?

Accepted Answer

A)   P = 15, MR = 8
B)   P = 12, MR = 0
C)   P = 8, MR = −2
D)   P = 4, MR = −4

Question 11

An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

Accepted Answer

A)   copyright.
B)   franchise.
C)   patent.
D)   license.

Question 12

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

Accepted Answer

A)   P > ATC.
B)   P > MR.
C)   P > MC.
D)   P > AVC.

Question 13

When the value of a product to each user, including existing users, increases due to an increase in the total number of users-as in the case of Facebook-we refer to this as

Accepted Answer

A)   income transfer.
B)   price discrimination.
C)   simultaneous consumption.
D)   network effects.

Question 14

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

Accepted Answer

A)   average total cost.
B)   marginal revenue.
C)   average variable cost.
D)   average cost.

Question 15

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

Accepted Answer

A)   reducing output and raising price.
B)   reducing both output and price.
C)   increasing both price and output.
D)   raising price while keeping output unchanged.

Question 16

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

Accepted Answer

A)   price of the seventh unit is $10.
B)   price of the seventh unit is $11.
C)   price of the seventh unit is greater than $12.
D)   firm's demand curve is perfectly elastic.

Question 17

With a natural monopoly, the fair-return price

Accepted Answer

A)   is allocatively efficient; the socially optimal price is allocatively inefficient.
B)   is allocatively inefficient; the socially optimal price is allocatively efficient.
C)   and the socially optimal price are both allocatively inefficient.
D)   and the socially optimal price are both allocatively efficient.

Question 18

The demand curve confronting a nondiscriminating pure monopolist is

Accepted Answer

A)   horizontal.
B)   the same as the industry's demand curve.
C)   more elastic than the demand curve confronting a competitive firm.
D)   derived by vertically summing the individual demand curves for the buyers.

Question 19

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is

Accepted Answer

A)   greater or equal to one.
B)   less than one.
C)   equal to one.
D)   impossible to determine.

Question 20

The region of demand in which the monopolist will choose a price-output combination will be

Accepted Answer

A)   inelastic because, as price declines and output increases, total revenue will increase.
B)   inelastic because, as price declines and output increases, total revenue will decrease.
C)   elastic because, as price declines and output increases, total revenue will decrease.
D)   elastic because, as price declines and output increases, total revenue will increase.

Exam 12: Pure Monopoly

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

Correct AnswerverifiedShow Answer

A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by

Correct AnswerverifiedShow Answer

With a natural monopoly, the fair-return price

Correct AnswerverifiedShow Answer

Assuming no change in product demand, a pure monopolist

Correct AnswerverifiedShow Answer

An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a

Correct AnswerverifiedShow Answer

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

Correct AnswerverifiedShow Answer

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

Correct AnswerverifiedShow Answer

For a monopolist, maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.

Correct AnswerverifiedShow Answer

The demand curve confronting a nondiscriminating pure monopolist is

Correct AnswerverifiedShow Answer

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

Correct AnswerverifiedShow Answer

In the short run a pure monopolist will charge the highest price the market will bear for its product.

Correct AnswerverifiedShow Answer

The region of demand in which the monopolist will choose a price-output combination will be

Correct AnswerverifiedShow Answer

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

Correct AnswerverifiedShow Answer

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

Correct AnswerverifiedShow Answer

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

Correct AnswerverifiedShow Answer

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

Correct AnswerverifiedShow Answer

Given a linear demand curve, at which combination of price and marginal revenue (P, MR) is the price elasticity of demand greater than 1?

Correct AnswerverifiedShow Answer

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is

Correct AnswerverifiedShow Answer

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

Correct AnswerverifiedShow Answer

When the value of a product to each user, including existing users, increases due to an increase in the total number of users-as in the case of Facebook-we refer to this as

Correct AnswerverifiedShow Answer

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