Activity based questions

Question # 00003968 Posted By: smartwriter Updated on: 11/23/2013 12:23 PM Due on: 11/30/2013
Subject Economics Topic General Economics Tutorials:
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31. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of

a. economies of scale.

b. diseconomies of scale.

c. diminishing marginal product.

d. increasing marginal cost.

32. In view of what we know about the relationship between average total cost and marginal cost, the marginal cost curve for this firm

a. must lie entirely above the average total cost curve.

b. must lie entirely below the average total cost curve.

c. must be upward sloping.

d. does not exist.

33. When an industry is a natural monopoly,

a. it is characterized by constant returns to scale.

b. it is characterized by diseconomies of scale.

c. a larger number of firms may lead to a lower average cost.

d. a larger number of firms will lead to a higher average cost.

34. If the distribution of water is a natural monopoly, then

(i) multiple firms will each have to pay large fixed costs to develop their own network of pipes.

(ii) allowing for competition among different firms in the water-distribution industry is efficient.

(iii) a single firm can serve the market at the lowest possible average total cost.

a. (i) and (ii)

b. (ii) and (iii)

c. (i) and (iii)

d. (i) only

35. A firm that is a natural monopoly

a. is not likely to be concerned about new entrants eroding its monopoly power.

b. is taking advantage of economies of scale.

c. would experience a higher average total cost if more firms entered the market.

d. All of the above are correct.

36. Additional firms often do not try to compete with a natural monopoly because

a. they fear retaliation in the form of pricing wars from the natural monopolist.

b. they are unsure of the size of the market in general.

c. they know they cannot achieve the same low costs that the monopolist enjoys.

d. the natural monopoly doesn’t make a huge profit.

37. The laws governing patents and copyrights

a. can lead to monopolies.

b. are intended to serve private interests, not the public interest.

c. have costs, but no benefits.

d. All of the above are correct.

38. The De Beers diamond monopoly is a classic example of a monopoly that

a. is government-created.

b. arises from the ownership of a key resource.

c. results in very little advertising of the product that the monopolist produces.

d. was broken up by the government a long time ago.

Use the information below to answer questions 39 and 40.

Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation.

39. Which of the following statements are most likely to be true?

(i) New entrants to the market know they will earn a smaller piece of the market than C.R. Evans currently has.

(ii) C.R. Evans is most likely experiencing increasing average total cost.

(iii) C.R. Evans is a natural monopoly.

a. (i) and (ii)

b. (ii) and (iii)

c. (i) and (iii)

d. All of the above are correct.

40. C.R. Evans may continue to be a monopolist in the subway transportation industry only if

a. population growth leads to an overcrowding of the subway cars.

b. there are no new entrants to the market.

c. demand for transportation services decreases.

d. All of the above are correct.

41. The fundamental cause of monopoly is

a. incompetent management in competitive firms.

b. the zero-profit feature of long-run equilibrium in competitive markets.

c. advertising.

d. barriers to entry.

42. Which of the following items is a primary source of barriers to entry?

a. The costs of production make a single firm more efficient than a large number of firms.

b. A single firm hires all the people who have the management skills that are important in the industry.

c. Contracts among firms prohibit them from competing with one another in the production and sale of certain products.

d. All of the above are correct.

43. A firm that has a monopoly on water (which is a necessity) can charge a high price for water

a. only if the marginal cost of producing water is high.

b. even if the marginal cost of producing water is low.

c. only if the firm is a natural monopoly.

d. even if the demand for water is low.

44. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, the large diamond company, has

a. less incentive to advertise than it would otherwise have.

b. less market power than it would otherwise have.

c. more control over the price of diamonds than it would otherwise have.

d. higher profits than it would otherwise have.

45. A benefit to society of the patent and copyright laws is that those laws

a. help to keep prices down.

b. help to prevent a single firm from acquiring ownership of a key resource.

c. encourage creative activity.

d. discourage excessive amounts of output of certain products.

46. When a single firm can supply a product to an entire market at a smaller cost than could two or more firms, the industry is called a

a. resource industry.

b. exclusive industry.

c. government monopoly.

d. natural monopoly.

47. A natural monopoly arises when

a. there are constant returns to scale over the relevant range of output.

b. there are economies of scale over the relevant range of output.

c. one firm owns a key natural resource.

d. the government gives a single firm the exclusive right to produce a particular good or service.

48. When a firm has a natural monopoly, the firm’s

a. marginal cost always exceeds its average total cost.

b. total cost curve is horizontal.

c. average total cost curve is downward sloping.

d. All of the above are correct.

49. It is possible for a natural monopoly to evolve into a competitive market

a. as a market expands.

b. as patent and copyright laws change.

c. as technological advances give rise to economies of scale.

d. None of the above are correct; it is not possible for a natural monopoly to evolve into a competitive market.

50. The key difference between a competitive firm and a monopoly firm is the ability to select

a. the level of competition in the market.

b. the level of production.

c. inputs in the production process.

d. the price of its output.

51. The market demand curve for a monopolist is typically

a. unitary elastic at the point of profit maximization.

b. downward sloping.

c. horizontal.

d. vertical.

52. When a firm operates under conditions of monopoly, its price is

a. not constrained.

b. constrained by marginal cost.

c. constrained by demand.

d. constrained only by its social agenda.

53. In order to sell more of its product, a monopolist must

a. sell to the government.

b. sell in international markets.

c. lower its price.

d. use its market power to force up the price of complementary products.

54. A natural monopolist's ability to price its product is

a. constrained by the market demand curve.

b. constrained by market supply.

c. not affected by market demand.

d. enhanced by regulatory control of the government.

55. Economists assume that monopolists behave as

a. cost minimizers.

b. profit maximizers.

c. price maximizers.

d. All of the above are correct.

56. A monopolist's average revenue is always

a. equal to marginal revenue.

b. greater than the price of its product.

c. equal to the price of its product.

d. less than the price of its product.

57. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its

a. average revenue is less than the price of the product.

b. average revenue is less than marginal revenue.

c. marginal revenue is less than the price of the product.

d. marginal revenue is greater than the price of the product.

58. When a monopolist increases the number of units it sells, there are two effects on revenue. They are the

a. demand effect and the supply effect.

b. competition effect and the cost effect.

c. competitive effect and the monopoly effect.

d. output effect and the price effect.

59. Which of the following statements is (are) true of monopolies?

a. Monopolies are constrained by market demand.

b. Monopolies benefit from barriers to entry.

c. Monopolies have the ability to set the prices of their products.

d. All of the above are correct.

60. For a monopolist, marginal revenue is

a. positive when the demand effect is greater than the supply effect.

b. positive when the monopoly effect is greater than the competitive effect.

c. negative when the price effect is greater than the output effect.

d. negative when the output effect is greater than the price effect.

61. A profit-maximizing monopolist will produce the level of output at which

a. average revenue is equal to average total cost.

b. average revenue is equal to marginal cost.

c. marginal revenue is equal to marginal cost.

d. total revenue is equal to opportunity cost.

62. For a profit-maximizing monopolist,

a. P > MR = MC.

b. P = MR = MC.

c. P > MR > MC.

d. MR < MC < P.

63. Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good

(i) without affecting the quantity sold.

(ii) without affecting its average total cost.

(iii) by adjusting the quantity it supplies to the market.

a. (ii) only

b. (iii) only

c. (i) and (ii)

d. (i) and (iii)

64. Competitive firms have

a. downward-sloping demand curves and they can sell as much output as they desire at the market price.

b. downward-sloping demand curves and they can sell only a limited quantity of output at each price.

c. horizontal demand curves and they can sell as much output as they desire at the market price.

d. horizontal demand curves and they can sell only a limited quantity of output at each price.

65. Monopoly firms have

a. downward-sloping demand curves and they can sell as much output as they desire at the market price.

b. downward-sloping demand curves and they can sell only a limited quantity of output at each price.

c. horizontal demand curves and they can sell as much output as they desire at the market price.

d. horizontal demand curves and they can sell only a limited quantity of output at each price.

66. Because many good substitutes exist for a competitive firm’s product, the demand curve that it faces is

a. unit-elastic.

b. perfectly inelastic.

c. perfectly elastic.

d. inelastic only over a certain region.

67. When a monopolist decreases the price of its good, consumers

a. continue to buy the same amount.

b. buy more.

c. buy less.

d. may buy more or less, depending on the price elasticity of demand.

68. When a monopolist increases the amount of output that it produces and sells, the price of its output

a. stays the same.

b. increases.

c. decreases.

d. may increase or decrease depending on the price elasticity of demand.

69. When a monopolist increases the amount of output that it produces and sells, its average revenue

a. increases and its marginal revenue increases.

b. increases and its marginal revenue decreases.

c. decreases and its marginal revenue increases.

d. decreases and its marginal revenue decreases.

70. Which of the following is an impossible feat for a monopolist to accomplish?

a. control the price of its good

b. charge a higher price and continue to sell the same quantity

c. operate at a point on the upper half of the demand curve

d. All of the above are correct.

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Tutorials for this Question
  1. Tutorial # 00003750 Posted By: smartwriter Posted on: 11/23/2013 12:23 PM
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    efficient than a large number of firms. 43. ANSWER: b. even ...
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