economics data bank

____ 51. The problem with monopolies is their ability

(i) to do away with barriers to entry.

(ii) to price their product at a level that exceeds marginal cost.

(iii) to restrict output below the socially efficient level of production.

a. (i) and (ii)

b. (ii) and (iii)

c. (iii) only

d. (i), (ii), and (iii)

____ 52. One method used to control the ability of firms to capture monopoly profit in the United States is through

a. government purchase of products produced by monopolists.

b. government distribution of a monopolist's excess production.

c. enforcement of antitrust laws.

d. regulation of firms in highly competitive markets.

____ 53. The key issue in determining the efficiency of public versus private ownership of a monopoly is

a. the tendency for efficient management of publicly owned enterprises.

b. the inability of private monopolies to get rid of managers that are doing a bad job.

c. the propensity of private monopolies to generate excessive profits.

d. how ownership of the firm affects the cost of production.

____ 54. For a long while, electricity producers were thought to be a classic example of a natural monopoly. People

held this view because

a. the average cost of producing units of electricity by one producer in a specific region was

lower than if the same quantity were produced by two or more producers in the same

region.

b. the average cost of producing units of electricity by one producer in a specific region was

higher than if the same quantity were produced by two or more produced in the same

region.

c. the marginal cost of producing units of electricity by one producer in a specific region

was higher than if the same quantity were produced by two or more producers in the

same region.

d. electricity is a special non-excludable good that could never be sold in a competitive

market.

____ 55. When deciding what price to charge consumers, the monopolist may choose to charge them different prices

based on the customers'

a. geographical location.

b. age.

c. income.

d. All of the above are correct.

____ 56. Which of the following may eliminate some or all of the inefficiency that results from monopoly pricing?

a. The government can regulate the monopoly.

b. The monopoly can be prohibited from price discriminating.

c. The monopoly can be forced to operate at a point where its marginal revenue is equal to

its marginal cost.

d. None of the above would eliminate any inefficiency associated with a monopoly.

Figure 15-7

The figure below depicts the demand, marginal revenue, and marginal cost curves of a profit-maximizing

monopolist.

____ 57.Refer to Figure 15-7. If the monopoly firm is NOT allowed to price discriminate, then consumer surplus

amounts to

a. $0.

b. $500.

c. $1,000.

d. $2,000.

____ 58.Refer to Figure 15-7. If there are no fixed costs of production, monopoly profit without price discrimination

equals

a. $500.

b. $1,000.

c. $2,000.

d. $4,000.

____ 59.Refer to Figure 15-7. If there are no fixed costs of production, monopoly profit with perfect price

discrimination equals

a. $500.

b. $1,000.

c. $2,000.

d. $4,000.

Name: ________________________ ID: A

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____ 60. A monopolist faces the following demand curve:

Price Quantity Demanded

$8 300

$7 400

$6 500

$5 600

$4 700

$3 800

$2 900

$1 1,000

The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist

were able to perfectly price discriminate, how many units would it sell?

a. 400

b. 500

c. 900

d. 4,200

____ 61. It is not uncommon to find that prescription drugs sell for more in the United States than they do in other

countries. Which of the following statements about this issue is most likely to be true?

a. Drug companies are engaging in price discrimination, and this practice certainly reduces

global social welfare.

b. Global social welfare could be improved if the price in the United States were reduced to

the price charged in other countries.

c. Global social welfare could be improved if the price in the other countries were

increased to the price charged in the United States.

d. Drug companies are engaging in price discrimination, but this might improve global

social welfare if it gives more people access to the drugs.

____ 62. An airline knows that there are two types of travelers: business travelers and vacationers. For a particular

flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will

pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing

the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. How much profit will

the airline earn if it sets the price of a ticket at $600?

a. -$5,000

b. $15,000

c. $40,000

d. $70,000

Name: ________________________ ID: A

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Table 15-5

Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information. Assume

that Dreher’s is able to engage in perfect price discrimination.

COSTS REVENUES

Quantity

Produced

Total Cost

($)

Marginal

Cost

Quantity

Demanded

Price

($)

Total

Revenue

Marginal

Revenue

0 100 -- 0 170 --

1 140 1 160

2 184 2 150

3 230 3 140

4 280 4 130

5 335 5 120

6 395 6 110

7 475 7 100

8 575 8 95

____ 63.Refer to Table 15-5. What are Dreher's Designer Shirt Company's fixed costs?

a. $100

b. $150

c. $354

d. $654

____ 64. There are two types of imperfectly competitive markets:

a. monopoly and monopolistic competition.

b. monopoly and oligopoly.

c. monopolistic competition and oligopoly.

d. monopolistic competition and cartels.

____ 65. Crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a market is an

example of a(n)

(i) imperfectly competitive market.

(ii) monopoly market.

(iii) oligopoly market.

a. (i) and (ii)

b. (ii) and (iii)

c. (i) and (iii)

d. (iii) only

____ 66. If there are many firms participating in a market, the market is either

a. an oligopoly or monopolistically competitive.

b. perfectly competitive or monopolistically competitive.

c. an oligopoly or perfectly competitive.

d. an oligopoly or a cartel.

Name: ________________________ ID: A

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____ 67. A market structure with only a few sellers, offering similar or identical products, is known as

a. oligopoly.

b. monopoly.

c. monopolistic competition.

d. perfect competition.

Table 16-1

The following table shows the percentage of output supplied by the top eight firms in four different

industries.

Firm Industry A Industry B Industry C Industry D

1 0.24 0.46 0.10 0.32

2 0.13 0.24 0.08 0.16

3 0.10 0.10 0.06 0.08

4 0.08 0.05 0.05 0.04

5 0.05 0.04 0.04 0.02

6 0.03 0.03 0.03 0.01

7 0.02 0.02 0.02 0.01

8 0.01 0.01 0.01 0.01

____ 68.Refer to Table 16-1.What is the concentration ratio in Industry B?

a. 5%

b. 46%

c. 85%

d. 95%

____ 69. What do economists call a market structure in which there are many firms selling products that are similar

but not identical?

a. Perfect competition

b. Monopoly

c. Monopolistic competition

d. Oligopoly

Name: ________________________ ID: A

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Table 16-3

The information in the table below shows the total demand for premium-channel digital cable TV

subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of

$100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of

providing the premium channel service to a household is zero.

Quantity Price (per year)

0 $120

3,000 $100

6,000 $ 80

9,000 $ 60

12,000 $ 40

15,000 $ 20

18,000 $ 0

____ 70.Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in

this market. Further assume that they are able to collude on the price and quantity of premium digital channel

subscriptions to sell. As part of their collusive agreement they decide to take an equal share of the market.

How much profit will each company make?

a. $40,000

b. $170,000

c. $480,000

d. $540,000

____ 71.Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in

this market. Further assume that they are not able to collude on the price and quantity of premium digital

channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold

altogether when this market reaches a Nash equilibrium?

a. 3,000

b. 6,000

c. 9,000

d. 12,000

Name: ________________________ ID: A

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Table 16-4

Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water.

Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to

town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill

can pump as much water as they want without cost so that the marginal cost of water equals zero.

The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Weekly

Quantity

(in gallons) Price

Weekly

Total Revenue

(and Total Profit)

0 $12 $ 0

10 11 110

20 10 200

30 9 270

40 8 320

50 7 350

60 6 360

70 5 350

80 4 320

90 3 270

100 2 200

110 1 110

120 0 0

____ 72.Refer to Table 16-4. If the market for water were perfectly competitive instead of monopolistic, how many

gallons of water would be produced and sold?

a. 70

b. 90

c. 110

d. 120

____ 73.Refer to Table 16-4. Suppose the town enacts new antitrust laws that prohibit Tony and Jill from operating

as a monopolist. What will the new price of water end up being once the Nash equilibrium is reached?

a. $3

b. $4

c. $5

d. $6

____ 74. When oligopolistic firms interacting with one another each choose their best strategy given the strategies

chosen by other firms in the market, we have

a. a cartel.

b. a group of oligopolists behaving as a monopoly.

c. a Nash equilibrium.

d. the perfectly competitive outcome.

Name: ________________________ ID: A

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____ 75. As the number of firms in an oligopoly market

a. decreases, the market approaches the cartel outcome.

b. decreases, the market approaches the competitive market outcome.

c. increases, the market approaches the competitive market outcome.

d. increases, the market approaches the monopoly outcome