Transcript
Exam Name___________________________________
MULTIPLE CHOICE. CHOICE. Choose the one alternative that best completes the statement statement or answers the question. is false?? 1) Which one of the following about a monopoly is false A) A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly. B) A monopoly status could be temporary. C) A monopoly could make profits in the long run. D) A monopoly could break even in the long run.
1)
2) Governments grant patents to A) encourage firms to reveal secret production techniques. B) encourage low prices. C) compensate firms for research and development costs. D) encourage competition.
2)
3) The De Beers Company, one of the longest lived monopolies, is facing increasing competition. One source of competition comes from people p eople who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously pr eviously owned diamonds? previously owned diamonds would increase increase the market demand A) because the availability of previously for diamonds and dilute De Beers' monopoly B) because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed owned diamonds would be a close close substitute to newly mined diamonds C) because previously owned and therefore reduce De Beers' market power diamonds would make the market demand D) because the availability of previously owned diamonds curve for diamonds more inelastic and force De Beers to lower its price pr ice
3)
4) Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs? A) Marginal revenue equals marginal cost. B) Marginal revenue is less than price. C) Price equals marginal cost. D) Average revenue equals average cost.
4)
-
1
Figur e 10 - 7
In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 10 - 7 shows the cable television market in Upstate New York. - 7. Following the entry of Verizon, the subscription price falls from PM to PC. 5) Refer t o Fi gure 10 What is the increase in consumer surplus as a result of this change? A) the area B + C B) the area A + B + C C) the area D + F D) the area B + C + D
5)
6) An example of a monopoly based on control of a key resource is A) the U.S. Food and Drug Administration. B) Major League Baseball. C) the Paul Ecke Ranch monopoly on poinsettias. D) Microsoft's Windows operating system.
6)
7) The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because A) it had a patent on the manufacture of aluminum. B) the company had a secret technique for making aluminum from bauxite. C) it had control of almost all the available supply of bauxite. D) it was a public enterprise.
7)
8) Which of the following statements is consistent with the views of Joseph Schumpeter? A) A lack of competition discourages firms from developing new technologies. B) Research and development by competitive firms is responsible for most t echnological changes. C) Enforcement of antitrust laws is necessary to promote competition among firms. D) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development.
8)
2
9) For which of the following firms is patent protection of vital importance? A) software firms B) auto makers C) furniture producers D) pharmaceutical firms
9)
10) In 2011, Microsoft filed a complaint with the European Commission accusing Google of taking steps to monopolize the Internet search engine business. Microsoft's primary complaint was that A) Google has prevented competitors from gaining access to needed content and data to provide search results to consumers. B) Google is the only Internet search engine available to Windows operating system users. C) the European Union contracts exclusively with Google for its Internet search engine use. D) Google owns the Internet advertising companies that pay for ads on search engine sites, and has prohibited ads from being sold to competitors.
10)
11) If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the A) marginal revenue of the sixth performance is $48,000. B) marginal revenue of the sixth performance is $38,000. C) company will be making a loss on the sixth performance because its ticket sales will b e less than the average received from the previous five. D) cost of staging the sixth performance is probably higher than the cost of staging the previous five.
11)
12) A merger between two competitors may be approved by the Department of Justice and the FTC if the two companies can substantiate ________ as a result of t he merger. A) an increase in the HHI to over 1,800 B) increases in economic efficiency C) decreases in marginal revenue for the merged company D) increases in revenue for the merged company
12)
13) If a monopolist's price is $50 per unit and its marginal cost is $25, then A) to maximize profit the firm should decrease output. B) to maximize profit the firm should increase output. C) to maximize profit the firm should continue to produce the output it is producing. D) Not enough information is given to say what the firm should do to maximize profit.
13)
14) If a firm's average total cost is less than price where MR MC , A) the firm should raise its price. B) the firm should shut down. C) the firm should cut back on its output to lower its cost. D) the firm should continue to produce the output it is producing.
14)
15) Relative to a perfectly competitive market, a monopoly results in A) a gain in producer surplus equal to the gain in consumer surplus. B) greater economic efficiency. C) a gain in producer surplus less than the loss in consumer surplus. D) a gain in producer surplus equal to the loss in consumer surplus.
15)
=
3
16) If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then A) to maximize profit the firm should increase output. B) to maximize profit the firm should continue to produce the output it is producing. C) to maximize profit the firm should decrease output. D) Not enough information is given to say what the firm should do to maximize profit.
16)
17) A profit maximizing monopoly's price is A) greater than the price that would prevail if the industry was perfectly competitive. B) the same as the price that would prevail if the industry was perfectly competitive. C) not consistently related to price that would prevail if the market was perfectly competitive. D) less than the price that would prevail if the industry was perfectly competitive.
17)
18) The Ecke's family virtual monopoly on commercial poinsettia production by grafting together two varieties of the plant ended around 1996 when university researchers were able to independently make the same discovery. The Ecke family did not patent their grafting process. Would the Ecke's have been better off if they had patented their process of growing poinsettias? A) Yes, it would have allowed them to earn economic profits indefinitely. B) No, seeking patent protection necessitates divulging enough information that would enable others to information to discover ways of grafting poinsettias that were similar to t he Ecke method but that did not violate the patent. C) That depends on how long they had a monopoly before university researchers made the discovery. If the discovery was made after the period of t ime when patents expire, then the Ecke family is not any better off. D) No, even with a patent protection, the Ecke family cannot prevent government funded academic institutions from researching into plant breeding.
18)
-
4
Figur e 10 - 6
19) Refer t o Fi gure 10 - 6. What is the area that represents consumer surplus under a monopoly? A) the rectangle P1 P3HF B) the trapezium P1P2 EF C) the triangle P0 P2E D) the triangle P0 P1F
5
19)
Figur e 10 - 5
Figure 10- 5 shows the demand and cost curves for a monopolist.
20) Refer t o Fi gure 10 - 5. What is the economically efficient output level? A) 600 units B) 800 units C) 940 units
6
20)
D) 1160 units
Figur e 10 - 2
Figure 10- 2 above shows the demand and cost curves facing a monopolist. - 2. Suppose the monopolist represented in the diagram above produces positive 21) Refer t o Fi gure 10 output. What is the profit/loss per unit? A) loss of $21 per unit B) profit of $14 per unit C) loss of $7 per unit D) profit of $30 per unit
21)
Tabl e 10 - 2
Price per Dose
$80 72 64 56 48 40 32 24 16
Quantity Demanded (dose) 0 1 2 3 4 5 6 7 8
Total Cost of Production (dollars) $80 82 88 100 124 164 208 268 340
Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10 - 2 shows the demand and the total cost schedule for the firm.
22) Refer t o Tabl e 10 - 2. What is the amount of Shakti's profit? A) $68 B) $72 C) $124
7
22)
D) $192
23) One reason patent protection is vitally important to pharmaceutical firms is A) successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. B) that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. C) the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. D) the high salaries pharmaceutical firms pay to s cientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.
23)
24) The demand curve for the monopoly's product is A) more elastic than the market demand for the product. B) undefined. C) the market demand for the product. D) more inelastic than the market demand for the product.
24)
25) Suppose an industry is made up of 25 firms, all with equal market share. The four firm concentration ratio of this industry is A) 16%. B) 20%. C) 25%. D) It cannot be determined from the information given. -
25)
Figur e 10 - 2
Figure 10- 2 above shows the demand and cost curves facing a monopolist. - 2. Suppose the monopolist represented in the diagram above produces positive 26) Refer t o Fi gure 10 output. What is the profit maximizing/loss minimizing output level? A) 630 units B) 800 units C) 850 units D) 880 units -
-
8
26)
Figur e 10 - 5
Figure 10- 5 shows the demand and cost curves for a monopolist. - 5. What is the difference between the monopoly output and the perfectly 27) Refer t o Fi gure 10 competitive output? A) 140 units B) 240 units C) 340 units D) 560 units
27)
Tabl e 10 - 1
Price per Unit
$85 80 75 70 65 60 55
Quantity Demanded (units) 10 11 12 13 14 15 16
Total Cost of Production (dollars) $530 540 550 560 575 595 625
A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 10 - 1.
28) Refer t o Tabl e 10 - 1. What is the amount of the firm's profit? A) $335 B) $350 C) $880
9
28)
D) $910
Figur e 10 - 2
Figure 10- 2 above shows the demand and cost curves facing a monopolist. - 2. Suppose the monopolist represented in the diagram above produces positive 29) Refer t o Fi gure 10 output. What is the price charged at the profit maximizing/loss minimizing output level? A) $38 B) $54 C) $68 D) $75
29)
30) In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods and Lunardi's. While Safeway remains open twenty four hours a day, Whole Foods and Lunardi's close at 9 pm. Which of the following statements is true? A) Safeway can ignore the pricing decisions of the other two supermarkets. B) Safeway probably has a higher markup to compensate for its higher cost of production. C) Safeway has a monopoly at midnight but not during the day. D) Safeway is a monopoly all day because it produces a service that has no close substitutes.
30)
-
-
-
10
Figur e 10 - 9
Figure 10- 9 shows the cost and demand curves for the Erickson Power Company. - 9. Why won't regulators require that Erickson Power produce the economically 31) Refer t o Fi gure 10 efficient output level? A) because there is insufficient demand at that output level B) because Erickson Power will earn zero profit C) because Erickson Power will sustain persistent losses and will not continue in business in the long run. D) because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit
11
31)
Figur e 10 - 3
Figure 10- 3 shows the demand and cost curves for a monopolist.
32) Refer t o Fi gure 10 - 3. What is the price charged for the profit maximizing output level? A) $13 B) $21 C) $27 D) $34
32)
33) Refer t o Fi gure 10 - 3. What is likely to happen to this monopoly in the long run? A) It will expand its output to take advantage of economies of scale so as to further increase its profit. B) It will be regulated by the government because of its excess profits. C) As long as there are entry barriers, this firm will continue to enjoy economic profits. D) New firms will enter the market to eliminate its profits.
33)
34) Research has shown that most economic profits fro m selling a prescription drug are eliminated 20 years after the drug is first offered for sale. The main reason for the elimination of profits is A) after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat. B) after 20 years patent protection is ended and other firms can produce less expensive generic versions of the drug. C) the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls. D) firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses.
34)
35) Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so? A) because unlike Microsoft, the wealthy corn farmer is probably a monopolist B) because Microsoft could potentially lose sales if it sets prices indiscriminately C) because the wealthy corn farmer is a price taker who chooses his optimal output independently of market price but Microsoft's optimal output depends on the price it selects D) because Microsoft is large enough to hire the best people in the field
35)
-
12
36) Why does a monopoly cause a deadweight loss? A) because it does not produce some output for which demand exceeds supply B) because it does not produce some output for which marginal benefit exceeds marginal cost C) because it increases producer surplus at the expense of consumer surplus D) because it appropriates a portion of consumer surplus for itself
36)
37) A local electricity generating company has a monopoly that is protected by an entry barrier that takes the form of A) perfectly inelastic demand curve. B) economies of scale. C) network externalities. D) control of a key raw material.
37)
-
Figur e 10 - 2
Figure 10- 2 above shows the demand and cost curves facing a monopolist.
38) Refer t o Fi gure 10 - 2. What happens to the monopolist represented in the diagram in the long run? A) The government will subsidize the monopoly to enable it t o break even. B) It will be forced out of business by more efficient producers. C) It will raise its price at least until it breaks even. D) If the cost and demand curves remain the same, it will exit the market.
38)
39) Economic efficiency requires that a natural monopoly's price be A) equal to average variable cost where it intersects the demand curve. B) equal to marginal cost where it intersects the demand curve. C) equal to the lowest price the firm can charge and still make a normal profit. D) equal to average total cost where it intersects the demand curve.
39)
13
40) A virtuous cycle occurs A) when monopoly profits are used to create new products for additional monopoly profits. B) when a firm can attract enough buyers initially to increase a product's usefulness to attract even more buyers. C) when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise. D) when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales.
40)
41) Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? A) Each maximizes profits by producing a quantity for which price equals marginal cost. B) Each must lower its price to sell more output. C) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. D) Each sets a price for its product that will maximize its revenue.
41)
42) A market economy benefits from market power A) if firms with market power do research and development with the profits earned. B) if market power gets so bad the government creates public enterprises. C) under no circumstances. D) if the majority of the population are entrepreneurs.
42)
43) A Herfindahl Hirschman Index is calculated by A) summing the squares of the market shares of each firm in the industry. B) summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures. C) summing the amount of sales by the four largest firms and dividing by total industry sales. D) dividing the number of firms wanting to merge by the total number in the industry.
43)
-
Tabl e 10 - 2
Quantity Demanded (dose) 0 1 2 3 4 5 6 7 8
Price per Dose
$80 72 64 56 48 40 32 24 16
Total Cost of Production (dollars) $80 82 88 100 124 164 208 268 340
Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 10 - 2 shows the demand and the total cost schedule for the firm.
44) Refer t o Tabl e 10 - 2. What is Shakti's profit maximizing output? A) 4 units B) 5 units C) 6 units
44)
-
14
D) 7 units
45) A monopolist's profit maximizing price and output correspond to the point on a graph A) where price is as high as possible. B) where marginal revenue equals marginal cost and charging t he price on the market demand curve for that output. C) where average total cost is minimized. D) where total costs are the smallest relative to price.
45)
Figur e 10 - 1
Figure 10- 1 above shows the demand and cost curves facing a monopolist.
46) Refer t o Fi gure 10 - 1. The firm's profit maximizing price is A) P1 . B) P2. C) P3 .
46)
-
D) P4.
47) Natural monopolies in the United States are generally regulated by A) the Federal Trade Commission. B) local or state regulatory commissions. C) the Department of Commerce. D) the Department of Justice.
47)
48) The Clayton Act prohibited A) any merger if its effect was to substantially lessen competition or create a monopoly. B) all conglomerate mergers. C) all vertical mergers. D) all horizontal mergers.
48)
49) A merger between U.S. Steel and General Motors would be an example of a A) conspiracy in restraint of trade. B) horizontal merger. C) vertical merger. D) conglomerate merger.
49)
50) A monopolist faces A) a downward sloping demand curve. C) a perfectly inelastic demand curve.
50)
B) a horizontal demand curve. D) a perfectly elastic demand curve.
-
15
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
51) Suppose that a perfectly competitive industry becomes a monopoly. What effect will this have on consumer surplus, producer surplus, and deadweight loss?
51)
52) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
52)
Figur e 10 - 4
- 4. Use the figure above to answer the following questions. 53) Refer t o Fi gure 10 a. What is the profit maximizing quantity and what price will the monopolist charge? b. What is the total revenue at the profit maximizing output level? c. What is the total cost at the profit maximizing output level? d. What is the profit? e. What is the profit per unit (average profit) at the profit maximizing output level? f. If this industry was organized as a perfectly competitive industry, what would be the profit maximizing price and quantity?
53)
54) Identify two ways by which the government controls monopolies?
54)
55) Explain why the monopolist has no supply curve?
55)
-
-
-
-
-
16
Answer Key Testname: WEEK7PRACTICE101
1) A 2) C 3) C 4) B 5) D 6) B 7) C 8) D 9) D 10) A 11) B 12) B 13) D 14) D 15) C 16) B 17) A 18) C 19) D 20) C 21) C 22) A 23) C 24) C 25) A 26) A 27) C 28) B 29) C 30) C 31) C 32) D 33) C 34) B 35) B 36) B 37) B 38) D 39) B 40) B 41) C 42) A 43) A 44) A 45) B 46) C 47) B 48) A 49) C 50) A 17
Answer Key Testname: WEEK7PRACTICE101
51) If a perfectly competitive industry is monopolized, consumer surplus will decrease, producer surplus will increase, and there will be a deadweight loss. 52) A network externality exists where the usefulness of the product increases with the number of people who use it. I t can serve as an entry barrier because the popularity of the product attracts more and more consumers, thereby increasing the supplier's dominance in the market. However, this barrier is not insurmountable. If a rival enters the market with a superior product, then it is possible that customers will switch to the superior product. 53) a. Quantity = 50; price = 32 b. Total revenue = 50 × $32 = $1,600 c. Total cost = 50 × $20 = $1,000 d. Profit = $1,600 - $1,000 = $600 e. Profit per unit = $32 - $20 = $12 f. If purely competitive, quantity = 80; price = $22 54) The government control monopolies by enforcing antitrust laws and through economic regulation of natural monopolies. 55) A supply curve that shows the relationship between the price of a product and the quantity that suppliers are willing and able to supply. The monopolist selects its profit maximizing output by equating marginal revenue to marginal cost and takes the price dictated by the demand curve. Thus, there is no array of prices and quantities supplied.
18
