ECON 301-Chapter 13—Monopoly and Antitrust . Questions and Answers

ECON 301-Chapter 13—Monopoly and Antitrust . Questions and Answers TRUE/FALSE 1. Control of a scarce resource or input can serve as an entry barrier. ANS: T PTS: 1 2. A monopoly firm can sell as much output as it wants at whatever price it sets. ANS: F PTS: 1 3. Monopolies will tend to produce a greater quantity and charge higher prices than perfectly competitive industries. ANS: F PTS: 1 4. A profit-maximizing monopolist will choose to operate along the inelastic portion of its demand curve. ANS: F PTS: 1 5. The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost. ANS: T PTS: 1 6. Monopoly profits cannot persist in the long run, because there are barriers to entry. ANS: F PTS: 1 7. Monopolists, unlike perfectly competitive firms, can continue to earn positive economic profits over time. ANS: T PTS: 1 8. The welfare loss from monopoly is not really a loss to society as a whole, since it is just a transfer from consumers to producers. ANS: F PTS: 1 9. A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them. ANS: T PTS: 1 10. A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive. ANS: T PTS: 1 11. The demand curve faced by a monopolist is the same as the marginal revenue curve. ANS: F PTS: 1 12. A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms. ANS: T PTS: 1 13. A natural monopolist will voluntarily choose to produce at the point of allocative efficiency. ANS: F PTS: 1 14. The U. S. Postal Service historically has had a monopoly over the market for the delivery of first-class letters in the United States. ANS: T PTS: 1 15. One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs. ANS: T PTS: 1 16. In order to implement average cost pricing regulation, it is necessary to provide a natural monopolist with a subsidy equal to the economic loss. ANS: F PTS: 1 17. Monopoly firms, which are provided a subsidy equal to their losses and subject to marginal costpricing regulation, have little incentive to minimize costs. ANS: T PTS: 1 18. In order for a firm to be able to price discriminate it must not be a price taker, there must be different demand from different groups of consumers, and there must be an ability to prevent resale. ANS: T PTS: 1 19. When a monopolist practices price discrimination, consumer surplus tends to increase. ANS: F PTS: 1 20. A price-discriminating monopoly firm will tend to charge a higher price to customers with a greater willingness to pay than it does to customers with a lower willingness to pay. ANS: T PTS: 1 MULTIPLE CHOICE 1. Pure monopoly: a. is characterized by a single supplier. b. is a market structure in which no close substitute products are available. c. exists when entry and survival of potential competitors is extremely unlikely. d. is characterized by all of the above. ANS: D PTS: 1 2. Which of the following is a characteristic of a monopoly? a. a large number of sellers b. homogeneous products c. larger barriers to entry d. price taking firms ANS: C PTS: 1 3. Which of the following is not potentially a barrier to entry into a product market? a. patent protection on the design of the product b. the absence of economies of scale in the product market c. government licensing of the product's producers d. the control of a crucial input necessary to produce the product e. All of the above are potentially barriers to entry into a product market. ANS: B PTS: 1 4. Monopoly is at the other end of the spectrum from ____. a. monopolistic competition b. perfect competition c. oligopoly d. none of the above ANS: B PTS: 1 5. A monopolistic firm is a: a. price taker that faces the market supply curve. b. price taker that faces the market demand curve. c. price maker that faces the market supply curve. d. price maker that faces the market demand curve. ANS: D PTS: 1 6. Barriers that prevent the entry of new firms may arise because: a. economies of scale exist over a substantial range of industry demand. b. price exceeds marginal cost. c. marginal revenue is less than average total cost. d. the government protects some firms