UPDATED AGB144 Exam 3 100% SOLUTION

Pure monopoly refers to: Answers: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C. a single firm producing a product for which there are no close substitutes. D. a large number of firms producing a differentiated product. - ANSWER C. a single firm producing a product for which there are no close substitutes. Which of the following is correct? A. Both purely competitive and monopolistic firms are "price takers." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a ""price taker,"" while a monopolist is a "price maker." D. A purely competitive firm is a ""price maker,"" while a monopolist is a "price taker." - ANSWER C. A purely competitive firm is a ""price taker,"" while a monopolist is a "price maker." Which of the following best approximates a pure monopoly? A. the foreign exchange market B. the Kansas City wheat market C. the only bank in a small town D. the soft drink market - ANSWER C. the only bank in a small town Pure monopolists may obtain economic profits in the long run because: A. of advertising. B. marginal revenue is constant as sales increase. C. of barriers to entry. D. of rising average fixed costs. - ANSWER C. of barriers to entry. Which of the following is not a barrier to entry? A. patents B. X-inefficiency C. economies of scale D. ownership of essential resources - ANSWER B. X-inefficiency What do economies of scale, the ownership of essential raw materials, and patents have in common? Answers: A. They must all be present before price discrimination can be practiced. B. They are all barriers to entry. C. They all help explain why a monopolist's demand and marginal revenue curves coincide. D. They all help explain why the long-run average cost curve is U-shaped - ANSWER B. They are all barriers to entry. Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a purely competitive seller? Answers: A. where demand and marginal revenue are equal and downward sloping B. where demand is greater than marginal revenue and both are downward sloping C. where demand and marginal revenue are equal and represented by a horizontal line D. where marginal revenue is greater than demand and both are downward sloping. - ANSWER C. where demand and marginal revenue are equal and represented by a horizontal line Graph A shows a downward sloping line where demand and marginal revenue are equal. Graph B shows two downward sloping lines where marginal revenue is below demand. Graph C shows a horizontal line where demand and marginal revenue are equal. Graph D shows two downward sloping lines where marginal revenue is greater than demand Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a monopoly? A. where demand and marginal revenue are equal and downward sloping B. where demand is greater than marginal revenue and both are downward sloping C. where demand and marginal revenue are equal and represented by a horizontal line D. where marginal revenue is greater than demand and both are downward sloping. - ANSWER B. where demand is greater than marginal revenue and both are downward sloping The MR = MC rule: A. applies only to pure competition. B. applies only to pure monopoly. C. does not apply to pure monopoly because price exceeds marginal revenue. D. applies both to pure monopoly and pure competition. - ANSWER D. applies both to pure monopoly and pure competition. An unregulated pure monopolist will maximize profits by producing that output at which: Answers: A. P = MC. B. P = ATC. C. MR = MC. D. MC = AC. - ANSWER C. MR = MC. Refer to the above diagram. To maximize profits or minimize losses this firm should produce: A. E units and charge price C. B. E units and charge price A. C. M units and charge price N. D. L units and charge price LK. - ANSWER B. E units and charge price A. Refer to the above diagram for a pure monopolist. Monopoly price will be: Answers: A. e. B. c.