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Chapter 15
Monopoly

1.Monopolies use their market leverage to
a.charge prices that equal minimum average total cost. b.attain normal profits in the long run.
c.restrict output and increase price.
d.dump excess supplies of their product on the market. ANSWER: crestrict output and increase price.
SECTION: 1OBJECTIVE: 1

2.If government officials break a natural monopoly up into several smaller firms, then a.competition will force firms to attain economic profits rather than accounting profits. b.competition will force firms to produce surplus output, which drives up price. c.the average costs of production will increase.

d.the average costs of production will decrease.
ANSWER: cthe average costs of production will increase.
SECTION: 1OBJECTIVE: 1

3.Sizable economic profits can persist over time under monopoly if the monopolist a.produces that output where average total cost is at a maximum. b.is protected by barriers to entry.

c.operates as a price taker rather than a price maker. d.realizes revenues that exceed variable costs.
ANSWER: bis protected by barriers to entry.
SECTION: 1OBJECTIVE: 1

4.Most markets are not monopolies in the real world because a.firms usually face downward-sloping demand curves. b.supply curves slope upward.
c.price is usually set equal to marginal cost by firms. d.there are reasonable substitutes for most goods.
ANSWER: dthere are reasonable substitutes for most goods.
SECTION: 1OBJECTIVE: 1

5.Patents grant
a.permanent monopoly status to creators of scientific inventions. b.permanent monopoly status to creators of any intellectual property. c.temporary monopoly status to creators of scientific inventions. d.temporary monopoly status to creators of any intellectual property. ANSWER: ctemporary monopoly status to creators of scientific inventions. SECTION: 1OBJECTIVE: 1

6.If a monopolist can sell 7 units when the price is $3 and 8 units when the price is $2, then marginal revenue of selling the eighth unit is equal to a.$2.
b.$3.
c.$16.
d.–$5.
ANSWER: d–$5
SECTION: 2OBJECTIVE: 2
George has the following demand curve for selling vegemite:
PriceQuantity
$5.001
$4.002
$3.003
$2.004
$1.005
George has marginal cost of $.50 per unit.

7.What is George’s profit-maximizing level of output?
a.1
b.2
c.3
d.4
ANSWER: c3
SECTION: 2OBJECTIVE: 2

8.What is George’s profit-maximizing price?
a.$4
b.$3
c.$2
d.$1
ANSWER: b$3
SECTION: 2OBJECTIVE: 2

9.If a monopolist’s marginal costs shift up by $1.00, then a.the monopoly price will rise by $1.
b.the monopoly price will rise by more than $1.
c.the monopoly price will rise by less than $1.
d.there is no change in the monopoly price and profits fall. ANSWER: cthe monopoly price will rise by less than $1.
SECTION: 2OBJECTIVE: 2

10.If a monopolist has zero marginal costs it will produce
a.the output at which total revenue is maximized.
b.in the range in which marginal revenue is still increasing. c.at the point at which marginal revenue is at a maximum. d.in the range in which marginal revenue is negative. ANSWER: athe output at which total revenue is maximized.

SECTION: 2OBJECTIVE: 2

11.The supply curve for the monopolist
a.is horizontal.
b.is vertical.
c.is a 45-degree line.
d.does not exist.
ANSWER: ddoes not exist.
SECTION: 2OBJECTIVE: 2
Consider the following demand and cost information for a monopoly.
QuantityPriceTotal Cost
0$40$10
1$30$15
2$20$25
3$10$40
4$ 0$60

12.The marginal revenue of the second unit is
a.$10
b....
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