Econ Exam 3 - ch. 15

Refer to the graph below. What is firm’s profit when it sells six subscriptions per month?

a. $90

b. $72

c. $42

d. $18

b. $72

Refer to the graph below. In this graph, which curve is conceptually the same as average revenue?

a. the demand curve

b. the marginal revenue curve

c. both curves

d. neither curve

a. the demand curve

When a firm’s demand curve slopes downward and the firm decides to cut price, which of the following happens?

a. It sells more units and receives higher revenue per unit.

b. It sells more units but receives lower revenue per unit.

c. It sells fewer units and receives lower revenue per unit.

d. It sells fewer units but receives higher revenue per unit.

b. It sells more units but receives lower revenue per unit.

Refer to the table below. How much is the average revenue associated with serving five subscribers per month?

a. $33

b. $45

c. $5

d. none of the above

b. $45

In which of the following situations can a firm be considered a monopoly?

a. when a firm is surrounded by other firms that produce close substitutes

b. when a firm can ignore the actions of all other firms

c. when a firm uses other firms’ prices in order to price its products

d. when barriers to entry are eliminated

b. when a firm can ignore the actions of all other firms

If increased competition leads to higher costs and higher prices in an industry, how should that market be characterized?

a. as a perfectly competitive market

b. as a monopolistically competitive market

c. as an oligopoly

d. as a natural monopoly

d. as a natural monopoly

Which of the following rights is given to the holder of a patent?

a. the exclusive right to a new product

b. control over a key resource used in production of a good or service

c. the right to earn profits from creation of the product indefinitely

d. a public franchise

a. the exclusive right to a new product

Refer to the graph of monopoly below. What point represents the price and output level that a monopoly will choose?

a. point A

b. point B

c. point C

d. none of the above

b. point B

Refer to the graph of monopoly below. What is profit when the firm sells six subscriptions per month?

a. $90

b. $42

c. $27

d. None of the above; there is insufficient information to answer the question.

d. None of the above; there is insufficient information to answer the question.

Refer to the graph below. How can the loss of economic efficiency resulting from this market being a monopoly rather than being perfectly competitive be estimated?

a. by estimating the size of the triangle B + C

b. by estimating the size of the rectangle A

c. by estimating the size of the area A + B + C

d. None of the above; the loss of economic efficiency cannot be estimated using this graph.

a. by estimating the size of the triangle B + C

Refer to the graph below. What point represents the price and quantity that will prevail when the industry is perfectly competitive?

a. point A

b. point B

c. point C

d. none of the above

a. point A

The more cell phones in use, the more valuable they become to consumers. This is an example of:

a. what happens when a firm is granted a patent.

b. network externalities.

c. what happens when a firm has control of a key resource.

d. natural monopoly.

b. network externalities.

Refer to the graph below. If 30 billion kilowatt-hours of electricity are supplied by two firms who supply 15 billion kilowatt-hours of electricity each instead of by one firm, the average total cost of electricity:

a. rises from $0.04 to $0.12.

b. rises from $0.04 to $0.06.

c. rises from $0.02 to $0.03.

d. falls from $0.06 to $0.02.

b. rises from $0.04 to $0.06.

How do you find the profit maximizing quantity for perfectly competitive firm?

a. For all firm types, it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR=MC.

b. Make a robust guess.

c. Spin the bottle.

d. Use a magic eight ball.

a. For all firm types, it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR=MC.

Refer to the table below. How much is the marginal revenue associated with serving seven subscribers per month?

a. $39

b. $45

c. $21

d. None of the above

c. $21

Refer to the graph below. If the industry changes from being perfectly competitive to being a monopoly, what happens to producer surplus?

a. It increases by area A and decreases by area B.

b. It increases by area A and decreases by area C.

c. It increases by area B + C.

d. It increases by area A and decreases by area B + C.

b. It increases by area A and decreases by area C.

What are laws aimed at promoting competition among firms called?

a. collusion

b. antitrust laws

c. laws of comparative advantage

d. merger legislation

b. antitrust laws

Refer to the graph below. Which area shows the reduction in consumer surplus that results from this industry being a monopoly rather than perfectly competitive?

a. area A

b. area B + area C

c. area A + area B

d. none of the areas indicated on the graph

c. area A + area B

Which type of barrier to entry is the granting of a patent or copyright to an individual or firm considered?

a. entry blocked by government action

b. entry blocked by externalities

c. entry blocked by economies of scale

d. entry blocked by natural or technical constraints

a. entry blocked by government action

Which of the following statements regarding natural monopoly is true?

a. One firm can supply twice as much output as two smaller firms at the same average total cost.

b. One firm can supply the entire market at a lower fixed cost than two or more firms.

c. The source of monopoly power is the control of a key natural resource.

d. Natural monopoly is most likely to occur in markets where fixed costs are very large relative to variable costs.

d. Natural monopoly is most likely to occur in markets where fixed costs are very large relative to variable costs.

How do you find the profit maximizing quantity for a firm under monopoly?

a. Use a trained canine to sniff out the profits.

b. Stop at the nearest service station and ask.

c. For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.

d. Follow the instructions given to you from the back seat driver.

e. It depends on whether you have Boardwalk by itself or Boardwalk and Park Place

c. For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.

What is the name given to the situation where economies of scale are so large that one firm can supply the entire market at a lower average total cost than two or more firms?

a. network externalities

b. productive efficiency

c. natural monopoly

d. market power

c. natural monopoly

Which of the following are effects of monopoly?

a. Monopoly causes a reduction in consumer surplus.

b. Monopoly causes an increase in producer surplus.

c. Monopoly causes a reduction in economic efficiency.

d. all of the above

d. all of the above

What is the definition of market power?

a. Market power is the same as inefficiency as measured by the amount of deadweight loss from a monopoly.

b. Market power is the ability of a firm to eliminate competition.

c. Market power is the ability of one firm to control other firms in the market.

d. Market power is the ability of a firm to charge a price greater than marginal cost.

d. Market power is the ability of a firm to charge a price greater than marginal cost.

Which of the following is most likely to increase market power?

a. horizontal mergers

b. vertical mergers

c. stricter enforcement of antitrust laws

d. divestitures

a. horizontal mergers

Refer to the graph below. Which area is considered a reduction in economic surplus as a result of this industry being a monopoly rather than being perfectly competitive?

a. area A

b. area B

c. area C

d. area B + area C

d. area B + area C

How do you find the profit maximizing quantity for a monopolistically competitive firm?

a. For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.

b. Ask Siri.

c. Ask the Google Assistant.

d. Ask Alexa.

a. For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.

Assume that an industry that began as a perfectly competitive industry becomes a monopoly. Which of the following describes a change in the market as a result of becoming a monopoly? Compared to when the industry was perfectly competitive, the monopolist will:

a. charge a higher price and produce less output.

b. charge a higher price and increase consumer surplus.

c. produce less output and decrease producer surplus.

d. produce more output and increase producer surplus.

a. charge a higher price and produce less output.

What is a merger between firms in the same industry called?

a. a horizontal merger

b. a vertical merger

c. a conglomerate

d. a divestiture

a. a horizontal merger

Using the broader definition of monopoly, in which of the following cases could we argue that Microsoft has a monopoly in computer operating systems?

a. if Macintosh and Linux were not considered close substitutes for Windows

b. if Microsoft charged prices similar to those that Macintosh and Linux charge for their operating systems in order to compete

c. if Macintosh and Linux started to produce operating systems similar to Windows

d. if there are no barriers to entry in the market for computer operating systems

a. if Macintosh and Linux were not considered close substitutes for Windows

Refer to the graph below. Which area shows a reduction in consumer surplus that is transferred to producers as a result of this industry being a monopoly rather than being perfectly competitive?

a. area A

b. area B + area C

c. area A + area B

d. none of the areas indicated on the graph

a. area A

Refer to the graph below. Which point corresponds to a natural monopoly serving this market and breaking even?

a. point A

b. point B

c. Both point A and point B are associated with a natural monopoly breaking even.

d. Neither point A nor point B is associated with a natural monopoly breaking even.

a. point A

Which firms face a downward-sloping demand curve and a downward-sloping marginal revenue curve?

a. all price takers

b. all price makers

c. monopolies only

d. monopolistically competitive firms only

b. all price makers

Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?

a. perfectly competitive firms

b. monopolistically competitive firms

c. monopolies

d. all of the above

d. all of the above

In which of the following market structures is the firm’s demand curve the same as the market demand for the product?

a. perfect competition

b. monopolistic competition

c. monopoly

d. all of the above

c. monopoly