ECON 2020 - Practice Test 3

Which of the following is NOT a characteristic of a monopoly?

easy entry and exit

An example of a monopoly is

the only veterinarian in an isolated farm community.

Patents encourage invention by

allowing patent owners to make an economic profit.

A monopoly that sells every unit of its output at the same price is a

single-price monopoly.

If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost, then this company is

a natural monopoly.

For a monopoly, the market demand curve is the firm's

demand curve.

A single-price monopoly's demand curve lies

above its marginal revenue curve.

For a single-price monopolist to sell one more unit of a good, it must

lower the price on all units sold.

A single-price monopolist

has its marginal revenue less than its price.

For a single-price monopoly, marginal revenue is ________ when demand is elastic and is ________ when demand is inelastic.

positive; negative

For a monopoly, at the level of output where marginal revenue equals zero, then the

firm has maximized total revenue.

The figure above shows a monopoly firm's demand curve. If the price and quantity of haircuts move from point t to point u, the monopoly's

total revenue will fall.

Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by

raising its price and decreasing its output.

One difference between perfectly competitive markets and single-price monopoly markets is that

marginal revenue equals price for perfectly competitive firms, but not for single-price monopolists.

When comparing a single-price monopoly to a perfectly competitive market with the same costs

If the industry in the above figure was perfectly competitive, the level of output would

exceed the single-price monopoly level of output by 20 units per day.

Which area in the above figure shows the consumer surplus at the price and quantity that would be set by a single-price monopoly?

A monopoly can price discriminate between two groups of consumers if each group has

a different willingness to pay.

Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if the firm is regulated with

a marginal cost pricing rule.

In a monopolistically competitive market there are

many firms.

A characteristic of monopolistic competition is

each firm produces a differentiated product.

Small pizza parlors exist in just about every town. Anyone can open a pizza parlor, and the pizzas from one parlor typically have different tastes and sizes than pizzas from another parlor. Thus, the pizza industry is an example of

monopolistic competition.

If an industry lacks barriers to entry and each of the many firm faces a demand curve with a negative slope, the industry is

monopolistically competitive.

How is a monopolistically competitive firm similar to a monopoly firm?

Both produce where marginal revenue equals marginal cost.

The above figure is for a firm in monopolistic competition. The diagram represents the short run rather than the long run because the

firm is making an economic profit.

The above figure shows the demand and cost curves for a firm in monopolistic competition. The firm earns total revenue of

$120.

In the long run, a firm in monopolistic competition has its price equal to ________ and also has its price ________.

average total cost; exceeds its marginal cost

The above figure shows the demand and cost curves for a monopolistically competitive firm in the long run. The firm maximizes its profit by

producing 8 units and charging a price of $15.

In the above figure of a monopolistically competitive firm, in the long run after all industry adjustments have taken place, assuming that this firm's costs have not changed the firm will

produce less output at a lower price.

A firm in ________ will engage in ________ to try to earn an economic profit.

monopolistic competition; product differentiation

If a firm spends $600 more on advertising, its goal is for the demand curve for its product to shift ________ and its marginal revenue curve to shift ________.

rightward, rightward

One benefit of monopolistic competition over perfect competition is

product variety.

When only a small number of producers compete with each other is a defining characteristic of

oligopoly.

If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market?

the number of firms in the market

In ________ market structure, a firm's output depends ________.

When producers agree to restrict output, raise the price, and increase profits, the agreement is called

a cartel agreement.

A law that prohibits certain kinds of market behavior such as monopoly and monopolistic practices is called

an antitrust law.

The Federal Trade Commission is an agency charged with

enforcing antitrust laws.

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?

Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss.

The Sherman Act

the first antitrust law, was enacted in 1890.