McGraw-Hill Ryerson

Chapter 11. Pure Monopoly


1. Which would be defining characteristics of pure monopoly?
A. The firm does no advertising and it sells a standardized product.
B. No close substitutes for the product exist and there is one seller.
C. The firm can easily enter into or exit from the industry and profits are guaranteed.
D. The firm holds a patent and is technologically progressive.



2. A barrier to entry that signficantly contributes to the establishment of a monopoly would be
A. economies of scale
B. price-taking behaviour
C. technological progress
D. X-inefficiency



3. The demand curve for the pure monopolist is
A. perfectly price elastic
B. perfectly price inelastic
C. downsloping
D. upsloping



4. Which of the following is true with respect to the demand data confronting a monopolist?
A. Marginal revenue is greater than average revenue.
B. Marginal revenue decreases as average revenue decreases.
C. Demand is perfectly price elastic.
D. Average revenue (or price) increases as the output of the firm increases.



5. When the monopolist is maximizing total profits or minimizing losses,
A. total revenue is greater than total cost
B. average revenue is greater than average total cost
C. average revenue is greater than marginal cost
D. average total cost is less than marginal cost



6. At which of the following combinations of price and marginal revenue is the price elasticity of demand less than 1?
A. Price equals $102, marginal revenue equals $42.
B. Price equals $92, marginal revenue equals $22.
C. Price equals $82, marginal revenue equals $2.
D. Price equals $72, marginal revenue equals -$18.



7. Monopolists' profits may be positive, negative, or zero
A. in the short run
B. in the long run
C. in both the short run and long run
D. where marginal cost equals marginal revenue and where average total cost is less than demand



8. At present output a monopolist determines that its marginal cost is $18 and its marginal revenue is $21. The monopolist will maximize profits or minimize losses by
A. increasing price while keeping output constant
B. decreasing price and increasing output
C. decreasing both price and output
D. increasing both price and output



9.
Answer based on the demand and cost data for a pure monopolist given in the following table.
R-1 24a

How many units of output will the profit-maximizing monopolist produce?

A. 1
B. 2
C. 3
D. 4



10.
Answer based on the demand and cost data for a pure monopolist given in the following table.
R-1 24a

The profit-maximizing monopolist would set its price at

A. $120
B. $200
C. $233
D. $400



11.
Answer based on the demand and cost data for a pure monopolist given in the following table.
R-1 24a

If the monopolist could sell each unit of the product at the maximum price the buyer of that unit would be willing to pay for it, and if the monopolist sold 4 units, total revenue would be

A. $1,200
B. $1,800
C. $2,000
D. $2,800



12.
Answer based on the demand and cost data for a pure monopolist given in the following table.
R-1 24a

If the monopolist were forced to produce the socially optimal output by the imposition of a ceiling price, the ceiling price would have to be

A. $200
B. $300
C. $400
D. $500



13. The supply curve for a pure monopolist
A. is the portion of the marginal cost curve that lies above the average variable cost curve
B. is perfectly price elastic at the market price
C. is upsloping
D. does not exist



14. The analysis of monopoly indicates that the monopolist
A. will charge the highest price it can get
B. will seek to maximize total profits
C. is guaranteed an economic profit
D. is only interested in normal profit



15. When compared with the purely competitive industry with identical costs of production, a monopolist will charge a
A. higher price and produce more output
B. lower price and produce more output
C. lower price and produce less output
D. higher price and produce less output



16. At the equilibrium level of output, a monopolist does not produce the product as efficiently as is possible because
A. the average total cost of producing it is not a minimum
B. the marginal cost of producing the last unit is less than its price
C. it is earning a profit
D. average revenue is greater than the cost of producing an extra unit of output



17. Which will tend to increase the inefficiencies of the monopoly producer?
A. price-taking behavior
B. rent-seeking behavior
C. economies of scale
D. technological progress



18. Which is one of the conditions that must be realized for price discrimination to be workable?
A. The demand for the product is perfectly elastic.
B. The seller must be able to segment the market.
C. The buyer must be able to resell the product.
D. The product must be a service.



19. If a monopolist engages in price discrimination rather than charging all buyers the same price, its
A. profits and its output are greater
B. profits and its output are smaller
C. profits are greater and its output is smaller
D. profits are smaller and its output is greater



20.
Answer based on the demand and cost data for a pure monopolist given in the following table.

R-2 24b

The profit-maximizing output and price for this monopolist would be

A. 5 units and a $450 price
B. 6 units and a $400 price
C. 7 units and a $350 price
D. 8 units and a $300 price



21.
Answer based on the demand and cost data for a pure monopolist given in the following table.

* Questions 21 and 22 assume this monopolist is able to engage in price discrimination and sell each unit of the product at a price equal to the maximum price the buyer of that unit would be willing to pay.
R-2 24b

The marginal revenue that the price discriminating monopolist obtains from the sale of an additional unit is equal to

A. total revenue
B. average cost
C. unit cost
D. price



22.
Answer based on the demand and cost data for a pure monopolist given in the following table.

* Questions 21 and 22 assume this monopolist is able to engage in price discrimination and sell each unit of the product at a price equal to the maximum price the buyer of that unit would be willing to pay.
R-2 24b

The profit-maximizing output for the price discriminating monopolist would be

A. 6 units
B. 7 units
C. 8 units
D. 9 units



23.
Answer based on the demand and cost data for a pure monopolist given in the following table.

R-2 24b

How much greater would the total economic profits be for the discriminating monopolist than the nondiscriminating monopolist?

A. $720
B. $830
C. $990
D. $1,070



24.
R-3 24c

The price and output combination for the unregulated profit-maximizing monopoly compared with the socially optimal price and output combination for the regulated monopoly would be, respectively,

A. P4 and Q1 versus P3 and Q2
B. P4 and Q1 versus P2 and Q3
C. P3 and Q2 versus P4 and Q1
D. P2 and Q3 versus P3 and Q2



25. A monopolist who is limited by the imposition of a ceiling price to a fair return sells the product at a price equal to
A. average total cost
B. average variable cost
C. marginal cost
D. average fixed cost




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