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Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
17. A firm whose average total cost continually declines at least to the quantity that could supply the
entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.
18. When a monopolist produces an additional unit, the marginal revenue generated by that unit must be
a. below the price because the price effect outweighs the output effect.
b. above the price because the output effect outweighs the price effect.
c. above the price because the price effect outweighs the output effect.
d. below the price because the output effect outweighs the price effect.
20. Which of the following statements about price and marginal cost in competitive and monopolized
markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds
marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets, price equals marginal
cost.
c. In competitive markets, price exceeds marginal cost; in monopolized markets, price exceeds
marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized markets, price equals
marginal cost.
22. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and quantity
represented by point
a. A.
b. B.
c. C.
d. D.
e. none of these answers.
23. Refer to Exhibit 4. The efficient price and quantity are represented by point
a.D. b.A. c.B. d.C. e.none of these answers.
25. Compared to a perfectly competitive market, a monopoly market will usually generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.
27. Using government regulations to force a natural monopoly to charge a price equal to its marginal
cost will
a. cause the monopolist to exit the market.
b. improve efficiency.
c. raise the price of good.
d. attract additional firms to enter the market.
28. The purpose of antitrust (also known as competition) laws is to
a. increase competition in an industry by preventing mergers and breaking up large firms.
b. regulate the prices charged by a monopoly.
c. increase merger activity to help generate synergies that reduce costs and raise efficiency.
d. create public ownership of natural monopolies.
e. do all of these answers.
30. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers according to their
willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable to engage in arbitrage.
31. If regulators break up a natural monopoly into many smaller firms, the cost of production
a. will rise.
b. will fall.
c. will remain the same.
d. could either rise or fall depending on the elasticity of the monopolist's supply curve.
32. A monopoly is able to continue to generate economic profits in the long run because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers