Solution at end.

1. The generally understood meaning of the term “monopoly” is
1. very powerful
2. single price
3. single seller
4. single power

2. A monopolist will always
1. charge the highest possible price
2. charge the highest possible price consistent with selling anything
3. sell the highest possible quantity
4. none of the above is true

3. In order to maximize profits a monopolist will
1. charge a price equal to marginal cost
2. charge a price equal to average cost
3. charge a price that will sell the quantity produced when marginal cost equals marginal revenue
4. none of the above are true

4. Being a single seller is a __________ condition for having a lot of power over the price
1. necessary
2. sufficient
3. necessary and sufficient
4. neither necessary nor sufficient

5. A buyer’s monopoly is called a
1. monopoly
2. bonopoly
3. monopsony
4. bonopsony

6. In a buyers monopoly the price paid by the buyer will be _______ the price paid under competitive conditions.
1. less than
2. more than
3. equal to
4. none of the above are true

7. Which of the following assumptions are necessary for perfect competition?
1. no product differentiation
2. all firms are identical
3. there is continual technological change
4. a and b of the above

8. Which of the following assumptions are necessary for perfect competition?
1. new firms can enter in pursuit of profit.
2. all buyers and sellers are aware of everything they need to know about the product and what is happening in the market
3. there are no hidden or external costs
4. all of the above

9. Generally, economies of scale will be greater, the greater the proportion of ___________ in total costs.
1. variable costs
2. fixed costs
3. selling costs
4. marketing costs

10. The slope of a line drawn from the origin to the TC curve will give the value of
1. marginal cost
2. average cost
3. variable cost
4. avoidable cost

11. The slope of a line drawn tangent to the TC curve will give the value of
1. marginal cost
2. average cost
3. variable cost
4. avoidable cost

12. Marginal cost and average cost will be equal where
1. marginal cost is at a minimum
2. average cost is at a minimum
3. average cost is constant
4. b and c of the above

13. Under monopoly the slope of the TR curve is _________ as output increases
1. increasing
2. decreasing
3. constant
4. decreasing then increasing

14. Under perfect competition the slope of the TR curve is _________ as output increases
1. increasing
2. decreasing
3. constant
4. decreasing then increasing

15. Under monopoly TR is maximized where
1. price elasticity of demand is equal to zero
2. price elasticity of demand is equal to one
3. marginal revenue is equal to zero
4. marginal revenue is equal to one
5. b and c of the above

16. Under perfect competition TR is maximized where
1. price elasticity of demand is equal to zero
2. price elasticity of demand is equal to one
3. marginal revenue is equal to zero
4. marginal revenue is equal to one
5. TR has no maximum

17. Under monopoly the slope of the TC curve is _________ as output increases
1. increasing
2. decreasing
3. constant
4. decreasing then increasing

18. Under perfect competition the slope of the TC curve is _________ as output increases
1. increasing
2. decreasing
3. constant
4. decreasing then increasing

19. Under perfect competition the demand curve facing the individual firm is
1. horizontal
2. vertical
3. downward sloping
4. upward sloping

20. Under perfect competition the demand curve for the industry is
1. horizontal
2. vertical
3. downward sloping
4. upward sloping

21. Under perfect competition the supply curve for the individual firm is the
1. average cost curve
2. marginal cost curve
3. total cost curve
4. none of the above

22. Under monopoly the supply curve for the individual firm is the
1. average cost curve
2. marginal cost curve
3. total cost curve
4. none of the above

23. Which of the following defines a point of long run equilibrium for a perfectly competitive industry?
1. supernormal profits are earned
2. costs are minimized
3. no firms are entering or exiting the industry
4. all of the above

24. The traditional theory of monopoly identifies a social loss associated with higher price charged by the monopolist compared to the perfectly competitive price. The social loss from monopoly is the
1. total loss of consumer surplus
2. total loss of consumer and producer surplus
3. loss in consumer surplus not transferred to the monopolist
4. increase in the cost of production

25. A monopolist who maximizes profits is likely to produce at a point on the demand curve where
1. elasticity of demand is equal to one
2. elasticity of demand is less than one
3. elasticity of demand is greater than one
4. elasticity of demand is zero

26. Consider the figure below P_C and Q_C are the equilibrium price and quantity if the firm behaves competitively, and P_M and Q_M are the equilibrium price and quantity if the firm is a simple monopoly.

Refer to figure above. What area represents the consumer surplus earned in the competitive equilibrium?

a. Area A + B

b. Area C + F + A + B

c. Area C + D + F + G.

d. Area A + B + C + D + E.

1. Which of the following is excluded from the model of perfect competition? Competition for
1. new products
2. new methods of production
3. new resources
4. new organizational methods
5. all of the above

2. In the alternative dynamic theory of competition, monopoly is mainly the result of
1. large scale capital requirements
2. advertising barriers
3. government supported barriers to competition
4. all of the above

3. According to the dynamic view of monopoly, which of the following would be considered a monopoly?
1. Microsoft
2. the public school system
3. UTD
4. the farmers market in downtown Dallas

4. Consider an incumbent firm engaging in predatory behavior and a potential entrant to the industry who is contemplating matching the price of the incumbent. For whom is cost of predatory behavior the highest?
1. the predator
2. the potential entrant
3. it is the same for both of them
4. it is impossible to say

5. Which of the following is an example of price discrimination?
1. student discounts at the movies
2. discount airline tickets
3. higher prices for supermarket items in the inner city than in the suburbs
4. all of the above

6. Perfect price discrimination
1. would extract the entire consumer surplus
2. would extract the entire producer surplus
3. would extract the entire total of consumer and producer surplus
4. is a widespread practice
5. a and d of the above

7. In order to price discriminate between two markets the seller must be able to
1. separate the markets and prevent resale
2. combine the markets
3. encourage resale
4. all of the above

8. A discriminating monopolist selling in two markets would charge a lower price in the market with the
1. lower elasticity of demand
2. higher elasticity of demand
3. lower elasticity of supply
4. higher elasticity of supply

9. Imagine a group of six sellers all selling the same product. Their combined profits could most likely best be maximized if they (you may ignore costs of negotiating and agreement enforcement and all legal considerations)
1. avoided all cooperation and competed vigorously
2. cooperated fully to limit sales and raise price
3. only two of them remained in business
4. each seller produced as much as possible

10. OPEC is a group of oil producing nations (companies). It attempts to act as a monopoly. What do you think is an obstacle to the achievement of monopoly profits?
1. individual members of OPEC cheat on the agreement to limit sales
2. members outside OPEC are encouraged to produce more whenever the price rises
3. OPEC administrators feel sorry for oil consumers
4. a and b of the above.

11. Consider OPEC again. Which to you think has the greatest incentive to cheat on any price-output agreement?
1. the largest seller
2. the smallest seller
3. the meanest seller
4. the medium sized seller

12. Natural monopolies are most clearly associated with industries where there are
1. high costs
2. high fixed costs
3. high variable costs
4. low costs

13. According to the model of perfect competition, which of the following is efficient?
1. pricing where price equals marginal cost
2. pricing where price is above marginal cost
3. pricing where price is above average revenue
4. pricing where marginal cost is below average cost

14. Under natural monopoly which of the following would NOT imply positive profits (would imply losses)?
1. pricing where price equals marginal cost
2. pricing where price equals average revenue
3. pricing where price is above average cost
4. pricing where price equals average cost

15. Which of the following is NOT always true?
1. when marginal cost is below average cost average cost is falling
2. when marginal cost is falling average cost is falling
3. when average cost is falling marginal cost is below it
4. when average cost is constant, it is equal to marginal cost

16. An industry's output is produced at the lowest possible cost when
1. firms' marginal costs are equal.
2. firms minimize their average costs.
3. all firms earn the same profit.
4. output is evenly divided among the industry's firms.

Table 1: Demand and Total Cost of Production

The following table which shows the demand for a firm's product and the firm's total cost of production.

Demand		Total Cost
Quantity	Price	Quantity	Dollars
0 units	$35 per unit	0 units	$0
1	30	1	4
2	25	2	11
3	20	3	21
4	15	4	34
5	10	5	50

17. Refer to Table 1. The marginal cost of producing the fourth unit is

a. $21

b. $20

c. $10

d. $13

18. Refer to Table 1. The marginal revenue received from selling the fourth unit is

a. $50.

b. $10.

c. $0.

d. -$10.

19. Refer to Table 1. The profit from selling 4 units would be

a. $26.

b. $39.

c. $14.

d. $11.

20. Refer to Table 1. According to the equimarginal principle, how many units should the firm produce in order to maximize its profit?

a. 2 units.

b. 3 units.

c. 4 units.

d. 5 units.

Table 2: Marginal Cost of Production

The following table shows a firm's marginal cost of production.

Quantity (number of units)	1	2	3	4	5	6	7	8
Marginal Cost (dollars )	3	4	6	9	13	18	24	31

21. Refer to Table 2. Suppose the firm has $20 in fixed costs. Its total cost of producing 4 units of output is

a. $29

b. $33

c. $55

d. $42

22. Refer to Table 2. Suppose the demand for the firm's product is horizontal at a price of $13 . How much output should the firm produce in order to maximize its profit?

a. 3 units.

b. 5 units.

c. 6 units.

d. 7 units.

23. Refer to Table 2. Suppose the firm has $10 in fixed costs, and demand for the firm's product is horizontal at a price of $18 . What is the firm's maximum profit?

a. $33.

b. $45.

c. $73.

d. $88.

24. Refer to Table 2. Suppose the firm's fixed costs increase to $60, and demand for the firm's product remains horizontal at a price of $18 . What is the firm's maximum profit?

a. $-7

b. $-5

c. $33

d. $48

Solution:

1. c
2. d
3. c.
4. d
5. c
6. a
7. d
8. d
9. b
10. b
11. a
12. b
13. b
14. c
15. d
16. e
17. d
18. d
19. a
20. c
21. b
22. d
23. c
24. c
25. c
26. d
27. e
28. c
29. b
30. a
31. d
32. a
33. a
34. b
35. b
36. d
37. b
38. b
39. a
40. a
41. b
42. b
43. d
44. c
45. a
46. b
47. d
48. b
49. b
50. b