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Multiple Choice Quiz
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1.
The demand curve facing a monopoly:
A)is equal to the industry demand curve.
B)is horizontal at the going market price.
C)is steeper than the industry demand curve.
D)is flatter than the industry demand curve.
2.
For a monopolist:
A)MR < P.
B)MR < average revenue.
C)MR declines as output increases.
D)All of the above are true.
3.
A monopolist maximizes profit by producing at the output for which:
A)marginal cost = marginal revenue.
B)(marginal revenue minus marginal cost) is at its maximum.
C)marginal cost = average revenue.
D)(marginal cost minus marginal revenue) is at its maximum.
4.
If your firm is a monopoly:
A)it will always earn positive economic profit.
B)it will never earn positive economic profit.
C)it may earn positive economic profit, zero economic profit, or suffer losses depending on demand conditions.
D)None of the above is true.
5.
If a firm converts a previously competitive industry into a monopoly without any changes in the cost curves:
A)it will increase output and price to generate more profit.
B)it will reduce output and raise price to generate more profit.
C)it will keep output the same but increase price to generate more profit.
D)it will reduce price and increase output to keep potential competitors from entering the industry.
6.
Monopolies have some undesirable characteristics; however:
A)they may have an offsetting benefit due to their greater financial resources for conducting valuable research and development.
B)they may have an offsetting benefit since most consumers like to pay higher prices.
C)they may have an offsetting benefit if they can achieve economies of scale resulting in reduced cost and, hence, reduced resource use.
D)both (a) and (c) above are true.
7.
When a monopoly operates in a contestable market:
A)it charges the same price as an ordinary monopoly.
B)it is unable to charge a price above cost without inducing entry by a rival firm
C)it is able to form a cartel with the other large firms and charge prices considerably above cost
D)both a. and c. above are true.
8.
Which of the following statements is true?
A)Competitive firms produce at that output for which MR = MC but monopolists produce at the output for which MR > MC.
B)The competitive price is usually higher than the monopoly price.
C)Both the monopolist and the competitive firm operate at the output for which MR = MC.
D)Monopoly theory has no relevance to the real world.
9.
If firms are earning positive economic profits:
A)entry would tend to erode those profits in competitive industries but not in monopolistic industries.
B)barriers to entry would permit those profits to persist.
C)both competitive firms and monopolists would still be producing where MR = MC.
D)All of the above statements are true.
10.
A monopolist maximizes profit:
A)by charging the highest price possible.
B)by taking no action to reduce cost.
C)by charging the price that has the highest profit possible per unit.
D)None of the above is true.
11.
In a monopoly, marginal revenue is always ______ price.
A)less than
B)greater than
C)equal to
D)None of the above is true.
12.
Marginal revenue is the:
A)additional revenue from selling one more of a good.
B)change in total revenue from a one-unit increase in the quantity sold.
C)extra money received when another good is sold.
D)All of the above are true.
13.
A monopolist maximizes profits at the rate of output where MR ______ MC.
A)is less than
B)is greater than
C)equals
D)None of the above is true.
14.
Assuming equal costs, a monopolist produces ______ and charges ______ than a competitive industry.
A)more; more
B)less; less
C)more; less
D)less; more
15.
Which of the following are examples of barriers to entry?
A)Patents
B)Exclusive licensing
C)Government franchises
D)All of the above are examples.
16.
Which of the following is not an example of a natural monopoly?
A)Local telephone service
B)Cable TV
C)Public utilities
D)Agriculture
17.
A monopoly consists of ______ firm(s) in an industry.
A)one
B)two
C)a few
D)many
18.
An industry structure with many firms each of which has some distinct brand image is called ______.
A)monopoly
B)competition
C)monopolistic competition
D)oligopoly
19.
A monopolist has a(n) ______ demand curve.
A)horizontal
B)vertical
C)downward sloping
D)upward sloping
20.
If P > AVC, a monopolist is experiencing a ______.
A)profit
B)loss
C)break-even point.
D)shut-down case.
21.
A _____ gives a firm the exclusive right to produce or license a product.
A)franchise
B)patent
C)tax credit
D)spillover cost
22.
In an industry that is a monopoly, industry price _____ marginal cost at all times.
A)equals
B)is greater than
C)is less than
D)None of the above is true.
23.
The profit maximizing rules are applicable:
A)to any type of firm.
B)only when the firm is a price taker.
C)only to monopolies.
D)only to perfectly competitive firms.
24.
A natural monopoly achieves _____ over the entire range of market supply.
A)higher costs
B)cost inefficiencies
C)economies of scale
D)maximum profits
25.
To calculate profit, take total revenue _____ total cost.
A)times
B)divided by
C)plus
D)minus





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