Economics Quiz

25)
Which of the following is true of a natural monopoly?
25)
______ A)
Its long-run average cost curve slopes upward as it intersects the demand curve. B)
Economies of scale exist to only a very low level of output. C)
The firm is not protected by any barrier to entry. D)
The firm can supply the entire market at a lower cost than could two or more firms.

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26)
Prime Pharmaceuticals has developed a new asthma medicine, for it has a patent. An inhaler can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler,
if it is a single-price monopoly, Prime Pharmaceuticals will produce ________ inhalers and set a price of ________ for each inhaler.
26)
______ A)
8 million; $6
B)
16 million; $2 C)
8 million; $2
D)
10 million; $5

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27)
La Bella Pizza is the only pizza place on Pepper Island. The figure above shows La Bella Pizza's demand curve, marginal revenue curve, and marginal cost curve. At La Bella Pizza's profit-maximizing output, its annual total revenue is
27)
______ A)
$336,000.
B)
$624,000.
C)
$312,000.
D)
$168,000.

28)
Which of the following statements is true?
28)
______ A)
A perfectly competitive industry produces more output and charges a lower price than a single-price monopoly. B)
A perfectly competitive industry produces less output and charges the same price as a single-price monopoly. C)
A perfectly competitive industry produces less output and charges a lower price than a single-price monopoly. D)
A perfectly competitive industry produces more output and charges the same price as a single-price monopoly.

29)
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 ________.
29)
______ A) lowering its price and increasing its output B) shutting down C) raising its price and decreasing its output D) lowering its price and decreasing its output

30)
A public franchise is
30)
______ A) an exclusive right granted to an inventor of a product. B) a unique source of raw materials. C) a government issued license required to practice a profession. D) an exclusive right granted to a firm to supply a good or service.

31)
Rent seeking is devoted to the creation of
31)
______ A) competitive industries.
B)
monopolies. C) more elastic demand.
D)
human capital.

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32)
If the monopoly illustrated in the figure above could engage in perfect price discrimination, the deadweight loss would be
32)
______ A)
$250.00.
B)
$22.50.
C)
$0.
D)
$90.00.

33)
If the price elasticity of demand is greater than 1, a monopoly's
33)
______ A) marginal revenue is negative. B) total revenue decreases when the firm lowers its price. C) marginal revenue is zero. D) total revenue increases when the firm lowers its price.

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34)
Given the market demand and cost data in the above figure, the existence of a monopoly firm producing 8 million cubic feet of natural gas makes it possible to produce natural gas at a long-run average cost of
34)
______ A)
10 cents per cubic foot.
B)
40 cents per cubic foot. C)
30 cents per cubic foot.
D)
20 cents per cubic foot.

35)
Compared to a single-price monopoly, the price charged by a perfectly competitive industry with the same costs
35)
______ A) is higher than the monopoly's price. B) is the same as the monopoly's price. C) could be higher than, lower than, or the same as the monopoly's price. D) is lower than the monopoly's price.

36)
Price discrimination
36)
______ A) works only if all groups of demanders have the same price elasticity of demand for the product. B) is common in perfectly competitive markets. C) is illegal because it always violates antitrust laws. D) is more likely for services than for goods that can be stored and resold.

37)
Monopolies can earn an economic profit in the long run because of
37)
______ A) rent seeking by competitors. B) the elastic demand for the monopoly's product.
C) barriers to enter the monopoly's market. D) the cost-savings gained by the monopoly.

|Price |Quantity demanded |Marginal revenue |Total cost (dollars)|
|(dollars) | |(dollars) | |
|30 |0 |0 |25 |
|27 |1 |27 |28 |
|24 |2 |21 |33 |
|21 |3 |15 |40 |
|18 |4 |9 |49 |
|15 |5 |3 |60 |
|12 |6 |-3 |73 |
|9 |7 |-9 |88 | 38)
If the single-price monopolist whose cost and demand data are in the above table were forced to produce 5 units of output, what would be the monopolist's economic profit?
38)
______ A)
$75
B)
$11
C)
$3
D)
$15

39)
Rent seeking ________.
39)
______ A) increases consumer surplus B) increases deadweight loss C) occurs only when the firm practices perfect price discrimination D) results in a larger output than a competitive industry would produce

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40)
Mountain Water is a natural monopoly. The government decides to regulate Mountain Water by imposing a marginal cost pricing rule. The figure above shows the demand for Mountain Water. Marginal cost is $0.20 per bottle. The price of a bottle of Mountain Water is ________, and ________ thousand bottles are sold per month.
40)
______ A)
$0.20; 500
B)
$0.20; 400 C)
$1.00; 500
D)
$0.50; 250

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41)
If the above figure illustrated a perfectly competitive industry, the equilibrium industry price would be equal to
41)
______ A)
$11.
B)
$9.
C)
$4.
D)
$7.
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42)
The figure above shows a monopoly's total revenue and total cost curves. The monopoly's economic profit is maximized when it produces
42)
______ A)
5 units of output.
B)
20 units of output. C)
15 units of output.
D)
0 units of output.

Demand Schedule Facing a Perfectly Price Discriminating Firm
|Price |Quantity Sold |
|(dollars) | |
|8 |0 |
|7 |1 |
|6 |2 |
|5 |3 |
|4 |4 |
|3 |5 |
|2 |6 |
|1 |7 | 43)
Using the demand schedule in the above table, if the firm's marginal cost is constant at $3.00, output for a perfectly price discriminating monopolist is
43)
______ A)
5 units.
B)
3 units.
C)
4 units.
D)
2 units.

44)
Which of the following is NOT a possible gain to society from a monopoly?
44)
______ A)
The monopoly might induce innovation. B)
The monopoly might lead to rent
seeking. C)
The monopoly might achieve economies of scope. D)
The monopoly might achieve economies of scale.

[pic]

45)
In the figure above, the efficient amount of output is
45)
______ A)
20 units per day.
B)
40 units per day. C)
80 units per day.
D)
60 units per day.

46)
Compared to a single-price monopoly, the output of a perfectly competitive industry with the same costs
46)
______ A) is more than the monopoly's output. B) could be more than, less than, or equal to the monopoly's output. C) is the same as the monopoly's output. D) is less than the monopoly's output.

47)
Consumer surplus is the ________ summed over the quantity purchased.
47)
______ A) value the consumer places on a good minus its price B) opportunity cost of a good minus its value C) price of a good minus its opportunity cost D) price of a good minus the value the consumer places on it

48)
Which of the following statements regarding a marginal-cost pricing rule for a natural monopoly is WRONG?
48)
______ A)
It sets price equal to marginal cost. B)
It allows the firm to earn a normal profit. C)
It maximizes total surplus in a regulated industry. D)
It is efficient.

[pic]

49)
The above figure shows the demand and cost curves for a monopolist. What is the maximum economic profit this firm can earn?
49)
______ A)
$200
B)
$100
C)
$400
D) zero [pic]

50)
In the figure above, a single-price unregulated monopoly will produce an amount of output equal to
50)
______ A)
j.
B)
k.
C)
h.
D) none of the above

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