ECON 231
Chapter 11 Study Quiz


1.
Other things equal, in which of the following cases would economic profit be the greatest?
A.
an unregulated monopolist which is able to engage in price discrimination
B.
an unregulated monopolist
C.
a regulated monopolist charging a price equal to average total cost
D.
a regulated monopolist charging a price equal to marginal cost


2.
Purely competitive firms and pure monopolists are similar in that:
A.
the demand curves of both are perfectly elastic.
B.
significant entry barriers are common to both.
C.
both are price makers.
D.
both maximize profit where MR = MC.


3.
(Last Word) DeBeers Consolidated Mines markets about:
A.
65 percent of the world's rough-cut diamonds.
B.
80 percent of the world's rough-cut diamonds.
C.
50 percent of the world's rough-cut diamonds.
D.
33 percent of the world's rough-cut diamonds.


4.
To maximize profit a pure monopolist must:
A.
maximize its total revenue.
B.
maximize the difference between marginal revenue and marginal cost.
C.
maximize the difference between total revenue and total cost.
D.
produce where average total cost is at a minimum.


5.
X-inefficiency refers to a situation in which a firm:
A.
is not as technologically progressive as it might be.
B.
encounters diseconomies of scale.
C.
fails to realize all existing economies of scale.
D.
fails to achieve the minimum average total costs attainable at each level of output.




Reference: F24052

6.
Refer to the above diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output:
A.
q4.
B.
q3.
C.
q2.
D.
q1.


7.
The vertical distance between the horizontal axis and any point on a perfectly discriminating monopolist's demand curve measures:
A.
the quantity demanded.
B.
total revenue.
C.
product price and marginal revenue.
D.
average revenue and average total cost.


8.
If a monopolist engages in perfect price discrimination, it will:
A.
realize a smaller profit.
B.
charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
C.
produce a smaller output than when it did not discriminate.
D.
charge a competitive price to all its customers.


Reference: F24167

9.
Refer to the above diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output:
A.
Q2 and realize a normal profit.
B.
Q4 and realize a normal profit.
C.
Q3 and realize an economic profit.
D.
Q4 and realize a loss.


10.
The nondiscriminating monopolist's demand curve:
A.
is less elastic than a purely competitive firm's demand curve.
B.
is perfectly elastic.
C.
coincides with its marginal revenue curve.
D.
is perfectly inelastic.


11.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
A.
They must all be present before price discrimination can be practiced.
B.
They are all barriers to entry.
C.
They all help explain why a monopolist's demand and marginal revenue curves coincide.
D.
They all help explain why the long-run average cost curve is U-shaped.


Reference: F24167

12.
Refer to the above diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would:
A.
produce output Q1 and realize an economic profit.
B.
produce output Q3 and realize an economic profit.
C.
close down in the short run.
D.
produce output Q3 and realize a normal profit.


13.
If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to:
A.
minimum average fixed cost.
B.
average total cost.
C.
marginal cost.
D.
marginal revenue.


Reference: F24090

14.
Refer to the above diagram for a pure monopolist. Monopoly price will be:
A.
e.
B.
c.
C.
b.
D.
a.


Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist:

Reference: REF24078

15.
Refer to the above data. The equilibrium level of output will be:
A.
4 units.
B.
7 units.
C.
6 units.
D.
5 units.


16.
The pure monopolist's demand curve is:
A.
identical with the industry demand curve.
B.
of unit elasticity throughout.
C.
perfectly inelastic.
D.
perfectly elastic.


17.
If a pure monopolist is producing at that output where P = ATC, then:
A.
its economic profits will be zero.
B.
it will be realizing losses.
C.
it will be producing less than the profit-maximizing level of output.
D.
it will be realizing an economic profit.


Answer the next question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist:

Reference: REF24065

18.
The monopolist will select its profit-maximizing level of output somewhere within the:
A.
3-5 unit range of output.
B.
1-3 unit range of output.
C.
1-4 unit range of output.
D.
2-4 unit range of output.


19.
A pure monopolist:
A.
will realize an economic profit if price exceeds ATC at the equilibrium output.
B.
will realize an economic profit if ATC exceeds MR at the equilibrium output.
C.
will realize an economic loss if MC intersects the downsloping portion of MR.
D.
always realizes an economic profit.


20.
When the pure monopolist's demand curve is elastic, marginal revenue:
A.
may be either positive or negative.
B.
is zero.
C.
is negative.
D.
is positive.


21.
Pure monopoly means:
A.
any market in which the demand curve to the firm is downsloping.
B.
a standardized product being produced by many firms.
C.
a single firm producing a product for which there are no close substitutes.
D.
a large number of firms producing a differentiated product.


22.
A nondiscriminating pure monopolist's demand curve:
A.
is perfectly inelastic.
B.
coincides with its marginal revenue curve.
C.
lies above its marginal revenue curve.
D.
lies below its marginal revenue curve.


23.
The dilemma of regulation refers to the idea that:
A.
the regulated price which achieves allocative efficiency is also likely to result in persistent economic profits.
B.
the regulated price which results in a "fair return" restricts output by more than would unregulated monopoly.
C.
regulated pricing always conflicts with the "due process" provision of the Constitution.
D.
the regulated price which achieves allocative efficiency is also likely to result in losses.


Reference: F24034

24.
Refer to the above diagram. Demand is relatively inelastic:
A.
at price P3.
B.
at any price below P2.
C.
in the P2P4 price range.
D.
in the P2P3 price range.


Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist:

Reference: REF24078

25.
Refer to the above data. Equilibrium price for the monopolist will be:
A.
$5.00
B.
$2.90.
C.
$3.35.
D.
$4.50.


26.
The demand curve faced by a pure monopolist:
A.
may be either more or less elastic than that faced by a single purely competitive firm.
B.
is less elastic than that faced by a single purely competitive firm.
C.
has the same elasticity as that faced by a single purely competitive firm.
D.
is more elastic than that faced by a single purely competitive firm.


27.
Suppose that a pure monopolist can sell 10 units of output at $5 per unit and 11 units at $4.90 per unit. The marginal revenue of the eleventh unit is:
A.
$3.90.
B.
$.10.
C.
$53.90.
D.
$4.90.


28.
The marginal revenue curve for a monopolist:
A.
is a straight, upward sloping curve.
B.
rises at first, reaches a maximum, and then declines.
C.
becomes negative when output increases beyond some particular level.
D.
is a straight line, parallel to the horizontal axis.


29.
The MR = MC rule:
A.
applies only to pure competition.
B.
applies only to pure monopoly.
C.
does not apply to pure monopoly because price exceeds marginal revenue.
D.
applies both to pure monopoly and pure competition.


Reference: F24027

30.
Refer to the above two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by:
A.
lines B and C respectively.
B.
lines A and C respectively.
C.
lines A and B respectively.
D.
line B.


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