Added practice Exam - Ch 24

_______________________________

Write your name on the exam and the answer sheet. Answer each of the questions on the answer sheet provided. You may write on the exam.




1.

R-1 REF 24-85

Based on the diagram above, what is the difference between the purely competitive level of output and the pure monopolist level of output?
A.0
B.20
C.50
D.100



2. Electric utilities generally charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heat result primarily from:
A.the existence of good heating substitutes.
B.economies of scale in electric heat generation.
C.prices for electric heat being set at the socially optimal level.
D.strict government regulation of the price charged for electric heat.


3. Assume the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as:
A.rent seeking.
B.socially optimal pricing.
C.perfect price discrimination.
D.diseconomies of scale in production


4.
Use the following information from the demand schedule of a profit-maximizing pure monopolist to answer the question(s) below.

Price ($)109876543

Quantity01234567
R-2 REF 24-119 (REF24106)

Refer to the above demand schedule. Assume that the marginal cost is constant at $5.00. A profit-maximizing firm will set the quantity of output at what level?
A.1
B.2
C.3
D.4



5.
Use the following information from the demand schedule of a profit-maximizing pure monopolist to answer the question(s) below.

Price ($)109876543

Quantity01234567
R-2 REF 24-119 (REF24106)

Refer to the above demand schedule. For the perfectly price-discriminating monopolist, the total revenue from the sale of four units of output is:
A.$6.
B.$24.
C.$30.
D.$36.



6. A perfect price-discriminating monopolist produces a quantity of output that is considered:
A.efficient because profits are larger than for nonprice discriminators.
B.inefficient because profits are larger than for nonprice discriminators.
C.efficient because marginal benefits are equal to marginal costs for the last unit sold.
D.inefficient because marginal benefits are greater than marginal costs for the last unit sold.


7. If a monopolized industry should become purely competitive without any change in cost conditions:
A.both price and quantity produced will increase.
B.both price and quantity produced will decrease.
C.price will increase and quantity produced will decrease.
D.price will decrease and quantity produced will increase.


8.

R-3 REF 24-14

A firm facing the cost schedules shown in the graph above would probably be:
A.a monopolistic competitor.
B.a monopolist facing the market demand alone.
C.a pure competitor in stiff competition with many other firms in the market.
D.unable to earn any economic profits unless protected from competition by government regulations.



9.

R-4 REF 24-68

The graph above represents the short-run cost and revenue curves faced by a monopolist who is currently producing at Q1 and charging price P1 . To maximize profits the monopolist should:
A.increase output and decrease price.
B.increase output and increase price.
C.decrease output and decrease price.
D.decrease output and increase price.



10. Efforts by corporate lobbyists to obtain a license that would give a firm a monopoly over the production of a product would be an example of:
A.rent-seeking.
B.price discrimination.
C.X-efficiency.
D.dynamic efficiency.


11. Consumers who clip and redeem discount coupons:
A.exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
B.exhibit more price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
C.exhibit less price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
D.cause total revenue to decrease for firms that issue coupons for their products.


12. If marginal costs decrease, a typical monopolist will:
A.reduce price and reduce quantity of output.
B.reduce price and increase quantity of output.
C.increase price and reduce quantity of output.
D.increase price and increase quantity of output.


13. Allocative inefficiency due to unregulated monopoly is characterized by the condition:
A.P = MC.
B.P = MR.
C.P > MC.
D.P > AVC.


14.

R-5 REF 24-59

Refer to the above figure. In the short run, this monopolist will:
A.shut down.
B.produce 0A.
C.produce 0B.
D.produce 0C.



15. A pure monopolist which is maximizing short-run profits will produce:
A.on the elastic portion of the demand curve.
B.on the inelastic portion of the demand curve.
C.at the point on the demand curve where total revenue is maximized.
D.where marginal revenue exceeds marginal cost by the largest amount.


16. Equilibrium for the monopolist occurs where P > MR > MC > average total cost.
A.True
B.False


17.

R-6 REF 24-96

If the ATC curve in the above graph represents the minimum of the average total cost curve, then examples of X-inefficiency would best be represented by point:
A.A at output level Q1 and point D at output level Q1 .
B.A at output level Q1 and point B at output level Q2 .
C.E at output level Q2 and point F at output level Q3 .
D.D at output level Q1 and point C at output level Q3 .



18. Suppose a monopolist produces output where total revenue is maximized. At that output, the price elasticity of demand for the monopolist's output is:
A.greater or equal to one.
B.less than one.
C.equal to one.
D.impossible to determine.


19. The pure monopolist that is nondiscriminating must decrease price on all units of a product sold in order to sell additional units. This explains why:
A.there are barriers to entry in pure monopoly.
B.a monopoly has a perfectly elastic demand curve.
C.marginal revenue is less than average revenue.
D.total revenues are greater than total costs at the profit maximizing level of output.


20. Which is a major criticism of a monopoly as a source of allocative inefficiency?
A.A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.
B.A monopolist has no incentive to produce efficiently, because even the inefficient monopolist can be assured of economic profits.
C.A monopolist will always make profits and that means that prices are too high.
D.A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms in other industries.


21. Which of the following is a barrier to entry in an industry?
A.economies of scale
B.allocative efficiency
C.profit maximization
D.economic profits


22. With a natural monopoly, the fair return price:
A.is allocatively efficient; the socially optimal price is allocatively inefficient.
B.is allocatively inefficient; the socially optimal price is allocatively efficient.
C.and the socially optimal price are both allocatively inefficient.
D.and the socially optimal price are both allocatively efficient


23.
Answer the question(s) below on the basis of the following demand and cost data for a pure monopolist.

Demand dataCost data
QuantityTotal
PricedemandedOutputcost
$2.7533$4.00
2.50444.50
2.25554.75
2.00665.75
1.75777.75
R-7 REF 24-49 (REF24044)

Refer to the above table. The monopolist will realize a:
A.profit of $10.00.
B.profit of $6.50.
C.profit of $4.50.
D.loss of $7.23.



24. Suppose the government forces the monopolist shown above to charge the price at a point on its demand curve which results in an optimal allocation of scarce resources. As a result, the monopolist will:
A.incur a loss.
B.earn zero economic profits.
C.earn more economic profits.
D.earn less economic profits.


25. The United Shoe Manufacturing Company used its leasing policy together with which barriers to entry to attain and maintain its near monopoly position in shoe manufacturing equipment?
A.control of essential resources
B.economies of scale
C.licenses
D.patents



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