CH 25 Review Monopolies

1. CH 25 ReviewMonopolies

2. The market structure where there is a single supplier of a good or service for which there is no close substitute is • Oligopoly • Perfect competition • Monopoly • Monopolistic competition

3. Small Town U.S.A. has no airport, no train service, and no water transportation systems. It only has Greyhound Transportation. In Small Town U.S.A., Greyhound • Is an example of long distance mass transportation monopoly • Is an example of pure competition in mass transportation industry. • Is an example of mass transportation monopolistic competition • Is an example of pure oligopoly

4. For a firm to become a monopoly in an industry • Barriers to entry must exist • The firm must charge higher prices than its competitors • The firm must produce a faulty product • The firm will engage in unfair practices to drive all competitors out of the market

5. The market structure where there is a single supplier of a good or service for which there is no close substitute is….. • A price searcher • A monopoly • A tariff • The most economically efficient market structure

7. Entry barriers are most significant in • Pure competition • Monopolistic competition • Oligopoly • Pure monopoly

8. Considering the spectrum of market structures and moving from pure competition to pure monopoly we can say that: • Entry barriers get lower but exit gets more difficult. • Entry becomes harder but exit becomes easier • Entry gets harder and the number of firms dwindles • None of the above

9. A barrier to entry is • A term used to explain why monopolies always make economic profits • A restriction on the profits that a monopoly can make • The situation when the government produces a good instead of relying on private firms to produce the good • A restriction on starting a business

10. Some industries exist where, in order to enter the industry a firm must incur a large fixed cost before being able to start producing. Which of the following statements is true? • This situation usually means that the government steps in and provides firms with startup costs. • The government always produces these goods • This creates barriers to entry and firms will earn monopoly profits • This industry will attract a lot firms

11. All of the following are considered a barrier to entry into a market EXCEPT • Ownership of resources without close substitutes • When firms can only earn a normal rate of return in a market • Economies of scale • When there is a large capital investment necessary to get into the market

13. Shortly after the turn of the century, U.S. steel owned most of the iron ore reserves in the country. This is an example of • Monopoly due to government restrictions • A barrier to entry from owning an important resource • A barrier to entry from scale economies • Monopoly due to large capital requirements

19. Which of the following is issued to an investor to provide protection from having the invention copied or stolen for 20 years? • A license • A natural monopoly • A patent • A certificate of convenience

31. Which of the following is not true about a cartel? • Members earn higher-than-competitive profits • Members experience large economies of scale relative to industry demand • Cartels will set common prices for their members • Members of a cartel will have production quotas

32. Refer to the above figure. Which of the following statements is true about the demand curves for an individual firm in a perfectly competitive industry and a monopoly? • Panel A is the demand curve for a perfectly competitive firm and panel B is the demand curve for a monopoly. • Panel C is the demand curve for a perfectly competitive firm and panel A is the demand curve for a monopoly. • Panel C is the demand curve for a perfectly competitive firm and panel B is the demand curve for a monopoly. • Panel B is the demand curve for a perfectly competitive firm and Panel A is the demand curve for a monopoly.

37. An association of producers in an industry that agree to set common prices and output quotas to prevent competition is • A tariff • A patent • Economies of scale • A cartel

39. An important difference between perfect competition and monopoly is • A monopoly is profitable and a perfect competitor is not. • The monopoly faces a downward sloping demand curve and the perfect competitor faces a horizontal demand curve. • The monopoly faces an inelastic demand curve and the perfect competitor faces an elastic demand curve. • A monopoly is not regulated by the market, while a perfect competitor is regulated by the market

40. Which of the following statements is true about the relationship between a firm’s demand curve under perfect competition and monopoly? • Under perfect competition the demand curve is perfectly elastic while under monopoly the demand curve has elastic, unitary and inelastic portions. • Under monopoly the demand curve is perfectly elastic while under perfect competition the demand curve has elastic, unitary and inelastic portions • The demand curves for a monopoly and perfect competition are always inelastic • We can define a demand curve under perfect competition but not in monopoly.

42. To induce an increase in the quantity demanded of its product, a monopolist must reduce the…. • Quality of its product and thereby generate a downward shift its ATC curve. • Price of its product and thereby generate a rightward shift in its demand curve • Price of its product and thereby generate a rightward movement along its demand curve • Quality of its product and thereby generate a downward movement along its ATC curve.

43. Successive downward movements along the demand curve for the product of a monopolist always generate successive…. • Increases in the monopolist’s marginal revenue • Increases in the monopolist’s average total costs. • Decreases in the additional per-unit costs incurred by the monopolist • Decreases in the additional per-unit revenues earned by the monopolist

44. A monopolist wishing to increase its profit has just discovered that lowering its price and selling more output yielded the desired result. Profit increased. Based on this, we can conclude that the cost of the additional production is….. • Greater than the revenue from the additional production • Precisely equal to the revenue from the additional production • Less than the revenue from the additional production • There is no way to answer this because you have not given us the marginal revenue and marginal cost data