Economics Sample Questions and answers-16

1. 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.

2. Pure monopolists may earn economic profits in the long run because:
A) of advertising.
B) marginal revenue is constant as sales increase.
C) of barriers to entry.
D) of rising average fixed costs.

3. Which of the following is a characteristic of pure monopoly?
A) close substitute products
B) barriers to entry
C) the absence of market power
D) “price taking”

4. A natural monopoly occurs when:
A) long-run average costs decline continuously through the range of demand.
B) a firm owns or controls some resource essential to production.
C) long-run average costs rise continuously as output is increased.
D) economies of scale are obtained at relatively low levels of output.

5. 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.

6. If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
A) may be either greater or less than $35.
B) will also be $35.
C) will be less than $35.
D) will be greater than $35.

7. For an imperfectly competitive firm:
A) total revenue is a straight, upsloping line because a firm’s sales are independent of product price.
B) the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold.
C) the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
D) the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

8. A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:
A) -$1,000.
B) $9,000.
C) $10,000.
D) $1,000.

9. With respect to the pure monopolist’s demand curve it can be said that:
A) the stronger the barriers to entry, the more elastic is the monopolist’s demand curve.
B) price exceeds marginal revenue at all outputs greater than 1.
C) demand is perfectly inelastic.
D) marginal revenue equals price at all outputs.

10. Because the monopolist’s demand curve is downsloping:
A) MR will equal price.
B) price must be lowered to sell more output.
C) the elasticity coefficient will increase as price is lowered.
D) its supply curve will also be downsloping.

11. When total revenue is increasing:
A) marginal revenue may be either positive or negative.
B) the demand curve is relatively inelastic.
C) marginal revenue is positive.
D) marginal revenue is negative.

12. For a pure monopolist marginal revenue is less than price because:
A) the monopolist’s demand curve is perfectly elastic.
B) the monopolist’s demand curve is perfectly inelastic.
C) when a monopolist lowers price to sell more output, the lower price applies to all units sold.
D) the monopolist’s total revenue curve is linear and slopes upward to the right.

13. If a pure monopolist is operating in a range of output where demand is elastic:
A) it cannot possibly be maximizing profits.
B) marginal revenue will be positive but declining.
C) marginal revenue will be positive and rising.
D) total revenue will be declining.

14. A nondiscriminating pure monopolist finds that it can sell its fiftieth unit of output for $50. We can surmise that the marginal:
A) cost of the fiftieth unit is also $50.
B) revenue of the fiftieth unit is also $50.
C) revenue of the fiftieth unit is less than $50.
D) revenue of the fiftieth unit is greater than $50.

15. 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.

Answer Key:
1. C
2. C
3. B
4. A
5. B
6. C
7. C
8. D
9. B
10. B
11. C
12. C
13. B
14. C
15. D

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