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Chapter 15 Practice Questions



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

A monopoly's marginal cost will
a.
be less than its average fixed cost.
b.
be less than the price per unit of its product.
c.
exceed its marginal revenue.
d.
equal its average total cost.
 

2. 

Which of the following is an example of a barrier to entry?
(i)
A key resource is owned by a single firm.
(ii)
The costs of production make a single producer more efficient than a large number of producers.
(iii)
The government has given the existing monopoly the exclusive right to produce the good.
a.
(i) and (ii)
b.
(ii) and (iii)
c.
(i) only
d.
All of the above are correct.
 

3. 

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
a.
not in the best interest of society.
b.
one that fails to maximize total economic well-being.
c.
inefficient.
d.
All of the above are correct.
 

4. 

A natural monopoly occurs when
a.
the product is sold in its natural state (such as water or diamonds).
b.
there are economies of scale over the relevant range of output.
c.
the firm is characterized by a rising marginal cost curve.
d.
production requires the use of free natural resources, such as water or air.
 

5. 

Patent and copyright laws are major sources of
a.
natural monopolies.
b.
government-created monopolies.
c.
resource monopolies.
d.
None of the above are correct.
 

6. 

Drug companies are allowed to be monopolists in the drugs they discover in order to
a.
allow drug companies to charge a price that is equal to their marginal cost.
b.
discourage new firms from entering the drug market.
c.
encourage research.
d.
All of the above are correct.
 

7. 

It is possible for a natural monopoly to evolve into a competitive market
a.
as a market expands.
b.
as patent and copyright laws change.
c.
as technological advances give rise to economies of scale.
d.
None of the above are correct; it is not possible for a natural monopoly to evolve into a competitive market.
 

8. 

In order to sell more of its product, a monopolist must
a.
sell to the government.
b.
sell in international markets.
c.
lower its price.
d.
use its market power to force up the price of complementary products.
 

9. 

For a monopolist, marginal revenue is
a.
positive when the demand effect is greater than the supply effect.
b.
positive when the monopoly effect is greater than the competitive effect.
c.
negative when the price effect is greater than the output effect.
d.
negative when the output effect is greater than the price effect.
 

10. 

For a profit-maximizing monopolist,
a.
P > MR = MC.
b.
P = MR = MC.
c.
P > MR > MC.
d.
MR < MC < P.
 



 
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