Chapter 15(sample exercise)1

Chapter 15(sample exercise)1 - Chapter 15 (Multiple...

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Chapter 15 (Multiple Choice)—Monopoly 1. Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly can earn unlimited profits. a. (i) only b. (ii) only c. (i) and (ii) d. (ii) and (iii) 2. An industry is a natural monopoly when (i) government assists the firm in maintaining the monopoly. (ii) a single firm owns a key resource. (iii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii) 3. 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. Scenario 15-1 Consider the market for water in a small town in the Old West. Assume that the only source of water is the underground aquifer that lies directly below the town. Wells are used to supply water to the entire town. 4. Refer to Scenario 15-1 . Suppose only one resident owns all the wells in town. Which of the following statements is most likely going to be true of the market for water? a. The price of a gallon of water will be driven to equal its marginal cost. b. The price of a gallon of water will exceed its marginal cost. c. Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised. d. The seller will be able to earn unlimited profit. 5. If the distribution of water is a natural monopoly, then (i) multiple firms will each have to pay large fixed costs to develop their own network of pipes. (ii) allowing for competition among different firms in the water-distribution industry is efficient. (iii) a single firm can serve the market at the lowest possible average total cost. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. (i) only
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6. The key difference between a competitive firm and a monopoly firm is the ability to select a. the level of competition in the market. b. the level of production. c. inputs in the production process. d. the price of its output. 7. When a firm operates under conditions of monopoly, its price is a. not constrained. b. constrained by marginal cost. c. constrained by demand. d. constrained only by its social agenda. 8. A monopolist's average revenue is always a. equal to marginal revenue. b. greater than the price of its product. c. equal to the price of its product. d. less than the price of its product. 9. For a monopolist, marginal revenue is a. positive when the demand effect is greater than the supply effect. b.
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Chapter 15(sample exercise)1 - Chapter 15 (Multiple...

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