Chapter+23

Chapter+23 - 1Chapter 10 Monopoly 1. Which of the following...

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1 Chapter 10 Monopoly 1. Which of the following is an assumption of the theory of monopoly? a. There are extremely high barriers to entry. b. There are many sellers. c. The product has a number of close substitutes. d. The product is of extremely high quality. ANS: a 2. The theory of monopoly assumes that the monopoly firm a. faces a downward-sloping supply curve that is the same as its marginal revenue curve. b. faces a downward-sloping demand curve. c. produces more than the perfectly competitive firm under identical demand and cost conditions. d. experiences low barriers to entry. e. none of the above ANS: b 3. Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this, a. Firm X cannot be a monopolist because the theory of monopoly assumes there are no close substitutes for the good the single seller sells. b. Firm X can be a monopolist because we do not know if the two substitutes are close substitutes; additionally, it may be that Firm X acts as if the assumption of no close substitutes holds. c. Firm X cannot be a monopolist because if substitutes exist for the good it produces, its demand curve is horizontal and monopolists face downward-sloping demand curves. d. none of the above ANS: b 4. Suppose Firm X is a monopolist and is receiving positive economic profits. What prevents other firms from directly competing away the profits? a. high barriers to entry b. antitrust laws c. low barriers to entry d. diseconomies of scale e. none of the above ANS: a 5. Which of the following is an example of a legal barrier to entry? a. a public franchise b. a patent c. exclusive ownership of a scarce resource d. a and b e. a, b, and c ANS: d 51
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52 Chapter 10 6. A public franchise is a right granted a. to one firm by another firm; for example, McDonald’s Corporation grants restaurant owners a franchise to make its hamburgers. b. to a firm by government that prevents other firms from producing the same product or service. c. to a cooperative of buyers that allows the group to purchase goods at wholesale prices. d. by government that enables a person to engage in arbitrage. ANS: b 7. A natural monopoly exists when a. a monopolist produces a product, the main component of which is a natural resource. b. economies of scale are so large that only one firm can survive and achieve low unit costs. c. a firm controls all the rights to a scarce resource. d. there are no close substitutes for a firm’s product. ANS: b 8. Which of the following is the best example of a monopoly? a. a local power utility b. a fast-food restaurant c. a department store d. a construction firm ANS: a 9. Which of the following is the best example of a barrier to entry into a monopolistic industry? a. diminishing returns b. comparative advantage c. high elasticity of demand d. a public franchise ANS: d 10. Public franchises, patents, and government licenses are examples of __________ barriers to entry.
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This note was uploaded on 03/19/2011 for the course ECON 100A taught by Professor Petertemin during the Spring '11 term at MIT.

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Chapter+23 - 1Chapter 10 Monopoly 1. Which of the following...

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