Review questions Chapter10
1. A significant difference between monopoly and perfect competition is that:
A. free entry and exit is possible in a monopolized industry but impossible in a competitive industry.
B. competitive firms control market supply, but monopolies do not.
C. the monopolist's demand curve is the industry demand curve, while the competitive firm's demand curve is
D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.
2. Drug maker Wyeth produces the hormone-therapy drug Premarin, which is derived from the urine of pregnant
mares. Not even Wyeth knows exactly what chemicals are in it, and the method of making the drug is a trade
secret. For almost 15 years, Barr Laboratories has been trying to make a pill that is close enough to Premarin to be
approved by the Food and Drug Administration as an "equivalent" drug. This story illustrates the importance of:
A. declining long-run cost curves as a way of preserving monopoly.
B. declining demand curves as an essential ingredient in keeping monopoly.
C. barriers to entry in keeping a monopoly position.
D. economies of scope in cementing a monopoly position.
3. One major barrier to entry under pure monopoly arises from:
A. The availability of close substitutes for a product
B. Ownership of essential resources
C. The price taking ability of the firm
D. Diseconomies of scale
4. Marginal revenue is not equal to price for a monopolist because:
A. the monopolist's demand curve is below its marginal revenue curve.
B. total revenue increases as output increases.
C. the monopolist sets price equal to marginal cost.
D. the monopolist must lower the price of all units in order to sell more.
5. At which combination of price and marginal revenue (
, MR) is the price elasticity of demand greater than 1?
= 15, MR = 8
= 12, MR = 0
= 8, MR = -2
= 4, MR = -4
6. Given a downsloping linear demand curve, when total revenue is decreasing, marginal revenue is:
A. Positive and demand is elastic
B. Negative and demand is elastic
C. Positive and demand is inelastic
D. Negative and demand is inelastic
7. A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The
marginal revenue of the 21st toy is:
8. A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering
price to get into this region will:
A. Increase total revenue, increase total cost, and decrease profit
B. Decrease total revenue, increase total cost, and decrease profit
C. Increase total revenue, decrease total cost, and decrease profit
D. Decrease total revenue, total cost, and profit
9. Under pure monopoly, a profit-maximizing firm will produce:
A. In the inelastic range of its demand curve
B. In the elastic range of its demand curve
C. Only where total costs are zero
D. Only where marginal revenue is zero
10. Refer to the table above that shows the demand schedule for a product sold by a monopolist. Marginal revenue
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