Monopoly Chapter 15

TRUE/FALSE 1. Monopolists can achieve any level of profit they desire because they have unlimited market power. ANS: F DIF: 2 REF: 15-0 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 2. Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices. ANS: T DIF: 2 REF: 15-0 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 3. One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms. ANS: F DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional 4. The fundamental cause of monopolies is barriers to entry. ANS: T DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 5. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that it has a monopoly position to some degree. ANS: T DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 6. The De Beers Diamond company is not worried about differentiating its product from all other gemstones. ANS: F DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 7. The amount of power that a monopoly has depends on whether there are close substitutes for its product. ANS: T DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive 8. If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in jewelry which is found only in Afghanistan, the company benefits from a barrier to entry. ANS: T DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Applicative 1002 Chapter 15/Monopoly  1003 9. Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers. ANS: T DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Patents MSC: Interpretive 10. If the government deems a newly invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years. ANS: F DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Patents MSC: Interpretive 11. A natural monopoly has economies of scale for most if not all of its range of output. ANS: T DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Natural monopoly MSC: Applicative 12. Declining average total cost with increased production is one of the defining characteristics of a natural monopoly. ANS: T DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Natural monopoly MSC: Definitional 13. A monopolist maximizes profit by producing an output level where marginal cost equals price. ANS: F DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Profit maximization MSC: Interpretive 14. A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost. ANS: F DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Profit maximization MSC: Applicative 15. Average revenue for a monopoly is the total revenue divided by the quantity produced. ANS: T DIF: 1 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Average revenue MSC: Definitional 16. For a monopoly, marginal revenue is often greater than the price they charge for their good. ANS: F DIF: 1 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Marginal revenue MSC: Interpretive 17. Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost. ANS: T DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Profit maximization MSC: Interpretive