Microeconomics Exam 3 (Part 1)

1. A competitive firm

• a. and a monopolist are price takers.

• b. and a monopolist are price makers.

• c. is a price taker, whereas a monopolist is a pricemaker.

• d. is a price maker, whereas a monopolist is a pricetaker.

2. A monopoly

• a. can set the price it charges for its output and earn unlimited profits.

• b. takes the market price as given and earns small but positive profits.

• c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earnunlimited profits.

• d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

3. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly

• a. is often not in the best interest of society.

• b. maximizes total economic well-being.

• c. is efficient.

• d. benefits consumers more so than the producer.

4. Which of the following is not a characteristic of a monopoly?

• a. barriers to entry

• b. one seller

• c. one buyer

• d. a product without closesubstitutes

5. Which of the following is a characteristic of a monopoly?

• a. rising average total costs

• b. one buyer

• c. rising fixed costs

• d. a product without closesubstitutes

6. A monopoly market is characterized by

• a. many buyers andsellers.

• b. “natural” products.

• c. barriers to entry.

• d. a Nash equilibrium.

7. A benefit of a monopoly is

• a. efficient production.

• b. decreasing long-run marginal costs.

• c. profit that can be invested in research and development.

• d. All of the above are correct.

8. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.(ii) The firm's product does not have close substitutes.(iii) The firm generates a large economic profit.(iv) The firm is located in a small geographic market.

• a. (i) and (ii) only

• b. (i) and (iii) only

• c. (i), (ii), and (iii) only

• d. (i), (ii), (iii), and (iv)

9. Suppose ABC Aluminum Inc. owns 80% of the world’s bauxite, a mineral used in the production of aluminum. Whichof the following reasons describes the fundamental barrier to entry for the aluminum industry?

• a. monopoly resources

• b. government regulation

• c. the production process

• d. Both a and b are correct

10. Which of the following would be most likely to have monopoly power?

• a. a national florist

• b. an online bookstore

• c. a local restaurant

• d. a local electrical cooperative