Monopoly Online MCQ Quiz

Monopoly is a market structure characterised by all the following features except

• The firm is a dominant seller of a good or service having no close substitutes

• The existence of high barriers to entry

• The firm enjoys economic profit even in the long run

• The firm is the price taker

This diagram represents the costs and revenues of a profit maximising monopolist.

Which area shows the welfare loss caused by this business, relative to a firm operating at the welfare maximising level of output?

• ABCD

• ADH

• AFG

• ADEG

The diagram below shows a profit-maximising monopolist’s cost and revenue curves; the firm only incurs fixed costs of production and no variable costs.

The price set by the firm will be

• OA

• OB

• OC

• OD

A high street shop is operating as a profit maximising monopoly. The business faces an increase in its rental costs.

Which of the following will decrease, as a result of this?

1. Price

2. Output

3. Profit

4. Average and Marginal Revenue

• Option 1 and 3 and correct

• Option 1 and 2 are correct

• Option 1, 2 and 3 are correct

• Option 3 is correct

Which of the following is not a barrier to entry for new firms seeking entry into an industry in which there is currently a monopoly?

• Supernormal profits

• Economies of scale

• Branding

• An industry regulatory body

The diagram represents the costs and revenues of a natural monopoly.

Profit maximisation by a natural monopoly will lead to a socially inefficient outcome because

• output would be 0Z and price charged would be 0H.

• output would be 0Y and price charged would be 0F.

• output would be restricted to 0X with a high price of 0B being charged.

• output would be to 0Z with a low price of 0G being charged.

A natural monopoly is most likely to exist when

• there are extremely large economies of scale.

• there are large barriers to entry.

• there is government regulation of the industry.

• there are long term patents in an industry.

Which of the following is NOT a condition necessary for price discrimination to occur?

• The firm has a degree of market power

• The groups of consumers have different price elasticities of demand for the good

• The good cannot be bought in one market and sold in another

• The firm must supply goods rather than services

When there is price discrimination in the market, which of the following is NOT an advantage to customers?

• Consumers may gain access to goods they may not have afforded before the discount

• Can help to reduce inequality of income as low-income groups may gain access to the good

• Appropriation of consumer surplus

• They are encouraged to consume during off-peak periods

A pure monopoly is unlikely to achieve allocative efficiency because

• equilibrium price is not equal to marginal cost.

• equilibrium profit is not equal to normal profit.

• equilibrium cost is rising due to diseconomies of scale.

• equilibrium output is not at the lowest point of the AC curve.