Monopoly and Public Policy Quiz

A monopoly is characterized by:

• Many sellers and differentiated products

• A single seller with no close substitutes

• Free entry and exit in the market

• Perfectly elastic demand for the product

Which of the following is a primary reason why monopolies arise?

• Government regulation prevents competition

• Firms voluntarily decide not to compete

• The market demand is perfectly elastic

• The presence of numerous close substitutes

Which of the following is NOT a barrier to entry that can create a monopoly?

• Control of a key resource

• High fixed costs and economies of scale

• The presence of many competitors

• Government-issued patents

Compared to a perfectly competitive market, a monopoly:

• Produces more at a lower price

• Produces less at a higher price

• Produces the socially efficient quantity

• Faces a perfectly elastic demand curve

A profit-maximizing monopolist will produce at the quantity where:

• Price = Marginal Cost

• Marginal Revenue = Marginal Cost

• Marginal Revenue = Price

• Average Total Cost = Demand

If a monopolist is currently producing at a level where MR > MC, it should:

• Decrease output

• Increase output

• Keep output unchanged

• Shut down immediately

What happens to consumer surplus in a monopoly compared to perfect competition?

• It increases because the firm maximizes total revenue

• It decreases because the monopolist charges a higher price

• It remains the same since demand does not change

• It is completely eliminated

The deadweight loss associated with monopoly arises because:

• Monopolies always charge the lowest possible price

• Some mutually beneficial transactions do not occur

• Monopolies produce at minimum average total cost

• Government taxes monopolies more than other firms

Price discrimination occurs when:

• A firm charges different prices for the same good to different consumers

• A firm charges the same price to all customers

• A monopoly chooses not to produce at all

• Consumers refuse to buy at a high price

Perfect price discrimination results in:

• Lower total revenue for the firm

• Elimination of consumer surplus

• Higher deadweight loss

• Lower total output compared to a single-price monopoly