Monopoly Economics Quiz (2)

A monopolist earns $500 total revenue and $400 total cost. What can we conclude?

• It’s at break-even

• It’s shutting down

• It has $100 economic profit

• It should increase output

• It faces perfect competition

Which factor does not affect short-run monopoly profit?

• Marginal cost

• Demand elasticity

• Number of substitutes

• Long-run entry of rivals

• Price

Why can a monopoly maintain profit in the long run unlike in perfect competition?

• Zero marginal cost

• High demand elasticity

• Strong barriers to entry

• Government subsidies

• Constant AVC

A monopolist invests in patents and branding mainly to:

• Reduce variable cost

• Allow entry

• Strengthen long-run market power

• Eliminate fixed cost

• Increase elasticity

If demand becomes more elastic over time, how does it affect long-run monopoly profit?

• Profits increase

• Profits stay unchanged

• Profits may decline due to pricing power loss

• Costs decrease

• MR = MC moves up

What scenario could reduce a monopolist’s long-term profit?

• Perfect price discrimination

• Entry barriers are enforced

• Substitute goods emerge

• Elasticity drops

• Market is regulated

Monopolies sustain profit in the long run by doing all the following except:

• Preventing entry

• Creating switching costs

• Offering identical products as competitors

• Legal protection

• Controlling resources

Monopoly power is best described as:

• Power to lower marginal cost

• Ability to set prices above marginal cost

• Full market competition

• Price-taking behavior

• Constant ATC

The Lerner Index measures monopoly power using:

• MR and MC

• P and ATC

• (P – MC)/P

• TR and TC

• AVC and MC

Which of the following increases a firm’s monopoly power?

• Perfect competition

• Price transparency

• Product differentiation

• Elastic demand

• Free entry