1. When economies of scale are important and an industry
tends toward natural
monopoly, splitting the industry into small, rival firms will
a. lead to lower prices in the short run.
b. cause prices to rise when demand is inelastic but fall when it is elastic.
c. cause prices to fall because of the decline in producer profits.
d. increase per-unit costs of production.
2. A monopolist will maximize profits by
a. setting his price as high as possible.
b. setting his price at the level that will maximize per-unit profit.
c. producing the output where marginal revenue equals marginal cost and charging a
price along the demand curve.
d. producing the output where price equals marginal cost.
3. Which one of the following is the most accurate description of a monopolist?
a. a firm that produces a single product
b. a firm that is the sole producer of a narrowly defined product class, such as
yellow, grade A, butter produced in Jackson County, Wisconsin
c. a firm that is the sole producer of a product for which there are no good
substitutes in a market with high barriers to entry
d. a firm that is large relative to its competitors
4. Assuming that firms maximize profits, how will the price and output policy
of an unregulated monopolist compare with ideal market efficiency?
a. The output of the monopolist will be too large and its price too high.
b. The output of the monopolist will be too large and its price too low.
c. The output of the monopolist will be too small and its price too high.
d. The output of the monopolist will be too small and its price too low.
5. An oligopolistic market
a. has a small number of rival firms, and each is large relative to the market.
b. makes the demand for each firm dependent on the actions of its rivals.
c. has high entry barriers facing firms that could otherwise enter the market.
d. all of the above answers are correct.
6. Oligopolistic agreements on price tend to be unstable because
a. although the monopoly price is the best price for all firms, oligopolists are
unaware of this.
b. although the monopoly price maximizes the joint profits of the firms, a secret
price cut by any individual firm will increase the profits of that firm; hence,
collusive agreements tend to break down.
c. the demand for the products of oligopolistic industries is inherently unstable
relative to the demand for the products of non-oligopolistic industries.
d. firms in oligopolistic industries have more concern for consumers than do firms
in competitive industries.
7. The price charged by oligopolists
a. will equal the equilibrium price in a price takers market if the oligopolists
b. will equal the monopoly price if the oligopolists do not collude.
c. will generally lay between the monopoly and competitive market equilibrium
d. will be the same whether the oligopolists cooperate with one another or not.
8. When firms use resources in an attempt to secure and maintain grants of market
protection from the government, it is called
d. resource investment.
9. The incentive for the managers of a government-operated firm (for example, a state
university) to promote internal efficiency and keep costs low will be
a. weak, because it will be difficult for voters and their representatives to
monitor and eliminate the inefficiency of such firms.
b. strong, because public officials will have little concern for personal gain.
c. strong, because voters can easily recognize inefficiency and penalize the
public-sector managers who are responsible.
d. weak, because government employees are less competent than those who work in
the private sector.
10. When natural monopoly is present in an industry, the per-unit costs of production
a. lowest when there are a large number of producers in the industry.
b. lowest when a single firm generates the entire output of the industry.
c. lower for small firms than for large firms.
d. minimized at the output that maximizes the industry's profitability.