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
collude.
b. will equal the monopoly price if the oligopolists
do not collude.
c. will generally lay between the monopoly and
competitive market equilibrium
prices.
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
a. rent-seeking.
b. collusion.
c. franchising.
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
will be
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.