Economics, 11e, Global Edition (Parkin)

Chapter 13 Monopoly

1 Monopoly and How It Arises

1) A monopoly has two key features, which are ________.

A) barriers to entry and no close substitutes
B) franchises and barriers to entry
C) barriers to entry and close substitutes
D) close substitutes and no barriers to entry
Answer: A
Topic: How Monopoly Arises
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

2) A monopoly is best defined as a firm that

A) produces a good or service for which no close substitute exists and which is protected by a barrier that
prevents other firms from selling that good or service.
B) purchases its resources from only one supplier because of a barrier preventing it from buying from
other suppliers.
C) produces a good or service for which no close substitute exists and that sells all its output to one buyer
because there is barrier preventing other buyers from purchasing the good or service.
D) cannot control the price it sets for its good or service because there is barrier that prevents the firm
from changing the price.
Answer: A
Topic: How Monopoly Arises
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

3) Which of the following is NOT a characteristic of a monopoly?

A) a single firm
B) no close substitutes for the product produced
C) barriers to entry
D) easy entry and exit
Answer: D
Topic: How Monopoly Arises
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

1
Copyright © 2014 Pearson Education, Inc.
4) Which of the following is a characteristic of monopoly?
A) The firm faces competition from a few other firms.
B) The firm produces a product that has many close substitutes.
C) There are barriers to enter the market.
D) The firm's demand curve is perfectly elastic.
Answer: C
Topic: How Monopoly Arises
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

5) Which of the following statements about a monopoly is FALSE?

A) Monopolies have no barriers to entry or exit.
B) The good produced by a monopoly has no close substitutes.
C) A monopoly is the only producer of the good.
D) None of the above; that is, all of the above answers are true statements about a monopoly.
Answer: A
Topic: How Monopoly Arises
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

6) An example of a monopoly is
A) a big city restaurant.
B) the stock market.
C) the only veterinarian in an isolated farm community.
D) a large hospital in a big city.
Answer: C
Topic: How Monopoly Arises
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

7) Which of the following firms is most likely to be a monopoly?

A) a local restaurant
B) the local water company
C) a local drug store
D) a clothing store
Answer: B
Topic: How Monopoly Arises
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

2
Copyright © 2014 Pearson Education, Inc.
8) An example of a monopoly would be
A) one of many U.S. wheat farmers.
B) one of the few U.S. auto makers.
C) AT&T long distance phone service.
D) the local water company.
Answer: D
Topic: How Monopoly Arises
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

9) Which of the following is LEAST likely to be a monopoly?

A) the holder of a public franchise
B) a pharmaceutical company with a patent on a drug
C) a store in a large shopping mall
D) an artist who owns a copyright for a painting
Answer: C
Topic: How Monopoly Arises
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

10) A barrier to entry is

A) a natural or legal impediment that makes it difficult for new firms to enter a market.
B) a necessary condition for perfect competition.
C) the result of highly elastic demand.
D) a brick wall that a firm places around its corporate headquarters.
Answer: A
Topic: Barriers To Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

11) When natural or legal forces work to protect a firm from potential competitors, the market is said to
have ________.
A) non-competitive supply
B) non-competitive entry
C) barriers to entry
D) restricted competition
Answer: C
Topic: Barriers To Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

3
Copyright © 2014 Pearson Education, Inc.
12) Which of the following is a barrier to entry for a monopoly?
A) a patent
B) severe diseconomies of scale
C) close substitutes for the good or service exist
D) All of the above answers are correct.
Answer: A
Topic: Barriers To Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13) Which of the following can create a monopoly?

I. high prices
II. public franchise
III. patent
IV. government license
A) I and II
B) I and III
C) I, II and III
D) II, III and IV
Answer: D
Topic: Barriers To Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

14) Which of the following is NOT a barrier to entry for a monopoly?

A) economies of scale for the relevant range of output
B) a patent on the product being sold
C) the ability to charge a price that is above marginal cost
D) receiving a public franchise
Answer: C
Topic: Barriers To Entry
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

15) Which of the following cannot be an effective entry barrier?

A) a firm earning very high economic profits
B) a firm being granted a patent for its product
C) a firm owning all of a vital resource needed to produce a good
D) when huge economies of scale exist
Answer: A
Topic: Barriers To Entry
Skill: Recognition
Status: New 10th edition
AACSB: Reflective Thinking

4
Copyright © 2014 Pearson Education, Inc.
16) Which of the following is NOT a legal barrier to entry?
A) public franchise
B) government license
C) patent
D) innovation
Answer: D
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

17) A legal monopoly is defined as a market where

A) only one lawyer operates.
B) a legal barrier to entry exists.
C) only one firm could earn a profit.
D) entry and exit are legal.
Answer: B
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

18) A public franchise is

A) an exclusive right granted to a firm to supply a good or service.
B) a government issued license required to practice a profession.
C) an exclusive right granted to an inventor of a product.
D) a unique source of raw materials.
Answer: A
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

19) If the government grants a firm a public franchise to supply coal, a monopoly is created by
A) a natural barrier to entry.
B) a legal barrier to entry.
C) price discrimination.
D) All of the above answers are correct.
Answer: B
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

5
Copyright © 2014 Pearson Education, Inc.
20) A market in which competition and entry are restricted by the granting of a public franchise,
government license, patent, or copyright is called a
A) legal monopoly.
B) natural monopoly.
C) single-price monopoly.
D) price-discriminating monopoly.
Answer: A
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21) Public franchises create monopolies by restricting

A) demand.
B) prices.
C) entry.
D) profit.
Answer: C
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

22) A copyright creates a monopoly by restricting ________.

A) the prices that can be charged
B) demand for the product
C) entry into the market
D) the number of creators and inventors
Answer: C
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

23) A patent creates a monopoly by restricting ________.

A) demand for the product
B) the number of complements for the product
C) the amount of advertising that can be undertaken
D) entry into the market
Answer: D
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

6
Copyright © 2014 Pearson Education, Inc.
24) Patents encourage invention by
A) offering subsidies to inventors.
B) offering tax breaks to inventors.
C) preventing others from copying an invention.
D) preventing inventors from working on the same project.
Answer: C
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

25) Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the
following is most likely to occur?
A) Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many
years.
B) Merck will have a monopoly on this vaccine because of economies of scale.
C) Other firms will quickly copy the formula making the market for the vaccine competitive.
D) Merck will not tell anyone about its discovery though it will sell the vaccine.
Answer: A
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

26) Patents encourage inventions because without a patent,

A) other firms could enter the inventor's market by producing the same product.
B) nobody would demand the inventor's product.
C) the inventor would receive no tax breaks.
D) all markets would be public franchises.
Answer: A
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

27) A patent grants

A) a guarantee of quality to consumers.
B) the right to practice a profession.
C) an exclusive right to an inventor of a product.
D) control over a unique source or supply of raw materials.
Answer: C
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

7
Copyright © 2014 Pearson Education, Inc.
28) Patents create monopolies by restricting
A) demand.
B) prices.
C) entry.
D) profit.
Answer: C
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

29) Patents are ________ barriers to entry and public franchises are ________ barriers to entry.
A) legal; legal
B) legal; natural
C) natural; legal
D) natural; natural
Answer: A
Topic: Legal Barriers to Entry
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

30) An industry in which economies of scale allow one firm to supply the entire market at the lowest
possible cost is called a
A) legal monopoly.
B) natural monopoly.
C) single-price monopoly.
D) one-firm monopoly.
Answer: B
Topic: Natural Monopoly
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

31) The existence of economies of scale can create ________.

A) a natural monopoly
B) a government monopoly
C) a legal monopoly
D) a market in which many firms make identical products
Answer: A
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

8
Copyright © 2014 Pearson Education, Inc.
32) Natural monopolies occur when there are
A) large diseconomies of scale.
B) external economies.
C) large economies of scale.
D) natural resources involved.
Answer: C
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

33) A natural monopoly is defined as

A) a market in which competition and entry are restricted by the granting of a government license.
B) an industry in which economies of scale allow one firm to supply the entire market at the lowest
possible cost.
C) a market in which competition and entry are restricted by the granting of a patent.
D) any market where one firm constitutes the entire industry.
Answer: B
Topic: Natural Monopoly
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

34) If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost,
then this company is
A) a natural monopoly.
B) not a monopoly.
C) a monopoly, but not a natural monopoly.
D) a legal monopoly.
Answer: A
Topic: Natural Monopoly
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

35) A natural monopoly

A) is not protected by any barrier to entry.
B) exists because of legal barriers to entry.
C) is an industry in which economies of scale exist at the level of output where the market demand curve
intersects the long-run average cost curve.
D) is an industry where two or more smaller firms can supply the market at a lower cost than one big
firm could.
Answer: C
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

9
Copyright © 2014 Pearson Education, Inc.
36) Which of the following is true of a natural monopoly?
A) Its long-run average cost curve slopes upward as it intersects the demand curve.
B) Economies of scale exist to only a very low level of output.
C) Economies of scale allow one firm to supply the entire market at the lowest possible cost.
D) The firm is not protected by any barrier to entry.
Answer: C
Topic: Natural Monopoly
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

37) Given the market demand and cost data in the above figure, the existence of two firms equal sized
firms producing a total of 8 million cubic feet of natural gas means that the long-run average cost of
producing natural gas is
A) 10 cents per cubic foot.
B) 20 cents per cubic foot.
C) 30 cents per cubic foot.
D) 40 cents per cubic foot.
Answer: B
Topic: Natural Monopoly
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

10
Copyright © 2014 Pearson Education, Inc.
38) Given the market demand and cost data in the above figure, the existence of a monopoly firm
producing 8 million cubic feet of natural gas makes it possible to produce natural gas at a long-run
average cost of
A) 10 cents per cubic foot.
B) 20 cents per cubic foot.
C) 30 cents per cubic foot.
D) 40 cents per cubic foot.
Answer: A
Topic: Natural Monopoly
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

39) A single-price monopoly charges the same price

A) even if the demand curve shifts.
B) even if its cost curves shift.
C) to all customers for each unit of output they buy.
D) at all times, and that price equals the firm's marginal revenue.
Answer: C
Topic: Monopoly Price-Setting Strategies
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

40) A monopoly that sells every unit of its output at the same price is a ________.
A) unit-price monopoly
B) legal monopoly
C) natural monopoly
D) single-price monopoly
Answer: D
Topic: Monopoly Price-Setting Strategies
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

41) All of the following are examples of price discrimination EXCEPT

A) buy-one-get-one-free offers.
B) "early bird specials" at a restaurant.
C) lower ticket prices for matinee performances.
D) "buy now, pay later" payment options.
Answer: D
Topic: Monopoly Price-Setting Strategies
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

11
Copyright © 2014 Pearson Education, Inc.
42) When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than
it sells the identical pizza to a student who lives a block away from the campus, the pizza firm is
________.
A) practicing price discrimination
B) unfair
C) incurring a loss on on-campus sales
D) eliminating all competition
Answer: A
Topic: Monopoly Price-Setting Strategies
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

43) Firms that can price discriminate between customers do so to ________.

A) increase consumer surplus
B) increase employment
C) increase their profit
D) decrease the quantity they produce
Answer: C
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

44) A single-price monopoly

A) charges all consumers the lowest price that they want to pay for each unit purchased.
B) produces less output than it would if it could price discriminate.
C) eliminates all the consumer surplus.
D) creates a smaller deadweight loss than it would if it could price discriminate.
Answer: B
Topic: Study Guide Question, Monopoly Price-Setting Strategies
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

2 A Single-Price Monopoly's Output and Price Decision

1) Total revenue equals

A) marginal revenue multiplied by quantity sold.
B) price multiplied by quantity sold.
C) total cost minus profit.
D) the area between the demand curve and the marginal revenue curve.
Answer: B
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

12
Copyright © 2014 Pearson Education, Inc.
2) For a monopoly, the market demand curve is the firm's
A) supply curve.
B) marginal revenue curve.
C) demand curve.
D) profit function.
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

3) The demand curve facing the monopolist is

A) the same as the market demand curve.
B) more elastic than the market demand curve.
C) less elastic than the market demand curve.
D) upward sloping.
Answer: A
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4) A single-price monopolist's demand curve is

A) its marginal revenue curve.
B) perfectly elastic.
C) the same as the market demand curve.
D) more elastic than the market demand curve.
Answer: C
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

5) Monopolists
A) maximize revenue, not profits.
B) have no short-run fixed costs.
C) face downward sloping demand curves.
D) are price takers.
Answer: C
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13
Copyright © 2014 Pearson Education, Inc.
6) A single-price monopoly's demand curve lies
A) below its marginal revenue curve.
B) on top of its marginal revenue curve.
C) above its marginal revenue curve.
D) on top of its total revenue curve.
Answer: C
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

7) The marginal revenue curve for a single-price monopoly

A) lies below its demand curve.
B) coincides with its demand curve.
C) lies above its demand curve.
D) is horizontal.
Answer: A
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

8) The marginal revenue curve for a single-price monopoly

A) is horizontal.
B) is upward sloping.
C) lies above the market demand curve.
D) lies below the market demand curve.
Answer: D
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

9) A monopoly
A) faces a perfectly elastic demand curve.
B) does not need to take account of demand because it's the only seller.
C) raises the price it can charge for its product by increasing the quantity sold.
D) raises the price it can charge for its product by decreasing the quantity sold.
Answer: D
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

14
Copyright © 2014 Pearson Education, Inc.
10) A single-price monopolist
A) can sell as much as it wants at the chosen price because it is the only seller.
B) can increase the price and the quantity sold at the same time.
C) can increase the price only if it decreases the quantity sold.
D) is not restricted by the law of demand.
Answer: C
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

11) For a single-price monopolist to sell one more unit of a good, it must
A) lower the price on just the last unit sold.
B) lower the price on all units sold.
C) raise the price on just the last unit sold.
D) raise the price on all units sold.
Answer: B
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

12) A single-price monopoly is characterized by a marginal revenue curve that is

A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
Answer: B
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13) For a single-price monopolist, price is ________ marginal revenue.

A) less than
B) greater than
C) equal to
D) less than or equal to but never more than
Answer: B
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

15
Copyright © 2014 Pearson Education, Inc.
14) Marginal revenue for a single-price monopolist is
A) less than price.
B) equal to price.
C) greater than price.
D) equal to zero for all levels of output.
Answer: A
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

15) A single-price monopolist

A) sets its price where its demand is inelastic.
B) can always increase its profits by increasing its price.
C) has its marginal revenue less than its price.
D) is guaranteed an economic profit.
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

16) Which of the following is a characteristic of a single-price monopoly?

A) The firm is a price taker.
B) Demand is perfectly elastic.
C) There are many close substitutes for the firm's product.
D) Price exceeds marginal revenue.
Answer: D
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

17) For a single-price monopolist, marginal revenue is less than price because
A) the revenue gain from the last unit sold is offset by a revenue loss on the units that previously had
been sold at a higher price.
B) the revenue gain from the last unit sold is offset by further gains in price on units not sold at all.
C) total revenue always decreases as output increases.
D) the price does not have to be lowered on all previous units sold.
Answer: A
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

16
Copyright © 2014 Pearson Education, Inc.
18) Which of the following is true for a single-price monopolist?
A) P > MR
B) P < MR
C) P = MR
D) P = elasticity of demand
Answer: A
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

19) For a single-price monopolist,

A) MR = P.
B) MR < P.
C) MR first increases and then decreases with the quantity sold.
D) MR first decreases and then increases with the quantity sold.
Answer: B
Topic: Price and Marginal Revenue
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

20) A major difference between a single-price monopolist and a perfectly competitive firm is that the
A) monopolist can maximize profit by setting the price of the output where demand is inelastic.
B) monopolist can always increase its profits by increasing the price of its output.
C) monopolist's marginal revenue is less than price.
D) monopolist is guaranteed to earn an economic profit.
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21) In the monopoly, the firm's marginal revenue curve is ________, while in a perfectly competitive
market, each firm's marginal revenue curve is ________ .
A) downward sloping; horizontal
B) horizontal; downward sloping
C) upward sloping; horizontal
D) downward sloping; upward sloping
Answer: A
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: New
AACSB: Reflective Thinking

17
Copyright © 2014 Pearson Education, Inc.
22) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue does not price discriminate.
For Sue's Surfboards, the change in total revenue from each additional surfboard rented is her
A) marginal revenue and is equal to the rental price of a surfboard.
B) marginal cost and is greater than the rental price of a surfboard.
C) marginal revenue and is less than the rental price of a surfboard.
D) marginal cost and is constant regardless of how many surfboards are rented.
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

Quantity Price
(units) (dollars per unit)
4 16
5 14
6 12

23) The table above gives the demand for a monopolist's output. What is the marginal revenue of
increasing production from 4 to 5 units?
A) $70
B) $16
C) $14
D) $6
Answer: D
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

18
Copyright © 2014 Pearson Education, Inc.
 Price Quantity demanded
(dollars per haircut) (haircuts per day)
5 50
10 40
15 30
20 20
25 10
30 0

24) Christy's Haircuts, the sole supplier of haircuts in a small town, faces the demand schedule shown in
the table above. What is Christy's marginal revenue from the 25th haircut?
A) zero
B) $5.00
C) $17.50
D) $50.00
Answer: B
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

25) Christy's Haircuts, the sole supplier of haircuts in a small town, faces the demand schedule shown in
the table above. What is Christy's marginal revenue from the 35th haircut?
A) zero
B) -$5.00
C) $5.00
D) $12.50
Answer: B
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

19
Copyright © 2014 Pearson Education, Inc.
 Quantity Price
(units) (dollars per unit)
1 8
2 7
3 6
4 5
5 4
6 3

26) The table above gives the demand for a monopolist's output. Between which two quantities is
marginal revenue equal to 0?
A) 4 and 5
B) 3 and 4
C) 2 and 3
D) 1 and 2
Answer: A
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

27) The table above gives the demand for a monopolist's output. Between which two quantities is
demand elastic?
A) 6 and 5
B) 5 and 4
C) 4 and 3
D) 3 and 2
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

28) The table above gives the demand for a monopolist's output. What is the total revenue when 3 units of
output are produced?
A) $21
B) $20
C) $18
D) $6
Answer: C
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

20
Copyright © 2014 Pearson Education, Inc.
29) The table above gives the demand for a monopolist's output. What is the marginal revenue when
output is increased from 5 to 6 units?
A) $18
B) $4
C) $3
D) -$2
Answer: D
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

30) The table above gives the demand for a monopolist's output. What is the marginal revenue when
output is increased from 2 to 3 units?
A) $18
B) $4
C) $7
D) $6
Answer: B
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

31) For a single-price monopoly, marginal revenue is ________ when demand is elastic and is ________
when demand is inelastic.
A) negative; negative
B) negative; positive
C) positive; negative
D) positive; positive
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

32) For a monopolist, on the inelastic range of its demand,

A) marginal revenue is negative.
B) marginal revenue is positive.
C) marginal revenue is equal to zero.
D) total revenue is maximized.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21
Copyright © 2014 Pearson Education, Inc.
33) If the price elasticity of demand is greater than 1, a monopoly's
A) total revenue increases when the firm lowers its price.
B) total revenue decreases when the firm lowers its price.
C) marginal revenue is negative.
D) marginal revenue is zero.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

34) If the price elasticity of demand is less than 1, a monopoly's

A) total revenue increases when the firm lowers its price.
B) total revenue decreases when the firm lowers its price.
C) marginal revenue is undefined.
D) marginal revenue is zero.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

35) If the demand is ________, a fall in price ________ total revenue.

A) elastic; increases
B) elastic; decreases
C) inelastic; increases
D) inelastic; does not change
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: New
AACSB: Reflective Thinking

36) If a monopolist was operating in a price range where marginal revenue was negative, it would be
A) in the inelastic range of the demand for its product.
B) in the unit elastic range of the demand for its product.
C) in the elastic range of the demand for its product.
D) maximizing revenue but not profits.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

22
Copyright © 2014 Pearson Education, Inc.
37) If a decrease in price decreases total revenue, then
A) demand is elastic.
B) demand is inelastic.
C) demand is unit elastic.
D) the law of demand is violated.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

38) If a monopolist lowers its price and its demand is inelastic, then its
A) total revenue increases.
B) total revenue decreases.
C) total revenue does not change.
D) total revenue is negative.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

39) A monopolist that operates along the elastic range of its demand will find that
A) total revenue increases when price decreases.
B) total revenue decreases when price decreases.
C) marginal revenue is negative.
D) it is more profitable to operate along the inelastic range of the demand curve.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

40) If a monopoly is operating along the portion of its demand curve where marginal revenue is positive,
its
A) total revenue increases when price decreases.
B) total revenue decreases when price decreases.
C) total revenue remains the same when price decreases.
D) total revenue is zero.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

23
Copyright © 2014 Pearson Education, Inc.
41) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. If marginal revenue is positive at
the number of surfboard rentals made each hour, then Sue's Surfboards
A) must face an elastic demand for surfboard rentals.
B) must face an inelastic demand for surfboard rentals.
C) can increase its total revenue by increasing the price of rentals.
D) must face a unit elastic demand for surfboard rentals.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

42) For a monopoly, at the level of output where marginal revenue equals zero, then the
A) firm earns no revenue.
B) price elasticity of demand at this amount of output is zero.
C) firm has maximized total revenue.
D) firm is a price taker.
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

43) If marginal revenue equals zero, then demand at this level of output is
A) perfectly inelastic.
B) inelastic.
C) unit elastic.
D) elastic.
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

44) If marginal revenue is greater than zero, then demand at this level of output is
A) unit elastic.
B) elastic.
C) inelastic.
D) steeper than the marginal revenue curve.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

24
Copyright © 2014 Pearson Education, Inc.
45) If the demand for its product is elastic, a monopoly's
A) total revenue is unchanged when the firm lowers its price.
B) total revenue decreases when the firm lowers its price.
C) marginal revenue is positive.
D) marginal revenue is zero.
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

46) If the demand for its product is inelastic, a monopoly's

A) total revenue increases when the firm lowers its price.
B) total revenue is unchanged when the firm lowers its price.
C) marginal revenue is negative.
D) marginal revenue is equal to zero.
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

47) A monopoly firm expands its output and lowers its price. The firm finds that its total revenue falls.
Hence, the firm is producing in the
A) elastic range of its demand curve.
B) inelastic range of its demand curve.
C) elastic range of its supply curve.
D) inelastic range of its supply curve.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

48) For a single-price monopolist, as output increases, total revenue

A) initially increases and then decreases.
B) initially decreases and then increases.
C) increases continually.
D) decreases continually.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

25
Copyright © 2014 Pearson Education, Inc.
49) Tris owns the only auto repair shop on Lonely Island. Tris is a single-price monopoly, so Tris operates
on the ________ part of the ________ curve.
A) elastic; supply
B) inelastic; supply
C) inelastic; demand
D) elastic; demand
Answer: D
Topic: Marginal Revenue and Elasticity
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

50) Which of the following is true of a monopoly?

A) It can always increase its revenue by increasing the price to its customers.
B) It will always operate somewhere along the inelastic portion of the demand curve.
C) Its marginal cost curve is always downward sloping.
D) None of the above is correct.
Answer: D
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

51) A single-price monopolist will always produce where the elasticity of demand
A) is greater than 1.
B) is smaller than 1.
C) equals 1.
D) equals infinity.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

52) Which of the following statements applies to a single-price monopolist?

A) In order to maximize profits, the monopolist will produce an amount of output that lies in the elastic
range of its demand.
B) In order to maximize profits, the monopolist will produce an amount of output that lies in the inelastic
range of its demand.
C) In order to maximize profits, the monopolist will produce where its demand is unit elastic.
D) In order to maximize profits, the monopolist will produce an amount of output in the inelastic range
of its supply.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

26
Copyright © 2014 Pearson Education, Inc.
53) The figure above shows a monopoly firm's demand curve. If the price and quantity of haircuts move
from point t to point r, the monopoly's
A) total revenue will rise.
B) total revenue will fall.
C) total revenue will remain the same.
D) marginal revenue will decrease.
Answer: B
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

54) The figure above shows a monopoly firm's demand curve. If the price and quantity of haircuts move
from point t to point u, the monopoly's
A) total revenue will rise.
B) total revenue will fall.
C) total revenue will remain the same.
D) marginal revenue will increase.
Answer: B
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

27
Copyright © 2014 Pearson Education, Inc.
55) The figure above shows a monopoly firm's demand curve. At point t
A) demand is elastic.
B) demand is unit elastic.
C) demand is inelastic.
D) total revenue is at a minimum.
Answer: B
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

56) The figure above shows a monopoly firm's demand curve. The monopoly's total revenue is at its
maximum when the firm produces at point
A) x.
B) r.
C) t.
D) u.
Answer: C
Topic: Marginal Revenue and Elasticity
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

57) The figure above shows a monopoly firm's demand curve. The monopoly's total revenue is zero at
point
A) x.
B) r.
C) t.
D) u.
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

58) The figure above shows a monopoly firm's demand curve. At point u in the figure, the demand facing
the monopoly is
A) elastic.
B) unit elastic.
C) inelastic.
D) less than the supply.
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

28
Copyright © 2014 Pearson Education, Inc.
59) An unregulated monopoly will
A) flood the market with goods to deter entry.
B) produce only where marginal revenue is zero.
C) produce in the inelastic range of its demand curve.
D) produce in the elastic range of its demand curve.
Answer: D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

60) A single-price monopolist determines

A) its output but not its price.
B) its price but not its output.
C) both its output and its price.
D) neither its output nor its price.
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

61) To maximize profit, the monopolist produces on the ________ portion of its demand where ________.
A) elastic; P = MC
B) elastic; MR = MC
C) inelastic; P = MC
D) inelastic; MR = MC
Answer: B
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

62) A single-price monopolist maximizes profits by producing the output at which

A) price equals marginal cost.
B) price equals marginal revenue.
C) marginal revenue equals marginal cost.
D) marginal cost equals average cost.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

29
Copyright © 2014 Pearson Education, Inc.
63) A single-price monopolist will maximize profit by producing so that marginal revenue
A) exceeds marginal cost.
B) is less than marginal cost.
C) equals marginal cost.
D) equals price.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

64) A monopolist maximizes its profit by producing the amount of output where
A) total revenue equals total cost.
B) marginal revenue equals marginal cost.
C) marginal revenue equals zero.
D) price equals marginal cost.
Answer: B
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

65) If a monopolist is maximizing profits, then it is producing an amount of output so that

A) MR = ATC.
B) MC = AVC.
C) MR = TC.
D) MR = MC.
Answer: D
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

66) A single-price monopolist will produce at the point where

A) MR = 0.
B) MR = P.
C) MR = MC.
D) P = MC.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

30
Copyright © 2014 Pearson Education, Inc.
67) Single-price monopolies maximize profit by producing the amount of output where
A) total revenue is maximized.
B) price is equal to marginal cost.
C) price is equal to marginal revenue.
D) marginal revenue is equal to marginal cost.
Answer: D
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

68) A single-price monopolist will produce the output at which ________.

A) marginal revenue equals marginal cost
B) demand is perfectly inelastic
C) marginal revenue is zero
D) demand is inelastic but not perfectly inelastic
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

69) Which of the following is FALSE for a profit-maximizing single-price monopolist?

A) P = MC
B) MC = MR
C) P > MR
D) None of the above because they are all true.
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

70) Which of the following is ALWAYS true for a profit-maximizing single-price monopolist?
A) P > MC
B) P > MR
C) MR = MC
D) All of the above are always true.
Answer: D
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

31
Copyright © 2014 Pearson Education, Inc.
71) Which of the following is ALWAYS true for a profit-maximzing single-price monopolist?
A) P = MC
B) P = MR
C) MR = MC
D) MC = ATC
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

72) Which of the following is not necessarily true for a profit-maximizing single-price monopolist?
A) P > ATC
B) P > MC
C) P > MR
D) MR = MC
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

73) A single-price monopolist will find when it produces its profit-maximizing amount of output that
A) price exceeds marginal revenue.
B) price exceeds marginal cost.
C) marginal revenue equals marginal cost.
D) All of the above occur at the profit-maximizing output level.
Answer: D
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

74) Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than
marginal cost. The monopoly can increase its profit by ________.
A) shutting down
B) lowering its price and increasing its output
C) raising its price and decreasing its output
D) lowering its price and decreasing its output
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

32
Copyright © 2014 Pearson Education, Inc.
75) A single-price monopoly will set its price according to which of the following rules?
A) P = MR and MR = MC
B) P = MC where the MC curve crosses the demand curve
C) P = MR where the MR curve crosses the demand curve
D) None of the above answers is correct.
Answer: D
Topic: Single-Price Monopoly's Price Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

76) A profit maximizing single-price monopolist charges a price equal to

A) average total cost.
B) marginal revenue.
C) the highest price consumers are willing to pay for the profit maximizing quantity.
D) the price necessary for the firm to earn a normal return on its investment.
Answer: C
Topic: Single-Price Monopoly's Price Decision
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

77) For a single-price monopolist that is maximizing profit, the price is

A) less than marginal revenue.
B) equal to marginal revenue.
C) equal to marginal cost.
D) greater than marginal cost.
Answer: D
Topic: Single-Price Monopoly's Price Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

78) An unregulated monopoly finds that its marginal cost exceeds its marginal revenue. In order to
increase its profit, the firm will
A) raise its price and decrease its output.
B) lower its price and increase its output.
C) raise its price and increase its output.
D) continue to produce this level of output because any change will lower its profit.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

33
Copyright © 2014 Pearson Education, Inc.
 Price Quantity demanded
(dollars per movie) (movies per week)
18 0
15 100
12 200
9 300
6 400
3 500

79) Roxie's Movie Theatre is the only one in town. The table above gives the demand schedule for movies.
If Roxie's is a single-price monopoly and the marginal cost of a movie is $6, Roxie's will charge ________ a
movie and will sell ________ movie tickets a week.
A) $15; 100
B) $12; 200
C) $6; 400
D) $9; 300
Answer: B
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

80) Which of the following is true for a profit maximizing monopolist?

A) Marginal cost is always less than average total cost.
B) In the long run, the firm's economic profit equals zero.
C) In the short run, the firm will shut down if its marginal cost is less than its average variable cost.
D) In the short run, the firm can make an economic profit even if its marginal cost is less than its average
variable cost.
Answer: D
Topic: A Single-Price Monopoly's Price and Output Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

81) Monopolies can earn an economic profit in the long run because of
A) rent seeking by competitors.
B) the elastic demand for the monopoly's product.
C) the cost-savings gained by the monopoly.
D) barriers to enter the monopoly's market.
Answer: D
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

34
Copyright © 2014 Pearson Education, Inc.
82) In the long run, a single-price monopolist will
A) make zero economic profit.
B) be able to continue to make an economic profit as long as the market remains a monopoly.
C) end up being regulated by the government because it is making short-run economic profits.
D) Both answers A and C are correct.
Answer: B
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

83) Unregulated monopolies can often make an economic profit in the long run because
A) they receive government subsidies.
B) they have high costs.
C) barriers to entry prevent competing firms from entering the market.
D) the risks of running a monopoly are high.
Answer: C
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

84) A monopolist can make an economic profit in the long run because of
A) the relatively elastic demand for its product.
B) the relatively inelastic demand for its product.
C) the firm's price setting behavior.
D) barriers to entry.
Answer: D
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

85) Why can a monopoly make an economic profit in the long run?
A) because there are close substitutes for the firm's product
B) because the firm is protected by barriers to entry
C) because the firm produces where MR = MC
D) ALL of the above are reasons why a monopoly can earn an economic profit in the long run.
Answer: B
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

35
Copyright © 2014 Pearson Education, Inc.
86) Monopolies can make an economic profit in the long run because there
A) are close substitutes for the product.
B) is free entry and exit.
C) is inelastic demand from consumers.
D) is a barrier to entry.
Answer: D
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

87) The primary reason why a monopoly can make a long-run economic profit is the existence of
A) barriers to entry.
B) inelastic demand.
C) price discrimination.
D) many buyers.
Answer: A
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

88) Which of the following statements is true?

A) All monopolists are perfect price discriminators.
B) All monopolists earn short-run economic profits.
C) A monopolist will leave the market if it incurs an economic loss in the long run.
D) A monopolist does not need barriers to entry to sustain a long-run economic profit.
Answer: C
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

89) Which of the following is a characteristic of monopoly in the long run?

A) The firm makes zero economic profit.
B) The firm can make an economic profit.
C) Price equals marginal cost.
D) Price equals marginal revenue.
Answer: B
Topic: A Monopoly's Long-Run Economic Profit
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

36
Copyright © 2014 Pearson Education, Inc.
 Quantity
Price
demanded Total cost
(dollars per
(repairs per (dollars)
repair)
week)
100 0 400
90 10 800
80 20 1400
70 30 2200
60 40 3200

90) Dee's TV Repair is the only TV repair shop in a small town. Dee is a single-price monopolist. Based on
the demand and cost information in the table above, what quantity of TV repairs should Dee undertake?
A) 0 per week
B) 10 per week
C) 20 per week
D) 30 per week
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

91) Dee's TV Repair is the only TV repair shop in a small town. Dee is a single-price monopolist. Based on
the demand and cost information in the table above, what is the amount of economic profit made or loss
incurred at the quantity of TV repairs that profits are maximized or losses minimized?
A) -$400
B) $800
C) -$100
D) $200
Answer: D
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

37
Copyright © 2014 Pearson Education, Inc.
 Price Quantity demanded
(dollars per bottle) (bottles per day)
16 0
15 1
14 2
13 3
12 4
11 5
10 6
9 7
8 8

92) The table above gives the demand schedule for water bottled by Wanda's Healthy Waters. If the
marginal cost is a constant $4 a bottle, Wanda's will produce ________ a day and charge ________ a bottle.
A) 8 bottles; $8
B) 4 bottles; $12
C) 1 bottle; $15
D) 6 bottles; $10
Answer: D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

93) The table above gives the demand schedule for water bottled by Wanda's Healthy Waters. Wanda's
marginal cost is a constant $4 a bottle and has no fixed cost. Wanda's makes an economic profit of
________ a day.
A) $0
B) $24
C) $36
D) $60
Answer: C
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

38
Copyright © 2014 Pearson Education, Inc.
 Price
Rooms rented Total cost
(dollars per
monthly (dollars)
room)
0 201 100
1 191 200
2 181 290
3 171 370
4 161 440
5 151 520
6 141 610
7 131 710
8 121 820
9 111 940
10 101 1090
11 91 1290

94) The motel whose costs are given in the table above has total fixed costs equal to
A) $0.
B) $100.
C) $200.
D) $201.
Answer: B
Topic: Single-Price Monopoly
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

95) The table above shows the demand and total cost schedule for a monopolist hotel. What is the
marginal revenue from renting out the fifth room each night?
A) $111
B) $141
C) $151
D) $161
Answer: A
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

39
Copyright © 2014 Pearson Education, Inc.
96) The table above shows the demand and total cost schedule for a monopolist hotel. What price should
the monopolist charge if it is a single-price monopoly that maximizes its profit?
A) $171
B) $161
C) $151
D) $141
Answer: D
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

Price
Quantity Total cost
(dollars per
(units per day) (dollars)
unit)
50 0 10
45 20 110
40 40 310
35 60 710
30 80 1210
25 100 1810

97) The table above shows the demand and costs for a single-price monopolist. The firm can maximize its
profit by selling
A) 0 units.
B) 20 units.
C) 40 units.
D) 60 units.
Answer: D
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

98) The table above shows the demand and costs for a single-price monopolist. The firm can maximize its
profit by setting its price at
A) $30 per unit.
B) $35 per unit.
C) $40 per unit.
D) $45 per unit.
Answer: B
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

40
Copyright © 2014 Pearson Education, Inc.
99) The table above shows the demand and costs for a single-price monopolist. The maximum economic
profit this firm can make equals
A) $1,390.
B) $1,550.
C) $1,580.
D) $2,400.
Answer: A
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

Price
Quantity Total cost
(dollars per
(units per day) (dollars)
unit)
30 0 10
25 1 20
20 2 25
15 3 40
10 4 60
5 5 85

100) The table above shows the demand and costs for a single-price monopolist. The firm will
A) maximize profit by producing 3 units.
B) maximize profit by producing 2 units.
C) operate on the inelastic portion of its demand curve.
D) operate on the unit elastic portion of its demand curve.
Answer: B
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

101) The table above shows the demand and costs for a single-price monopolist. When it maximizes its
profit, the firm makes an economic profit of
A) $15.
B) $25.
C) $40.
D) $45.
Answer: A
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

41
Copyright © 2014 Pearson Education, Inc.
102) The figure above shows a monopoly's total revenue and total cost curves. The monopoly's economic
profit is positive if it produces between
A) 0 and 5 units.
B) 0 and 15 units.
C) 0 and 20 units.
D) 5 and 20 units.
Answer: D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

103) The figure above shows a monopoly's total revenue and total cost curves. The monopoly's economic
profit is zero if it produces
A) 0 units of output.
B) 5 or 20 units of output.
C) 15 units of output.
D) none of the above
Answer: B
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

42
Copyright © 2014 Pearson Education, Inc.
104) The figure above shows a monopoly's total revenue and total cost curves. The monopoly's economic
profit is maximized when it produces
A) 0 units of output.
B) 5 units of output.
C) 15 units of output.
D) 20 units of output.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

105) The figure above shows a monopoly's total revenue and total cost curves. The monopoly's marginal
revenue equals its marginal cost when it produces
A) 0 units of output.
B) 5 units of output.
C) 15 units of output.
D) 20 units of output.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

106) To maximize its profit, the monopoly with the TR and TC curves shown in the figure above will
produce
A) 0 units of output.
B) 5 units of output.
C) 15 units of output.
D) 20 units of output.
Answer: C
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

43
Copyright © 2014 Pearson Education, Inc.
107) In the figure above, the curve labeled "X" can be a
A) monopoly's demand curve.
B) monopoly's marginal revenue curve.
C) perfectly competitive firm's demand curve.
D) perfectly competitive firm's marginal revenue curve.
Answer: A
Topic: Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

108) In the figure above, the curve labeled "W" can be a

A) monopoly's demand curve.
B) monopoly's marginal revenue curve.
C) perfectly competitive firm's demand curve.
D) perfectly competitive firm's marginal revenue curve.
Answer: B
Topic: Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

109) The figure above shows the cost, demand, and marginal revenue curves for a monopoly. The firm
A) will make an economic profit of $20.
B) will charge a price of $10 per unit.
C) will produce 20 units per day.
D) is a natural monopoly.
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

44
Copyright © 2014 Pearson Education, Inc.
110) The figure above shows the cost, demand, and marginal revenue curves for a monopoly. At an
output level of ________, demand is ________.
A) 20; elastic
B) 50; unit elastic
C) 50; elastic
D) 30; unit elastic
Answer: A
Topic: Marginal Revenue and Elasticity
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

111) For the unregulated, single-price monopoly shown in the figure above, when its profit is maximized,
output will be
A) 4 units per year and the price will be $6.
B) 4 units per year and the price will be $4.
C) 6 units per year and the price will be $4.
D) None of the above answers is correct.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

45
Copyright © 2014 Pearson Education, Inc.
112) The unregulated, single-price monopoly shown in the figure above will produce where its demand
A) equals its MC curve.
B) equals its ATC curve.
C) is inelastic.
D) is elastic.
Answer: D
Topic: Marginal Revenue and Elasticity
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

113) The unregulated, single-price monopoly shown in the figure above makes a total economic profit of
A) $24.
B) $16.
C) $8.
D) $4.
Answer: C
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

46
Copyright © 2014 Pearson Education, Inc.
114) The figure above shows the demand and cost curves for a single-price monopoly. What level of
output maximizes the firm's economic profit?
A) 0 units
B) 20 units
C) 30 units
D) 50 units
Answer: B
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

115) The figure above shows the demand and cost curves for a single-price monopoly. What price will the
firm charge?
A) $50 per unit
B) $30 per unit
C) $20 per unit
D) $10 per unit
Answer: B
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

116) The figure above shows the demand and cost curves for a single-price monopoly. What economic
profit does this firm make?
A) zero
B) $600
C) $400
D) $200
Answer: D
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

47
Copyright © 2014 Pearson Education, Inc.
117) The figure above shows the demand and cost curves for a single-price monopoly. The firm will
produce ________ units and set a price of ________ per unit.
A) 15; $20
B) 10; $20
C) 10; $30
D) None of the above answers is correct.
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

118) The figure above shows the demand and cost curves for a single-price monopoly. The firm's
economic profit equals
A) $0.
B) $300.
C) $100.
D) $50.
Answer: C
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

48
Copyright © 2014 Pearson Education, Inc.
119) The figure above shows the demand and cost curves for a single-price monopoly. Which of the
following statements is FALSE?
A) To maximize its profit, the firm will set marginal revenue equal to zero by producing 12.5 units.
B) The firm will make an economic profit.
C) The firm is a not a natural monopoly.
D) The firm will set price where demand is elastic.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

120) Donna owns the only dog grooming salon on Lonely Island. The figure above shows the dog
grooming market. Donna is a single-price monopoly that maximizes profit by charging ________ per
grooming and producing ________ groomings per day.
A) $30; 8
B) $20; $8
C) $20; $12
D) None of the above answers is correct.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

49
Copyright © 2014 Pearson Education, Inc.
121) The unregulated, single-price monopoly shown in the figure above will sell
A) less than 30 tickets.
B) 30 tickets.
C) 50 tickets.
D) 100 tickets.
Answer: B
Topic: Single-Price Monopoly's Output Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

122) An unregulated, single-price monopoly is shown in the figure above. If fixed cost is $20, the
monopoly's total costs when it is maximizing its profit will be
A) $30.
B) $40.
C) $80
D) $140.
Answer: C
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

50
Copyright © 2014 Pearson Education, Inc.
123) An unregulated, single-price monopoly is shown in the figure above. If fixed cost is $20, the
monopoly's total economic profit when it is maximizing its profit will be
A) negative.
B) $0.
C) $25.
D) $50.
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

124) The monopoly illustrated in the figure above is unregulated and charges a single price. The
deadweight loss created by the monopoly is
A) $0.
B) $22.50.
C) $45.00.
D) $90.00.
Answer: B
Topic: Single-Price Monopoly, Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

51
Copyright © 2014 Pearson Education, Inc.
125) The above figure illustrates a single-price unregulated monopolist. If the monopolist maximizes its
profit, the consumer surplus equals ________.
A) $20,000
B) $10,000
C) $45,000
D) $40,000
Answer: A
Topic: Single-Price Monopoly, Consumer Surplus
Skill: Analytical
Status: New 10th edition
AACSB: Analytical Skills

126) The above figure illustrates a single-price unregulated monopolist. If the monopolist maximizes its
profit, the deadweight loss equals ________.
A) $10,000
B) $20,000
C) $45,000
D) $40,000
Answer: A
Topic: Single-Price Monopoly, Deadweight Loss
Skill: Analytical
Status: New 10th edition
AACSB: Analytical Skills

52
Copyright © 2014 Pearson Education, Inc.
127) The above figure shows the demand and cost curves for a monopolist. What is the maximum
economic profit this firm can make?
A) zero
B) $400
C) $100
D) $200
Answer: D
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

128) In a small town, Marilyn's Christmas Tree Lot has a monopoly on sales of Christmas trees. In order
to increase her sales from 100 trees to 101 trees, she must drop the price of all of her trees from $20 to $19.
What is the marginal revenue?
A) $2000
B) $20
C) $19
D) negative $81
Answer: D
Topic: Study Guide Question, Price and Marginal Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

53
Copyright © 2014 Pearson Education, Inc.
129) If a monopoly is producing an amount of output level at which marginal revenue exceeds marginal
cost, in order to increase its profit the monopoly will ________ its price and ________ its output.
A) raise; decrease
B) lower; increase
C) lower; decrease
D) raise; increase
Answer: B
Topic: Study Guide Question, Single-Price Monopoly's Output & Price Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

130) La Bella Pizza is the only pizza place on Pepper Island. The figure above shows La Bella Pizza's
demand curve, marginal revenue curve, and marginal cost curve. At La Bella Pizza's profit-maximizing
output, its annual total revenue is
A) $168,000.
B) $312,000.
C) $336,000.
D) $624,000.
Answer: B
Topic: MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

54
Copyright © 2014 Pearson Education, Inc.
131) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sues demand and marginal
revenue curves are illustrated in the figure above. Sue's Surfboards currently rents 15 surfboards an hour.
Sue's total revenue from the 15 surfboards is
A) $300.
B) $225.
C) $150.
D) $10.
Answer: C
Topic: MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

132) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue's demand and marginal
revenue curves are illustrated in the figure above. The change in the total revenue from renting the 15th
surfboard is
A) $20.
B) $15.
C) $10.
D) $0.
Answer: D
Topic: MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

55
Copyright © 2014 Pearson Education, Inc.
133) The figure above shows the demand and marginal revenue curves facing Sue's Surfboards, the sole
renter of surfboards on Big Wave Island. If Sue is renting 25 surfboards an hour so that the marginal
revenue is negative, then Sue's Surfboards
A) can increase its profit by increasing the number of rentals.
B) must face an inelastic demand for surfboard rentals.
C) must face a unit elastic demand for surfboard rentals.
D) must face an elastic demand for surfboard rentals.
Answer: B
Topic: MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

134) Bob's Books is the only bookstore in town. The figure above shows the demand curve for books and
Bob's Books' marginal revenue curve and marginal cost curve. Bob's Books maximizes its profit and sets
the price of a book equal to ________ and has total annual revenue of ________.
A) $40; $40,000.
B) $30; $60,000.
C) $20, $60,000.
D) $10; $40,000.
Answer: B
Topic: MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

56
Copyright © 2014 Pearson Education, Inc.
3 Single-Price Monopoly and Competition Compared

1) Which of the following is true for BOTH monopoly and a perfectly competitive firm?
A) The demand for the individual firm's product is perfectly elastic.
B) Economic profits can be sustained indefinitely over time.
C) The marginal revenue curve is horizontal at the market equilibrium price.
D) Profits are maximized by producing at the level of output where marginal revenue is equal to
marginal cost.
Answer: D
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

2) Which of the following statements is true for both a competitive market and a single-price monopoly?
A) The firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.
B) The firm can make an economic profit in the long run.
C) The price is set where the supply curve and demand curve intersect.
D) The firm always produces at the lowest possible long-run average cost.
Answer: A
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: New
AACSB: Reflective Thinking

3) A key difference between a monopoly and a perfectly competitive firm is that the monopolist
A) does not face fixed costs in the short run.
B) has a marginal revenue curve that lies below its demand curve.
C) has no marginal cost curve.
D) faces a perfectly elastic demand for its product.
Answer: B
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4) One difference between perfectly competitive markets and single-price monopoly markets is that
A) marginal revenue equals marginal cost for perfectly competitive firms, but not for monopolists.
B) marginal revenue equals price for perfectly competitive firms, but not for single-price monopolists.
C) marginal cost equals average variable cost for perfectly competitive firms but not for monopolists.
D) All the above answers are correct.
Answer: B
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

57
Copyright © 2014 Pearson Education, Inc.
5) Compared to a single-price monopoly, a perfectly competitive market with the same costs produces
________ output and has a ________ price.
A) less; lower
B) less; higher
C) more; lower
D) more; higher
Answer: C
Topic: Comparing Output and Price; Output
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

6) Relative to a perfectly competitive market with the same cost and demand, a single-price monopolist
produces ________ output and has a ________ price.
A) more; higher
B) less ; lower
C) more; lower
D) less; higher
Answer: D
Topic: Comparing Output and Price
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

7) Compared to a perfectly competitive industry, a single-price monopoly with the same costs will
A) create less consumer surplus.
B) create less economic profit.
C) create a deadweight loss.
D) Both answers A and C are correct.
Answer: D
Topic: Comparing Output and Price
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

8) A single-price monopolist produces a ________ quantity than a perfectly competitive market with the
same costs and charges a ________ price than the perfectly competitive market.
A) greater; higher
B) greater; lower
C) lesser; lower
D) lesser; higher
Answer: D
Topic: Comparing Output and Price
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

58
Copyright © 2014 Pearson Education, Inc.
9) When comparing a single-price monopoly to a perfectly competitive market with the same costs,
A) both the monopoly's output and price are lower than the perfectly competitive market's output and
price.
B) both the monopoly's output and price are higher than the perfectly competitive market's output and
price.
C) the monopoly's output is higher and the monopoly's price is lower than the perfectly competitive
market's output and price.
D) the monopoly's output is smaller and the monopoly's price is higher than the perfectly competitive
market's output and price.
Answer: D
Topic: Comparing Output and Price
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

10) Which of the following statements is true?

A) A perfectly competitive market produces more output and charges a lower price than a single-price
monopoly.
B) A perfectly competitive market produces more output and charges the same price as a single-price
monopoly.
C) A perfectly competitive market produces less output and charges a lower price than a single-price
monopoly.
D) A perfectly competitive market produces less output and charges the same price as a single-price
monopoly.
Answer: A
Topic: Comparing Output and Price; Output
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

11) The fundamental reason a single-price monopoly creates a deadweight loss is that compared to the
efficient outcome, the single-price monopoly
A) raises variable cost.
B) raises fixed cost.
C) restricts output.
D) reduces the elasticity of demand.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

59
Copyright © 2014 Pearson Education, Inc.
12) Deadweight loss measures the inefficiency of the market as the loss of ________.
A) consumer surplus and producer surplus
B) producer surplus only
C) consumer surplus only
D) consumer surplus minus producer surplus
Answer: A
Topic: Comparing Output and Price; Deadweight Loss
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13) A single-price monopoly causes a deadweight loss because it ________.

A) restricts its output so it is less than the efficient quantity
B) increases the amount produced beyond the efficient quantity
C) maximizes marginal revenue rather than minimizes marginal cost
D) increases marginal cost
Answer: A
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

14) When comparing perfect competition to a single-price monopoly with the same costs,
A) both market types use resources efficiently.
B) there is a deadweight loss associated with a monopoly.
C) the sum of producer and consumer surplus is maximized under a monopoly.
D) the sum of producer and consumer surplus is minimized under perfect competition.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

15) Deadweight loss measures the inefficiency as the loss of

A) consumer surplus only.
B) consumer surplus minus producer surplus.
C) consumer surplus plus producer surplus.
D) producer surplus only.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

60
Copyright © 2014 Pearson Education, Inc.
16) A deadweight loss occurs whenever
A) the total benefit of a good does not equal its total cost.
B) the marginal social benefit of a good does not equal its marginal social cost.
C) there is perfect price discrimination.
D) there is no consumer surplus.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

17) Which of the following markets will have the largest deadweight loss?
A) A market that consists of perfectly competitive firms.
B) A market that consists of a single-price monopoly.
C) A market that consists of a perfect price discriminating monopoly.
D) None of the above. There is no deadweight loss as long as firms produce at the level of output where
marginal revenue equals marginal cost.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

18) A single-price monopolist is inefficient because

A) MR = MC.
B) P > ATC.
C) it creates a deadweight loss.
D) it increases producer surplus.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

19) Economists are critical of monopoly because

A) monopolists can earn long-run economic profit.
B) monopolists can create a deadweight loss.
C) the demand for the monopolist's product is the market demand curve.
D) economies of scope result in lower average costs.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

61
Copyright © 2014 Pearson Education, Inc.
20) Compared to a similar perfectly competitive industry, a single-price monopoly
A) creates a deadweight loss and decreases economic profit.
B) produces more output.
C) creates a deadweight loss and decreases consumer surplus.
D) is more efficient because there is no wasteful competition.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21) The unregulated, single-price monopolist illustrated in the figure above has a total revenue of
A) $8.00 per day.
B) $16.00 per day.
C) $36.00 per day.
D) $40.00 per day.
Answer: D
Topic: Total Revenue
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

22) The unregulated, single-price monopolist illustrated in the figure above has a total cost of
A) $8.00 per day.
B) $16.00 per day.
C) $32.00 per day.
D) $40.00 per day.
Answer: C
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

62
Copyright © 2014 Pearson Education, Inc.
23) The unregulated, single-price monopolist illustrated in the figure above makes an economic profit of
A) zero.
B) $8.00 per day.
C) $10.00 per day.
D) $40.00 per day.
Answer: B
Topic: Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

24) The unregulated, single-price monopolist illustrated in the figure above will produce
A) 0 units per day.
B) 4 units per day.
C) 6 units per day.
D) 9 units per day.
Answer: B
Topic: Comparing Output and Price; Output
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

25) In the figure above, compared to a perfectly competitive industry with the same costs, a single-price,
unregulated monopoly will decrease production by
A) zero.
B) 2 units per day.
C) 4 units per day.
D) 6 units per day.
Answer: B
Topic: Comparing Output and Price; Output
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

26) The unregulated, single-price monopolist illustrated in the figure above will set a price of
A) $2.00 per unit.
B) $6.00 per unit.
C) $8.00 per unit.
D) $10.00 per unit.
Answer: D
Topic: Comparing Output and Price; Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

63
Copyright © 2014 Pearson Education, Inc.
27) In the figure above, compared to a perfectly competitive industry with the same costs, a single-price,
unregulated monopoly will raise the price by
A) $2.00 per unit.
B) $4.00 per unit.
C) $6.00 per unit.
D) $8.00 per unit.
Answer: B
Topic: Comparing Output and Price; Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

28) In the figure above, the deadweight loss created if the industry changes from perfectly competitive to
a single-price, unregulated monopoly is
A) zero.
B) $8.00 per day.
C) $24.00 per day.
D) $36.00 per day.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

29) In the figure above, the redistribution from the consumers to the producer if the firm is a single-price,
unregulated monopoly rather than a perfectly competitive industry is
A) zero.
B) $8.00 per day.
C) $16.00 per day.
D) $32.00 per day.
Answer: C
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

64
Copyright © 2014 Pearson Education, Inc.
30) Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above
shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. Interlace's profit
maximizing level of output is
A) 30,000 bottles.
B) 50,000 bottles
C) 100,000 bottles
D) 0; that is, the firm shuts down.
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

31) Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above
shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. Interlace's profit
maximizing price is ________ per bottle.
A) 70 cents
B) 50 cents
C) 40 cents
D) 1 dollar
Answer: A
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

65
Copyright © 2014 Pearson Education, Inc.
32) Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above
shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. Interlace, Inc. is
definitely
A) a perfectly competitive firm.
B) not a perfectly competitive firm.
C) a natural monopoly.
D) None of the above answers is correct.
Answer: B
Topic: Market Power
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

33) Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above
shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. The quantity of soda
Interlace Inc. will choose to produce is ________ because when this quantity is produced, ________.
A) efficient; marginal social benefit exceeds marginal social cost
B) efficient; marginal social benefit equals marginal social cost
C) not efficient; marginal social benefit exceeds marginal social cost
D) not efficient; marginal social benefit equals marginal social cost
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

34) Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above
shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. When Interlace
maximizes its profit, the deadweight loss is
A) zero.
B) $15,000.
C) $21,000.
D) $3,000.
Answer: D
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

66
Copyright © 2014 Pearson Education, Inc.
35) In the figure above, the single-price, unregulated monopoly produces
A) less than 19 units per day.
B) 20 units per day.
C) between 21 and 39 units per day.
D) 40 or more units per day.
Answer: B
Topic: Comparing Output and Price; Output
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

36) If the industry in the above figure was perfectly competitive, the level of output would
A) be less than the single-price monopoly level of output.
B) be the same as the single-price monopoly level of output.
C) exceed the single-price monopoly level of output by 20 units per day.
D) exceed the single-price monopoly level of output by 60 units per day.
Answer: C
Topic: Comparing Output and Price; Output
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

37) In the figure above, the efficient amount of output is

A) 20 units per day.
B) 40 units per day.
C) 60 units per day.
D) 80 units per day.
Answer: B
Topic: Comparing Output and Price; Output
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

67
Copyright © 2014 Pearson Education, Inc.
38) The output produced by the single-price, unregulated monopoly in the above figure is
A) efficient because profit is maximized.
B) inefficient because less than the efficient quantity is produced.
C) efficient because marginal costs equals marginal revenue.
D) inefficient because more than the efficient quantity is produced.
Answer: B
Topic: Comparing Output and Price; Output
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

39) In the figure above, the single-price, unregulated monopoly sets a price of
A) $80 per unit.
B) $60 per unit.
C) $40 per unit.
D) $0 per unit.
Answer: B
Topic: Comparing Output and Price; Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

40) For the monopoly shown in the figure above, the profit maximizing output is
A) 4 units per day.
B) 5 units per day.
C) 6 units per day.
D) 10 units per day.
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

68
Copyright © 2014 Pearson Education, Inc.
41) For the monopoly shown in the figure above, the profit maximizing price is ________ per unit.
A) $10
B) $20
C) $30
D) $50
Answer: C
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

42) For the monopoly shown in the figure above, when it maximizes its profit the marginal cost is
________ per unit and the price is ________ per unit.
A) $10; $30
B) $20; $20
C) $10; $20
D) $30; $20.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

43) For the monopoly shown in the figure above, the economic profit is
A) $0.
B) $10.
C) $40.
D) $100.
Answer: C
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

44) If the market in the figure above was perfectly competitive rather than a monopoly, the perfectly
competitive level of output would be
A) 4 units per day.
B) 5 units per day.
C) 6 units per day.
D) 10 units per day.
Answer: C
Topic: Comparing Output and Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

69
Copyright © 2014 Pearson Education, Inc.
45) For the single-price monopoly shown in the figure above, the deadweight loss is
A) zero.
B) between $0 and $10.
C) between $10.01 and $20.
D) more than $20.01.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

46) Consumer surplus is

A) positive in the case of a monopolist practicing perfect price discrimination.
B) equal to the price minus the marginal cost.
C) less in the case of a single-price monopoly than in the case of a perfectly competitive industry.
D) zero for a single-price monopolist.
Answer: C
Topic: Redistribution of Surpluses
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

47) The creation of a monopoly results in gains to

A) producers at no expense to consumers.
B) consumers at no expense to producers.
C) producers at the expense of consumers.
D) consumers at the expense of producers.
Answer: C
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

48) In comparison with a perfect competition, a single-price monopolist with the same costs creates a
________ consumer surplus and makes a ________ economic profit.
A) smaller; larger
B) smaller; smaller
C) larger; larger
D) larger; smaller
Answer: A
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

70
Copyright © 2014 Pearson Education, Inc.
49) Compared to a competitive industry, a monopoly transfers
A) deadweight loss away from producers to consumers.
B) deadweight loss away from consumers to producers.
C) producer surplus to consumers.
D) consumer surplus to producers.
Answer: D
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

50) Consider the monopolist depicted in the figure above. The profit maximizing level of output for a
single-price monopolist is
A) 7.
B) 11.
C) 13.
D) 22.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

71
Copyright © 2014 Pearson Education, Inc.
51) Consider the monopolist depicted in the figure above. When it maximizes its profit, a single-price
monopolist sets a price of ________ per unit.
A) $4
B) $7
C) $9
D) $11
Answer: D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills

52) If the above figure illustrated a perfectly competitive industry, the equilibrium market output would
be equal to
A) 7.
B) 11.
C) 13.
D) 22.
Answer: C
Topic: Comparing Output and Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

53) If the above figure illustrated a perfectly competitive industry, the equilibrium market price would be
equal to
A) $4.
B) $7.
C) $9.
D) $11.
Answer: B
Topic: Comparing Output and Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

54) In the above figure, if a single-price monopolist maximized its profit, the deadweight loss in the
market is equal to the area
A) ace.
B) acg.
C) ecg.
D) bch.
Answer: B
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

72
Copyright © 2014 Pearson Education, Inc.
55) In the above figure, a single-price monopolist charges a price of ________, resulting in total revenue
equal to area ________.
A) $10; hbcd
B) $20; fjem
C) $10; fbcg
D) $30; fbcg
Answer: D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

56) In the above figure, a single-price monopolist charges a price of ________ and the equilibrium
competitive price is ________.
A) $10; $20
B) $20; $30
C) $30; $20
D) $30; $10
Answer: C
Topic: Comparing Output and Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

73
Copyright © 2014 Pearson Education, Inc.
57) In the above figure, if the single-price monopolist charges a price that maximizes its profits, consumer
surplus is
A) area hacd.
B) area bac.
C) area jae.
D) area jbce.
Answer: B
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

58) In the above figure, if a single-price monopolist charges the profit-maximizing price, the triangle dce
represents
A) consumer surplus.
B) producer surplus.
C) deadweight loss.
D) marginal revenue.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

74
Copyright © 2014 Pearson Education, Inc.
59) In the above figure, what quantity will a single-price monopolist produce?
A) Q1
B) Q2
C) Q3
D) Q4
Answer: A
Topic: Single-Price Monopoly's Output Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

60) In the above figure, what price will a single-price monopoly set?
A) P1
B) P2
C) P4
D) P5
Answer: D
Topic: Single-Price Monopoly's Price Decision
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

75
Copyright © 2014 Pearson Education, Inc.
61) In the above figure, for a single-price monopolist producing at its profit-maximizing equilibrium price
and quantity, the price elasticity of demand at this equilibrium will be
A) greater than 1 and the monopolist's total revenue is maximized.
B) less than 1 and the monopolist's economic profit could be larger.
C) equal to 1 and the monopolist's total revenue is maximized.
D) greater than 1 and the economic profit is maximized but the total revenue is not.
Answer: D
Topic: Single-Price Monopoly
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

62) In the above figure, the total revenue for a single-price monopolist is shown by the area
A) 0P5fQ1.
B) P2P4eb.
C) 0P3cQ1.
D) 0P4eQ3.
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

63) The area of economic profit shown in the above figure for the single-price monopolist is
A) bed.
B) P3P5fc.
C) 0P5fQ1.
D) 0P4eQ3.
Answer: B
Topic: A Monopoly's Economic Profit
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

64) If the market illustrated in the above figure was a perfectly competitive market with the MC curve
being the sum of all individual firms' marginal costs, then the perfectly competitive price and quantity
would be
A) P3 and Q1.
B) P5 and Q1.
C) P1 and Q1.
D) P4 and Q3.
Answer: D
Topic: Comparing Output and Price
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

76
Copyright © 2014 Pearson Education, Inc.
65) The deadweight loss incurred when the market in the above figure is a single-price monopoly rather
than perfectly competitive is the area
A) cab.
B) fcd.
C) bed.
D) fae.
Answer: D
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

66) The single-price monopolist shown in the above figure could increase its economic profit if
A) it became a price discriminator.
B) its costs of production decreased.
C) the demand for its good increased.
D) any or all the above were to occur.
Answer: D
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

77
Copyright © 2014 Pearson Education, Inc.
67) Which area in the above figure shows the consumer surplus at the price and quantity that would be
attained if the industry were perfectly competitive?
A) A + B + C + D
B) A + B + C + D + E
C) F + G + H
D) A + B + C + D + E + F + G + H
Answer: B
Topic: Comparing Output and Price
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

68) Which area in the above figure shows the producer surplus at the price and quantity that would be
attained if the industry were perfectly competitive?
A) A + B + C + D + E
B) C + D + E + F + G + H
C) F + G + H
D) F + G + H + I + J + K
Answer: C
Topic: Comparing Output and Price
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

78
Copyright © 2014 Pearson Education, Inc.
69) Which area in the above figure shows the consumer surplus at the price and quantity that would be
set by a single-price monopoly?
A) A + B
B) A + B + C + D + E
C) C + D
D) C + D + E + F + G + H
Answer: A
Topic: Comparing Output and Price
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

70) Which area in the above figure shows the producer surplus at the price and quantity that would be set
by a single-price monopoly?
A) C + D
B) C + D + E
C) C + D + F + G
D) C + D + F + G + I
Answer: C
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

71) In the above figure, if the market was a single-price monopoly rather than perfectly competitive,
which area shows the transfer of consumer surplus from consumers to producers?
A) A + B
B) C + D
C) C + D + E
D) E + H
Answer: B
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

72) In the above figure, which area is the deadweight loss from a single-price monopoly?
A) E
B) E + H
C) E + H + K
D) E + H + K + J
Answer: B
Topic: Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

79
Copyright © 2014 Pearson Education, Inc.
73) In the market depicted in the above figure, if a single-price monopoly maximizes its profit ,which area
shows the deadweight loss?
A) area FHIL
B) area GHJM
C) area IJH
D) area LJK
Answer: D
Topic: Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

74) In the market depicted in the above figure, if a single-price monopoly maximizes its profit, which area
shows the consumer surplus?
A) area GHIL
B) area HIJ
C) area HJKG
D) area NFL
Answer: B
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

80
Copyright © 2014 Pearson Education, Inc.
75) The figure shows the demand for and costs of producing Charlene's Chocolates. If Charlene's
Chocolates is a monopoly and charges one price to all customers, then the consumer surplus is ________.
A) $400
B) $900
C) $0
D) $200
Answer: A
Topic: Consumer Surplus
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

76) The figure above shows the demand for and costs of producing Charlene's Chocolates. If Charlene's
Chocolates is a monopoly that charges one price to all customers, then consumer surplus is ________ and
it creates a deadweight loss of ________.
A) $800; $400
B) $200; $100
C) $400; $200
D) $0; $200
Answer: C
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

81
Copyright © 2014 Pearson Education, Inc.
77) Any attempt to capture a consumer surplus, a producer surplus, or an economic profit is called
A) profit-maximizing.
B) rent-seeking.
C) price discriminating.
D) efficiency gain.
Answer: B
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

78) Efforts by a firm to obtain a monopoly

A) are called price discrimination.
B) increase consumer surplus.
C) are called rent seeking.
D) are called price taking.
Answer: C
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

79) Activity aimed at creating artificial barriers to entry into a particular market
A) is rent seeking.
B) has no social cost.
C) improves competition.
D) improves the economy's efficiency.
Answer: A
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

80) An attempt by a firm to create a monopoly and gain the economic profit from the monopoly is called
A) collusion.
B) intrusion.
C) profit seeking.
D) rent seeking.
Answer: D
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

82
Copyright © 2014 Pearson Education, Inc.
81) ________ is defined as any attempt to capture consumer surplus, producer surplus or economic profit.
A) Search
B) Rent seeking
C) Maximizing monopoly profits
D) Price discrimination
Answer: B
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

82) When a person lobbies Congress to grant the person the exclusive right to sell a particular good, such
lobbying activity is called
A) rent seeking.
B) revenue abatement.
C) profit recovery.
D) revenue seeking.
Answer: A
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

83) Rent seeking is best defined as attempts

A) by landlords to get tenants.
B) to achieve monopoly power and the resulting economic profit.
C) by individuals to avoid paying taxes.
D) by owners of a monopoly to sell the firm.
Answer: B
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

84) Methods of rent seeking include which of the following?

I. Buying a monopoly
II. Creating a monopoly
III. Price discrimination
A) I and II
B) I and III
C) II and III
D) III only
Answer: A
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

83
Copyright © 2014 Pearson Education, Inc.
85) Rent seeking is devoted to the creation of
A) monopolies.
B) competitive industries.
C) human capital.
D) more elastic demand.
Answer: A
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

86) The attempt to capture consumer surplus, producer surplus, or economic profit is called ________.
A) a natural monopoly
B) price discrimination
C) rent seeking
D) gouging
Answer: C
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

87) Rent seeking

A) increases the social cost of monopoly.
B) frees scarce resources that could otherwise have been employed in the production of goods and
services.
C) cannot take the form of lobbying for government imposed import restrictions.
D) None of the above answers are correct.
Answer: A
Topic: Rent Seeking
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

88) Rent seeking

A) is an additional social cost of monopoly.
B) is only a problem in the commercial real estate market.
C) helps employ resources that would otherwise be unemployed.
D) is beneficial to society.
Answer: A
Topic: Rent-Seeking Equilibrium
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

84
Copyright © 2014 Pearson Education, Inc.
89) Rent seeking through lobbying
A) reduces deadweight loss.
B) uses up resources.
C) results in perfect price discrimination.
D) results in perfectly competitive industries.
Answer: B
Topic: Rent-Seeking Equilibrium
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

90) The maximum amount a rent seeker would pay for a monopoly is the ________.
A) market price
B) deadweight loss
C) monopoly's economic profit
D) monopoly's normal profit
Answer: C
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

91) Rent seeking ________.

A) increases consumer surplus
B) occurs only when the firm practices perfect price discrimination
C) increases deadweight loss
D) results in a larger output than a competitive industry would produce
Answer: C
Topic: Rent Seeking
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

92) With competitive rent seeking under monopoly,

A) the monopolist's average total costs will increase so that its average total cost curve is tangent to the
demand curve at the profit-maximizing price.
B) a monopoly uses all of what would be its economic profit to prevent other firms from taking its
economic rent.
C) the full deadweight loss of monopoly is larger than in the absence of rent seeking.
D) All of the above answers are correct.
Answer: D
Topic: Rent-Seeking Equilibrium
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

85
Copyright © 2014 Pearson Education, Inc.
93) Buying a monopoly from the existing owner does not ensure an economic profit because
A) the market for monopolies is a monopoly.
B) competition among buyers drives up the cost of buying the firm.
C) profits equal zero in the long run anyway.
D) of the deadweight loss triangle.
Answer: B
Topic: Rent-Seeking Equilibrium
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

94) The value of resources devoted to rent seeking will

A) equal the monopoly's economic profits.
B) reduce deadweight loss.
C) reduce consumer surplus.
D) raise output to an efficient level.
Answer: A
Topic: Rent-Seeking Equilibrium
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

95) Because of a decrease in labor costs, a monopoly finds that its marginal cost and average total cost
have decreased. The monopoly ________ and ________ its quantity.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases
Answer: C
Topic: Study Guide Question, Single-Price Monopoly's Output & Price Decision
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

96) Compared to a single-price monopoly, the output of a perfectly competitive market with the same
costs
A) is more than the monopoly's output.
B) is the same as the monopoly's output.
C) is less than the monopoly's output.
D) could be more than, less than, or equal to the monopoly's output.
Answer: A
Topic: Study Guide Question, Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

86
Copyright © 2014 Pearson Education, Inc.
97) Compared to a single-price monopoly, the price charged by a perfectly competitive market with the
same costs
A) is higher than the monopoly's price.
B) is the same as the monopoly's price.
C) is lower than the monopoly's price.
D) could be higher than, lower than, or the same as the monopoly's price.
Answer: C
Topic: Study Guide Question, Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

98) If a perfectly competitive market becomes a monopoly and the costs do not change, which of the
following allocations of costs and benefits applies?
A) The producer benefits, but consumers and society are harmed.
B) The producer and society are harmed, but consumers benefit.
C) The producer and society benefit, but consumers are harmed.
D) The producer is harmed, but consumers and society benefit.
Answer: A
Topic: Study Guide Question, Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

99) Of the following, consumer surplus is largest for

A) a perfectly competitive industry.
B) a single-price monopoly.
C) any price-discriminating monopoly.
D) a perfectly price-discriminating monopoly.
Answer: A
Topic: Study Guide Question, Redistribution of Surpluses
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4 Price Discrimination

1) Joe, a hair dresser, offers students a discount price on haircuts. This form of pricing is an example of
A) a marginal cost pricing rule.
B) an average cost pricing rule.
C) price discrimination.
D) perfect price discrimination.
Answer: C
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

87
Copyright © 2014 Pearson Education, Inc.
2) Price discrimination takes place when a firm
A) charges the same price for all the units of its product that it sells.
B) charges different prices for different units of its product.
C) is discriminated against by consumers.
D) None of the above answers is correct.
Answer: B
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

3) Which of the following is NOT necessary for a firm to engage in price discrimination?
A) The firm must be able to identify different types of buyers.
B) The firm must be able to separate buyers by preventing resales from one customer to another.
C) The firm must produce output for different buyers at different costs.
D) The firm must sell a product that cannot be resold.
Answer: C
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4) A monopoly can price discriminate between two groups of consumers if each group has ________.
A) a large consumer surplus
B) a different willingness to pay
C) the same willingness to pay
D) the ability to resell the good to the other group
Answer: B
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

5) Which of the following is necessary for a monopolist to price discriminate between groups?
A) The groups are identifiable.
B) The groups have different willingness to pay.
C) A customer from one group cannot resell to a customer in another group.
D) All of the above conditions are necessary for the monopolist to price discriminate.
Answer: D
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

88
Copyright © 2014 Pearson Education, Inc.
6) In order to be able to price discriminate and maximize profit, a monopolist must be able to do all of the
following EXCEPT
A) identify and separate different buyer types.
B) sell a product that cannot be resold.
C) identify competitors.
D) determine the output where marginal revenue equals marginal cost.
Answer: C
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

7) What condition must exist for a monopolist to effectively price discriminate?

A) The monopolist must face consumers with identical willingness to pay.
B) The monopolist must produce a good or service that can be resold.
C) The monopolist must produce a good that cannot be resold.
D) The monopolist must charge the highest price possible.
Answer: C
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

8) Price discrimination
A) is common in perfectly competitive markets.
B) is more likely for services than for goods that can be stored and resold.
C) is illegal because it always violates antitrust laws.
D) works only if all groups of demanders have the same price elasticity of demand for the product.
Answer: B
Topic: Price Discrimination
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

9) Price discrimination by a monopolist is less effective if the

A) good can be resold.
B) good has no substitutes.
C) monopolist can identify buyers by willingness to pay.
D) good cannot be resold.
Answer: A
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

89
Copyright © 2014 Pearson Education, Inc.
10) Price discrimination, where different units of a good are sold for different prices,
A) is impossible because there can only be one market price.
B) can be effectively practiced by all monopolists.
C) maximizes consumer welfare because each consumer pays only the price he or she is willing to pay.
D) is possible if the good cannot be resold.
Answer: D
Topic: Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

11) It is easier for a monopolist to price discriminate between groups for a service than for a good because
A) it is easier to calculate average willingness to pay for services.
B) it is easier to distinguish between groups of customers for services than customers for goods.
C) it is easier for consumers to resell goods than resell services.
D) customers for goods usually do not differ with respect to their average willingness to pay.
Answer: C
Topic: Price Discrimination
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

12) Price discrimination by a monopoly

A) increases consumer surplus.
B) decreases consumer surplus.
C) increases the firm's profit.
D) Both answers B and C are correct.
Answer: D
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13) Price discrimination

A) eliminates the producer surplus.
B) turns consumer surplus into economic profit.
C) decreases output below the profit-maximizing level.
D) lowers a monopoly's economic profit.
Answer: B
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

90
Copyright © 2014 Pearson Education, Inc.
14) Price discrimination
A) converts consumer surplus into economic profit.
B) converts producer surplus into economic profit.
C) maximizes the difference between consumer surplus and producer surplus.
D) converts deadweight loss into consumer surplus.
Answer: A
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

15) A price discriminating monopolist

A) produces more output than that produced by a single-price monopolist.
B) has a lower marginal cost than that incurred by a single-price monopolist.
C) makes a smaller economic profit than that earned by the single-price monopolist.
D) makes zero economic profit in the long run.
Answer: A
Topic: Profiting By Price Discriminating
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

16) Compared to a single-price monopolist, a price-discriminating monopolist

A) produces more output.
B) produces the same amount of output but charges a higher price.
C) generates a larger deadweight loss.
D) produces less output but charges a lower price.
Answer: A
Topic: Profiting By Price Discriminating
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

17) A price discriminating monopolist charges lower prices to customers with

A) lower supply elasticities.
B) higher supply elasticities.
C) lower willingness to pay.
D) higher willingness to pay.
Answer: C
Topic: Profiting By Price Discriminating
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

91
Copyright © 2014 Pearson Education, Inc.
18) Monopolists are able to price discriminate because
A) of differing willingness to pay among consumers.
B) of differing price elasticities of supply.
C) they have constant marginal cost.
D) they have constant average cost.
Answer: A
Topic: Profiting By Price Discriminating
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

19) Donna owns the only dog grooming salon on Lonely Island. If Donna can price discriminate between
dog owners who are seniors and those who are not, her economic profit will be ________ than if she does
not price discriminate and the number of dog groomings will be ________ than if she does not price
discriminate.
A) greater; more
B) greater; less
C) less; more
D) less; less
Answer: A
Topic: Profiting By Price Discriminating
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

20) The more perfectly a monopoly can price discriminate, the

A) smaller its output and the lower its profits.
B) smaller its output and the greater its profits.
C) larger its output and the lower its profits.
D) larger its output and the greater its profits.
Answer: D
Topic: Profiting By Price Discriminating
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21) Which of the following occurs with both perfectly price discriminating and single-price monopolies?
A) The amount of output is inefficient.
B) All consumer surplus goes to the monopoly.
C) Deadweight loss is created.
D) There is a redistribution of consumer surplus to the monopoly.
Answer: D
Topic: Redistribution of Surpluses
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

92
Copyright © 2014 Pearson Education, Inc.
 Quantity demanded, Quantity demanded,
Price
weekend weekday
(dollars per movie)
(movies per week) (movies per week
18 0 0
15 100 0
12 200 0
9 300 100
6 400 200
3 500 300

22) Roxie's Movie Theatre has a monopoly and discovers that at $12 a movie, no one is buying movie
tickets during weekdays. Roxie's conducts a survey and the table above reveals the results of the survey.
Roxie decides to price discriminate between weekend and weekday moviegoers. The marginal cost of a
showing a movie is $6. Roxie's charges ________ on weekdays and ________ on weekends.
A) $9; $12
B) $6; $15
C) $6; $18
D) $3; $12
Answer: A
Topic: Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

23) If a monopolist can perfectly price discriminate, it will

A) charge the same price for each unit sold.
B) produce until price elasticity of demand equals one.
C) not be concerned with the market demand.
D) charge a different price for every unit sold.
Answer: D
Topic: Perfect Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

24) A perfect price discriminator

A) charges the maximum price for each unit that consumers are willing to pay.
B) is able to convince consumers to pay more for each unit than they are willing to pay.
C) is unable to make an economic profit.
D) disregards the market demand curve.
Answer: A
Topic: Perfect Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

93
Copyright © 2014 Pearson Education, Inc.
25) Which of the following is true for a perfect price-discriminating monopoly?
A) P = MR for each unit sold
B) P = ATC for each unit sold
C) P = MC for each unit sold
D) P > MC for each unit sold
Answer: A
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

26) If a monopolist can perfectly price discriminate, then

A) price equals average cost for each unit sold.
B) price equals marginal cost for each unit sold.
C) price equals marginal cost for the last unit sold.
D) the firm can ignore the marginal cost curve.
Answer: C
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

27) For a monopoly able to practice perfect price discrimination, the market
A) supply curve is the same as the marginal cost curve.
B) supply curve is the same as the marginal revenue curve.
C) demand curve is the same as the marginal cost curve.
D) demand curve is the same as the marginal revenue curve.
Answer: D
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

28) If a monopolist can perfectly price discriminate, then

A) it will charge just two different prices in two different markets.
B) it will not give a discount to those who buy in bulk.
C) the deadweight loss is larger than if it cannot price discriminate.
D) there will be no consumer surplus.
Answer: D
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

94
Copyright © 2014 Pearson Education, Inc.
29) When a monopoly perfectly price discriminates, there is ________.
A) no producer surplus
B) an increase in supply
C) no consumer surplus
D) a large consumer surplus
Answer: C
Topic: Perfect Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

30) Perfect price discrimination

A) turns all the producer surplus into consumer surplus.
B) turns all the consumer surplus into economic profit.
C) creates a deadweight loss.
D) cannot result in profit maximization.
Answer: B
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

31) Which of the following is true about a perfect price discriminating monopolist?
A) There is inefficiency.
B) All consumers pay a price equal to marginal cost.
C) There is no consumer surplus.
D) There is zero economic profit.
Answer: C
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

32) Which of the following differs between a perfectly competitive market and a market with a perfectly
price discriminating monopoly?
A) The amount of producer surplus
B) The quantity produced
C) The total surplus
D) None of the above because they are all the same in a perfectly competitive market and in a market
with a perfectly price discriminating monopoly.
Answer: A
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: New
AACSB: Reflective Thinking

95
Copyright © 2014 Pearson Education, Inc.
33) A perfect price discriminating monopoly produces the same quantity of output as a ________.
A) single-price monopoly but charges a higher price
B) perfectly competitive market
C) perfectly competitive firm
D) perfectly competitive market but charges a lower price
Answer: B
Topic: Efficiency with Price Discrimination
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

34) In the case of a perfectly price-discriminating monopoly, there is no

A) transfer of consumer surplus to the producer.
B) deadweight loss.
C) producer surplus.
D) economic profit.
Answer: B
Topic: Efficiency with Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

35) Which of the following statements regarding perfect price discrimination is FALSE?
A) Only part of consumer surplus is captured by the firm as producer surplus.
B) For the firm, the market demand curve becomes the firm's marginal revenue curve.
C) The monopoly produces the output at which the marginal revenue equals the marginal cost.
D) No deadweight loss is created.
Answer: A
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: New
AACSB: Reflective Thinking

36) An efficient use of resources occurs when

A) there is a deadweight loss.
B) the total social benefit of a good equals its total social cost.
C) there is perfect price discrimination by a monopoly.
D) there is no producer surplus.
Answer: C
Topic: Efficiency with Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

96
Copyright © 2014 Pearson Education, Inc.
37) Which of the following is true about a perfect price discriminating monopolist?
A) Price is greater than marginal revenue.
B) Price always exceeds marginal cost.
C) The firm makes zero economic profit.
D) The firm produces the efficient level of output.
Answer: D
Topic: Efficiency with Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

38) Which of the following statements is true?

A) Perfectly competitive markets are efficient, but monopoly markets never are efficient.
B) Perfectly competitive markets always reach equilibrium but monopoly markets never reach
equilibrium.
C) Perfect price discriminating monopolists can eliminate all deadweight losses and achieve efficiency.
D) All the above statements are true.
Answer: C
Topic: Efficiency with Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

39) In the case of a perfectly price-discriminating monopoly, there is no

A) transfer of consumer surplus to the producer.
B) deadweight loss.
C) short-run economic profit.
D) long-run economic profit.
Answer: B
Topic: Efficiency with Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

97
Copyright © 2014 Pearson Education, Inc.
40) Which area in the above figure equals the producer surplus under perfect price discrimination?
A) A + B + C + D + E + F + G + H + I + J + K + L
B) A + B + C + D + E + F + G + H + I + J + K
C) A + B + C + D + E + F + G + H
D) C + D + E + F + G + H
Answer: C
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

41) Which area in the above figure equals the consumer surplus under perfect price discrimination?
A) A + B + C + D + E + F + G + H
B) A + B + C + D + E
C) A + B
D) There is no consumer surplus.
Answer: D
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

98
Copyright © 2014 Pearson Education, Inc.
 Demand Schedule Facing a
Perfectly Price Discriminating Firm
Price
(dollars) Quantity Sold
8 0
7 1
6 2
5 3
4 4
3 5
2 6
1 7

42) Using the demand schedule in the above table, if the firm's marginal cost is constant at $3.00, output
for a perfectly price discriminating monopolist is
A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.
Answer: D
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

43) Using the demand schedule in the above table, the marginal revenue for a perfectly price
discriminating monopolist from the sale of the third unit of output is
A) $3.
B) $4.
C) $5.
D) $6.
Answer: C
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

44) Using the demand schedule in the table above, the total revenue a perfectly price discriminating
monopolist receives from selling 5 units of output is
A) $5.
B) $15.
C) $18.
D) $25.
Answer: D
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

99
Copyright © 2014 Pearson Education, Inc.
45) If the monopoly illustrated in the figure above could engage in perfect price discrimination, then each
buyer would pay
A) $2.00.
B) $3.00.
C) $3.50.
D) a different price.
Answer: D
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

46) If the monopoly illustrated in the figure above could engage in perfect price discrimination, then the
lowest ticket price would be
A) $1.00.
B) $2.00.
C) $3.00.
D) $3.50.
Answer: B
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

100
Copyright © 2014 Pearson Education, Inc.
47) If the monopoly illustrated in the figure above could engage in perfect price discrimination, then it
would sell
A) 30 tickets.
B) 50 tickets.
C) 60 tickets.
D) 100 tickets.
Answer: C
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

48) If the monopoly illustrated in the figure above could engage in perfect price discrimination, then
when it maximizes its profit the total revenue collected by the firm would be
A) $110.
B) $120.
C) $210.
D) $310.
Answer: C
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

49) In the figure above, what is the loss of consumer surplus if the firm is a perfectly price-discriminating
monopoly instead of a perfectly competitive industry?
A) $0
B) $22.50
C) $45.00
D) $90.00
Answer: D
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

50) If the monopoly illustrated in the figure above could engage in perfect price discrimination, the
deadweight loss would be
A) $0.
B) $22.50.
C) $90.00.
D) $250.00.
Answer: A
Topic: Efficiency with Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

101
Copyright © 2014 Pearson Education, Inc.
51) In the figure above, the elasticity of demand facing the monopoly equals one when it produces
________ units of output.
A) h
B) j
C) k
D) none of the above
Answer: C
Topic: Price and Marginal Revenue
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

52) In the figure above, a single-price unregulated monopoly sets a price equal to
A) a.
B) b.
C) c.
D) d.
Answer: B
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

102
Copyright © 2014 Pearson Education, Inc.
53) In the figure above, a single-price unregulated monopoly will produce an amount of output equal to
A) h.
B) j.
C) k.
D) none of the above
Answer: A
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

54) In the figure above, if the market is a single-price monopoly rather than a perfectly competitive
industry, the transfer of consumer surplus from consumers to the producer is the area of
A) trapezoid beic.
B) triangle abe.
C) rectangle begd.
D) rectangle befc.
Answer: D
Topic: Redistribution of Surpluses
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

55) In the figure above, consumer surplus at the price that maximizes the profit for an unregulated,
single-price monopolist is the area of
A) rectangle 0heb.
B) triangle abe.
C) triangle eig.
D) rectangle 0hgd.
Answer: B
Topic: Single-Price Monopoly, Consumer Surplus
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

56) In the figure above, the deadweight loss when the market is a single-price monopoly rather than
perfectly competitive is the area of
A) triangle aeb.
B) triangle aic.
C) triangle eig.
D) triangle eif.
Answer: C
Topic: Single-Price Monopoly, Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

103
Copyright © 2014 Pearson Education, Inc.
57) In the figure above, a perfectly price-discriminating monopoly will maximize profit by producing at
amount of output equal to
A) h.
B) j.
C) k.
D) none of the above
Answer: B
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

58) In the figure above, the total revenue of a perfectly price-discriminating monopolist at the profit-
maximizing output is equal to the area of
A) 0aij.
B) 0dgh.
C) aci.
D) obeij.
Answer: A
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

104
Copyright © 2014 Pearson Education, Inc.
59) Prime Pharmaceuticals has developed a new asthma medicine, for it has a patent. An inhaler can be
produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and
marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if it is a single-price monopoly, Prime Pharmaceuticals will produce
________ inhalers and set a price of ________ for each inhaler.
A) 16 million; $2
B) 10 million; $5
C) 8 million; $6
D) 8 million; $2
Answer: C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

60) Prime Pharmaceuticals has developed a new asthma medicine, for which is has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if Prime Pharmaceuticals operates as a single-price monopoly, then
consumer surplus is ________ and producer surplus is ________.
A) zero; $64 million
B) $32 million; $32 million
C) $16 million; $32 million
D) $16 million; $48 million.
Answer: C
Topic: Redistribution of Surpluses
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

105
Copyright © 2014 Pearson Education, Inc.
61) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if Prime Pharmaceuticals operates as a single-price monopoly, then there
will be a deadweight loss equal to
A) $24 million.
B) zero.
C) $16 million.
D) $32 million.
Answer: C
Topic: Comparing Output and Price; Deadweight Loss
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

62) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if Prime Pharmaceuticals could perfectly price discriminate, then which of
the following is true?
A) It would produce and sell 16 million inhalers.
B) Inhalers would sell for $5 each.
C) Inhalers would sell for $2 each.
D) None of the above answers is correct.
Answer: C
Topic: Perfect Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

63) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if Prime Pharmaceuticals could perfectly price discriminate, then consumer
surplus would equal
A) $64 million.
B) $16 million.
C) $32 million.
D) zero.
Answer: D
Topic: Perfect Price Discrimination
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

106
Copyright © 2014 Pearson Education, Inc.
64) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if Prime Pharmaceuticals could perfectly price discriminate, then producer
surplus would equal
A) $64 million.
B) $16 million.
C) $32 million.
D) zero.
Answer: A
Topic: Perfect Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

65) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler
can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve,
and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a
monopoly for its new inhaler, if there is competitive rent seeking, then Prime Pharmaceuticals' producer
surplus is equal to
A) $32 million.
B) $48 million.
C) zero.
D) $64 million.
Answer: C
Topic: Efficiency and Rent Seeking with Price Discrimination
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

5 Monopoly Regulation

1) According to social interest theory, ________.

A) price regulations are unconstitutional
B) regulation helps markets achieve efficiency
C) monopoly practices last forever
D) unregulated firms try to avoid creating deadweight loss
Answer: B
Topic: Social Interest Theory of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

107
Copyright © 2014 Pearson Education, Inc.
2) The social interest theory of regulation assumes that
A) regulations favor voters over producers.
B) regulations promote the attainment of competitive output.
C) public officials seek to keep their jobs.
D) public officials favor consumers over producers.
Answer: B
Topic: Social Interest Theory of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

3) The social interest theory of regulation assumes that

A) regulations promote the attainment of efficiency.
B) regulations promote the attainment of the maximum economic profit.
C) regulators will seek to maximize consumer surplus.
D) public officials seek their own gain through regulation.
Answer: A
Topic: Social Interest Theory of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4) The social interest theory of regulation predicts that the political process will seek to minimize
A) producer surplus.
B) consumer surplus.
C) total surplus.
D) deadweight loss.
Answer: D
Topic: Social Interest Theory of Regulation
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

5) The social interest theory of regulation assumes that

A) regulations maximize consumer surplus.
B) regulations set price equal to average total revenue.
C) public officials seek to minimize deadweight loss.
D) public officials seek gain through regulation for only their own constituents.
Answer: C
Topic: Social Interest Theory of Regulation
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

108
Copyright © 2014 Pearson Education, Inc.
6) The capture theory holds that regulations are supplied to maximize ________.
A) total sales
B) economic profit
C) marginal product
D) consumer surplus
Answer: B
Topic: Capture Theory
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

7) The capture theory of regulation implies that

A) regulations promote the attainment of efficiency.
B) regulations promote the attainment of economic profit.
C) public officials favor voters over producers.
D) the demand for regulation is less elastic than the supply.
Answer: B
Topic: Capture Theory of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

8) The social interest theory of regulation suggests that the political process and regulations will ________
and the capture theory of regulation suggests that the political process and regulations will ________.
A) seek to minimize deadweight loss; serve the interests of the producers
B) try to maximize the producers' economic profits; seek to minimize deadweight loss
C) be unaffected by deadweight loss; increase the firms economic profits
D) ignore producers' interests and concentrate on consumers' interests; seek to minimize firms' economic
profits
Answer: A
Topic: Capture Theory of Regulation
Skill: Recognition
Status: New 10th edition
AACSB: Reflective Thinking

9) A natural monopoly occurs when

A) one firm owns all the vital resources needed to produce a particular good.
B) economies of scale allow one firm to supply the entire market at the lowest possible cost.
C) a few firms collude to act as a single firm.
D) one firm captures all the consumer surplus.
Answer: B
Topic: Natural Monopoly Basics
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

109
Copyright © 2014 Pearson Education, Inc.
10) Today, you might be buying from a regulated natural monopoly when you purchase
A) a car, a truck, or a bicycle.
B) a computer, a phone, or a camera.
C) natural gas or electricity.
D) a house, a condominium, or a plot of land.
Answer: C
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

11) Customers are most likely buying from a natural monopoly when they purchase
A) aspirin from a generic drug company.
B) a laptop computer from Sony.
C) a glass of water from the local water company.
D) all of the above
Answer: C
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

12) Which of the following is definitely NOT an example of a natural monopoly?

A) local water distribution companies
B) urban rail services
C) local electric power and gas distribution companies
D) urban retail stores
Answer: D
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

13) Which of the following is an example of natural monopoly?

A) cellular phone companies in a large city
B) local water utility companies
C) major league sports franchises in the largest cities
D) All of the above are natural monopolies.
Answer: B
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

110
Copyright © 2014 Pearson Education, Inc.
14) In Delaware County, Pennsylvania, all homes, businesses, and other organizations purchase their
water from one seller, Philadelphia Suburban Water Co. (PSWCo). Economists refer to public utility
companies like PSWCo as natural monopolies because their
A) marginal cost curves lie everywhere beneath their average fixed cost curves.
B) marginal cost curves lie everywhere beneath their demand curves.
C) average total cost curves lie everywhere above their demand curves.
D) None of the above answers is correct.
Answer: D
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

15) If a natural monopoly is broken up into many smaller firms then

A) the price will decrease.
B) the average total costs of production will increase.
C) efficiency will increase.
D) None of the above because it is illegal to break up a natural monopoly into smaller firms.
Answer: B
Topic: Natural Monopoly Basics
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

16) Suppose a firm is a natural monopoly. Then, until the long-run average cost curve crosses the demand
curve, as the quantity increases the long-run average costs
A) increase.
B) decrease.
C) decrease and then increase.
D) increase and then decrease.
Answer: B
Topic: Natural Monopoly Basics
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

17) Which of the following will result in the most deadweight loss?
A) a natural monopoly regulated with marginal cost pricing
B) an unregulated natural monopoly
C) a natural monopoly regulated with average cost pricing
D) All of the above result in the same deadweight loss.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

111
Copyright © 2014 Pearson Education, Inc.
18) A marginal cost pricing rule for a natural monopoly sets ________.
A) price equal to marginal cost and greater than average total cost
B) marginal revenue equal to marginal cost
C) marginal revenue equal to average total cost
D) price equal to marginal cost
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

19) A natural monopoly regulated with a marginal cost pricing rule results in
A) an economic loss for the regulated firm.
B) an economic profit for the regulated firm.
C) a normal profit for the regulated firm.
D) a deadweight loss.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

20) A natural monopoly that is regulated to set its price equal to its marginal cost
A) incurs an economic loss.
B) makes zero economic profit.
C) makes an economic profit.
D) creates the maximum deadweight loss.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

21) A natural monopoly that is regulated to set its price according to the marginal cost pricing rule will
A) incur an economic loss.
B) maximize its profit.
C) produce a quantity of output such that price is above average total cost.
D) produce a quantity of output such that marginal cost is above average total cost.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

112
Copyright © 2014 Pearson Education, Inc.
22) If the regulator had a natural monopoly set its price equal to its marginal cost, that would ensure
A) an economic profit for the firm.
B) zero economic profit for the firm.
C) an economic loss for the firm.
D) an accounting loss for the firms.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

23) What is the drawback of forcing a natural monopolist to use a marginal cost pricing rule?
A) No deadweight loss is eliminated.
B) The firm will incur an economic loss.
C) The gain in consumer surplus will be less than the loss in producer surplus, thus creating additional
deadweight loss.
D) None of the above answers is correct.
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

24) Which of the following statements regarding a marginal-cost pricing rule for a natural monopoly is
WRONG?
A) It maximizes total surplus in a regulated industry.
B) The firm produces the efficient quantity.
C) The firm's price equals its marginal cost.
D) The firm earns an economic profit.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

25) The Public Service Company of Colorado is a natural monopoly in the transmission and distribution
of electric power. As such, it will incur an economic loss if it
A) goes out of business.
B) prices its services at average total cost.
C) prices its services at marginal cost.
D) all of the above
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

113
Copyright © 2014 Pearson Education, Inc.
26) Under a marginal cost pricing rule, a regulated natural monopoly
A) makes a positive economic profit and there is a deadweight loss.
B) makes zero economic profit and there is no deadweight loss.
C) incurs an economic loss and there is a deadweight loss.
D) incurs an economic loss and there is no deadweight loss.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

27) In a regulated natural monopoly, a marginal cost pricing rule maximizes

A) total costs.
B) producer surplus.
C) economic profit.
D) total surplus.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

28) If the regulator wanted to maximize the total surplus in a natural monopoly market, the regulator has
the firm set its price equal to its
A) average fixed cost.
B) average total cost.
C) average variable cost.
D) marginal cost.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

29) Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus
if the firm is regulated with
A) an average cost pricing rule.
B) a marginal cost pricing rule.
C) rate of return regulation.
D) All of the above answers are correct.
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

114
Copyright © 2014 Pearson Education, Inc.
30) If an industry is a natural monopoly and regulators decide that the firm must price at marginal cost,
then consumers will be ________ off than if the firm was unregulated and the firm's owners will be
________ off than if it was unregulated.
A) better; better
B) better; worse
C) worse; better
D) worse; worse
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

31) For a natural monopoly, if price is equal to marginal cost, then

A) the deadweight loss is as large as possible.
B) the firm makes zero economic profit.
C) there is no deadweight loss.
D) there is no deadweight loss and the firm makes a positive economic profit.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

32) There is no deadweight loss if the regulatory rule for a natural monopoly
A) is an average cost pricing rule.
B) sets price at a level that enables the regulated firm to earn a specified rate of return on its capital.
C) is a marginal cost pricing rule.
D) prevents the firm from engaging in any form of price discrimination.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

33) If the regulator wants to avoid any deadweight loss in a natural monopoly market, the regulator has
the firm set its price equal to its
A) average fixed cost.
B) average total cost.
C) average variable cost.
D) marginal cost.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

115
Copyright © 2014 Pearson Education, Inc.
34) A natural monopoly that charges the profit-maximizing price will produce ________ amount of
output than a ________.
A) a larger; natural monopoly regulated with an average cost pricing rule
B) a more efficient; perfectly competitive industry
C) the same; natural monopoly regulated with a marginal cost pricing rule
D) a smaller; natural monopoly regulated with a marginal cost pricing rule
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

35) If regulators of the local gas and water utility companies require those firms to price their service at
marginal cost,
A) there would be a deadweight loss in their markets.
B) the firms might require a tax-financed subsidy to survive.
C) their customers would enjoy no consumer surplus.
D) None of the above answers are correct.
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

36) The use of a two-part price in a regulated natural monopoly

A) maximizes the deadweight loss.
B) allows the firm to maximize profits.
C) may make it possible for the firm to obey a marginal cost pricing rule and not go out of business.
D) All of the above answers are correct.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

37) Gene's Car Wash is a natural monopoly. To wash 100 cars a week, if Gene is unregulated, he would
charge a price of $10. Gene's long-run average cost for washing 100 cars is $8, his average variable cost is
$6, and his marginal cost is $4. If Gene was regulated using a marginal cost pricing rule, the price he
would be allowed to charge to wash 100 cars is
A) $10.
B) $8.
C) $6.
D) $4.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

116
Copyright © 2014 Pearson Education, Inc.
38) Mountain Water is a natural monopoly. The government decides to regulate Mountain Water by
imposing a marginal cost pricing rule. The figure above shows the demand for Mountain Water.
Marginal cost is $0.20 per bottle. The price of a bottle of Mountain Water is ________, and ________
thousand bottles are sold per month.
A) $0.20; 400
B) $0.50; 250
C) $0.20; 500
D) $1.00; 500
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

117
Copyright © 2014 Pearson Education, Inc.
39) The figure above shows the marginal revenue, marginal cost, and demand curves for an airline
offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost
pricing rule ________ flights will be offered each month at a price of ________ per flight.
A) 200; $300
B) 200; $100
C) 300; $200
D) 400; $100
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

40) The figure above shows the marginal revenue, marginal cost, and demand curves for an airline
offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost
pricing rule total surplus will be ________.
A) $100,000
B) $60,000
C) $80,000
D) $20,000
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

118
Copyright © 2014 Pearson Education, Inc.
41) For a regulated natural monopoly, an average cost pricing rule sets price equal to
A) average fixed cost.
B) average total cost.
C) average external cost.
D) average variable cost.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

42) When an average total cost pricing rule is enforced, average total cost equals ________.
A) marginal revenue
B) total revenue
C) price
D) average total cost
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

43) When an average cost pricing rule is imposed on a natural monopoly, ________.
A) total surplus is maximized and the monopoly incurs an economic loss
B) the monopoly makes zero economic profit
C) the monopoly makes an economic profit
D) total surplus is maximized and the monopoly makes an economic profit
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

44) If a natural monopoly has an average cost pricing rule imposed, the rule will
A) maximize total surplus in the regulated industry.
B) generate an economic loss for the regulated firm.
C) reduce the consumer surplus and generate a deadweight loss when compared to a marginal cost
pricing rule.
D) set price below marginal cost.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

119
Copyright © 2014 Pearson Education, Inc.
45) An average cost pricing rule for a natural monopoly sets the price ________ the marginal cost, thereby
________ a deadweight loss.
A) below; avoiding
B) below; creating
C) above; avoiding
D) above; creating
Answer: D
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

46) Under an average cost pricing rule, a regulated natural monopoly ________ and there is ________.
A) makes an economic profit; a deadweight loss
B) makes zero economic profit; no deadweight loss
C) makes zero economic profit; a deadweight loss.
D) incurs an economic loss; no deadweight loss
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

47) Which of the following statements regarding an average-cost pricing rule for a natural monopoly is
WRONG?
A) It sets price equal to average total cost.
B) It is efficient.
C) The firm makes zero economic profit.
D) More output is produced than if the firm maximized profit.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

48) A natural monopoly regulated with an average cost pricing rule is ________.
A) efficient and incurs an economic loss
B) inefficient and makes zero economic profit
C) inefficient and makes an economic profit
D) efficient and makes zero economic profit
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

120
Copyright © 2014 Pearson Education, Inc.
49) There is a deadweight loss if a natural monopoly is regulated to use
A) marginal cost pricing and if it is regulated to use average cost pricing.
B) average cost pricing and if it is allowed to be unregulated and maximize its profit.
C) marginal cost pricing and if it is allowed to be unregulated and maximize its profit.
D) None of the above answers is correct.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

50) A regulated monopoly facing average cost pricing rule will make the same profit as a firm in ________
market does in the long run.
A) an unregulated monopoly
B) an oligopoly
C) a perfectly competitive
D) All of the above answers are correct.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

121
Copyright © 2014 Pearson Education, Inc.
51) Natural gas is a natural monopoly. The figure above shows the market for natural gas in the city of
Lucknow. When a marginal cost pricing rule regulation is imposed, the price per household per month is
________.
A) $30 and 20,000 household are served
B) $10 and 40,000 household are served
C) $10 and 20,000 household are served
D) $20 and 30,000 households are served
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

52) Natural gas is a natural monopoly. The figure shows the market for natural gas in the city of
Lucknow. When an average cost price rule regulation is imposed, the price per household per month is
________.
A) $30 and 20,000 household are served
B) $10 and 40,000 household are served
C) $25 and 20,000 household are served
D) $20 and 30,000 households are served
Answer: D
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

122
Copyright © 2014 Pearson Education, Inc.
53) Natural gas is a natural monopoly. The figure above shows the market for natural gas in the city of
Lucknow. When an average cost price rule regulation is imposed, the price per household per month is
________.
A) $20 and 30,000 households are served
B) $40 and 40,000 households are served
C) $40 and 30,000 households are served
D) $60 and 20,000 households are served
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

123
Copyright © 2014 Pearson Education, Inc.
54) We know that the firm shown in the figure above is a natural monopoly because as output increases,
the
A) marginal cost is constant.
B) demand curve slopes downward.
C) marginal revenue curve lies below its demand curve.
D) average total cost decreases so that the firm can supply the market at lower cost than two firms.
Answer: D
Topic: Natural Monopoly
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

55) If the natural monopoly shown in the figure above is unregulated, then it will charge a price of
A) $2.
B) $4.
C) $5.
D) $6.
Answer: D
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

124
Copyright © 2014 Pearson Education, Inc.
56) If the natural monopoly shown in the figure above is unregulated, it will sell
A) 2 million units.
B) 3 million units.
C) 4 million units.
D) 5 million units.
Answer: A
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

57) If the natural monopoly shown in the figure above is unregulated, it will make an economic profit of
A) $2 million.
B) $4 million.
C) $9 million.
D) $0, that is, it earns a normal profit.
Answer: A
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

58) If the natural monopoly shown in the figure above is unregulated, then consumer surplus will be
A) $0.
B) $4 million.
C) $8 million.
D) $16 million.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

59) If the natural monopoly shown in the figure above is unregulated, then the deadweight loss will be
A) $0.
B) $2 million.
C) $4 million.
D) $8 million.
Answer: C
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

125
Copyright © 2014 Pearson Education, Inc.
60) If a marginal cost pricing rule is imposed on the natural monopoly in the figure above, then the price
will be
A) $2.
B) $4.
C) $5.
D) $6.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

61) If a marginal cost pricing rule is imposed on the natural monopoly shown in the figure above, then it
will produce
A) 2 million units.
B) 3 million units.
C) 4 million units.
D) 5 million units.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

62) If a marginal cost pricing rule is imposed on the natural monopoly in the figure above, then the firm
will
A) incur an economic loss.
B) make zero economic profit, that is, its owners make a normal profit.
C) make an economic profit of $4 million.
D) make an economic profit of $16 million.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

63) If a marginal cost pricing rule is imposed on the natural monopoly in the figure above, then the
consumer surplus will be
A) $0.
B) $8 million.
C) $16 million.
D) $32 million.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

126
Copyright © 2014 Pearson Education, Inc.
64) If a marginal cost pricing rule is imposed on the natural monopoly in the figure above, then total
surplus will be
A) $0.
B) $4 million.
C) $8 million.
D) $16 million.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

65) If a marginal cost pricing rule is imposed on the natural monopoly shown in the figure above, then
the deadweight loss will equal
A) $0.
B) $4 million.
C) $8 million.
D) $12 million.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

66) An efficient allocation of resources is reached in the figure above when output equals
A) 1 million.
B) 2 million.
C) 3 million.
D) 4 million.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

67) If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then
the price will be
A) $2.
B) $4.
C) $5.
D) $6.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

127
Copyright © 2014 Pearson Education, Inc.
68) If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then it
will produce
A) 2 million units.
B) 3 million units.
C) 4 million units.
D) 5 million units.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

69) If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then
consumer surplus will be
A) $0.
B) $8 million.
C) $9 million.
D) $16 million.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

70) If an average cost pricing rule is imposed on the natural monopoly in the figure above, then the firm
will
A) incur an economic loss.
B) make zero economic profit, that is, its owners make a normal profit.
C) make an economic profit of $4 million.
D) make an economic profit of $9 million.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

71) If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then
the firm's economic profit will be
A) $9 million.
B) $12 million.
C) $0, that is, the firm's owners make only a normal profit.
D) negative, that is, the firm incurs an economic loss.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

128
Copyright © 2014 Pearson Education, Inc.
72) If an average cost pricing rule is imposed on the natural monopoly in the figure above, then the
deadweight loss will be
A) $0.
B) $1 million.
C) $9 million.
D) $16 million.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

73) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. If Light-U-Up is unregulated, it will produce ________ and sell at a price of ________.
A) 200 kwh; 10¢ per kwh
B) 200 kwh; 30¢ per kwh
C) 300 kwh; 20¢ per kwh
D) 400 kwh; 10¢ per kwh
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

129
Copyright © 2014 Pearson Education, Inc.
74) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. At the unregulated price and quantity, Light-U-Up's economic profit is equal to
A) -$10.
B) $10.
C) $40.
D) $60.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

75) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. What is the area of deadweight loss when Light-U-Up produces the unregulated,
profit-maximizing level of output?
A) abd
B) acg
C) deg
D) There is no deadweight loss.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

76) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. If Light-U-Up is regulated and must follow a marginal cost pricing rule, it will
produce ________ and sell at a price of ________.
A) 200 kwh; 10¢ per kwh
B) 300 kwh; 20¢ per kwh
C) 300 kwh; 10¢ per kwh
D) 400 kwh; 10¢ per kwh
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

77) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. If Light-U-Up is regulated, what is its economic profit if it must follow a marginal
cost pricing rule?
A) -$40
B) -$20
C) $0
D) $30
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

130
Copyright © 2014 Pearson Education, Inc.
78) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. What is the area of deadweight loss when Light-U-Up is regulated and follows a
marginal cost pricing rule?
A) abd
B) acg
C) deg
D) There is no deadweight loss.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

79) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. If Light-U-Up is regulated and must follow an average cost pricing rule, it will
produce ________ and sell at a price of ________.
A) 200 kwh; 30¢ per kwh
B) 200 kwh; 25¢ per kwh
C) 300 kwh; 20¢ per kwh
D) 400 kwh; 15¢ per kwh
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

80) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. If Light-U-Up is regulated, what is its economic profit if it must follow an average
cost pricing rule?
A) -$60
B) -$20
C) $0
D) $30
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

131
Copyright © 2014 Pearson Education, Inc.
81) The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that
provides electricity. What is the area of deadweight loss when Light-U-Up is regulated and follows an
average cost pricing rule?
A) acg
B) degf
C) deg
D) There is no deadweight loss.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

82) In the above figure, if the natural monopoly is not regulated it will produce
A) 12 million units at a price of $18 per unit.
B) 8 million units at a price of $12 per unit.
C) 8 million units at a price of $21 per unit.
D) 8 million units at a price of $24 per unit.
Answer: D
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

132
Copyright © 2014 Pearson Education, Inc.
83) In the above figure, if the natural monopoly is not regulated then consumer surplus is
A) $48 million.
B) $60 million.
C) $108 million.
D) $192 million.
Answer: A
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

84) In the above figure, if this natural monopoly is not regulated the deadweight loss to society is
A) ecf.
B) ebc.
C) gac.
D) gde.
Answer: C
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

85) In the above figure, if the natural monopoly is regulated using a marginal cost pricing rule, then the
firm will
A) produce 8 million units and make an economic profit of $24 million.
B) produce 12 million units and make zero economic profit.
C) produce 16 million units and incur an economic loss of $64 million.
D) produce 16 million units and make zero economic profit.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

86) In the above figure, if the natural monopoly is regulated with a marginal cost pricing rule, then the
deadweight loss to society is
A) zero.
B) ecf.
C) gde.
D) efcb.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

133
Copyright © 2014 Pearson Education, Inc.
87) In the above figure, if the natural monopoly is regulated and a marginal cost pricing rule is followed,
then the consumer surplus will be
A) $192 million.
B) $108 million.
C) $60 million.
D) $48 million.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

88) In the above figure, if the natural monopoly is regulated with an average cost pricing rule and the
firm does not inflate its costs, then the firm will produce
A) 8 million units and set a price of $21 per unit.
B) 12 million units and set a price of $18 per unit.
C) 16 million units and set a price of $16 per unit.
D) nothing unless the government provides subsidies to cover its losses.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

89) In the above figure, if the natural monopoly is regulated with an average cost pricing rule and the
firm does not inflate its costs, the deadweight loss to society is
A) zero.
B) efc.
C) ebc.
D) gac.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

90) In the above figure, if the natural monopoly is regulated with an average cost pricing rule and the
firm does not inflate its costs, then consumer surplus will be
A) $192 million.
B) $108 million.
C) $216 million.
D) $60 million.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

134
Copyright © 2014 Pearson Education, Inc.
91) In the above figure, if the natural monopoly is regulated using an average cost pricing rule, but the
firm can pad its costs and make the regulator believe its costs are ATC (inflated), then the price the firm
charges will increase from
A) $18 to $24.
B) $12 to $24.
C) $12 to $18.
D) $18 to $36.
Answer: A
Topic: Inflated Costs
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

92) The figure above shows the costs and demand curves for the Bigshow Cable Company. Bigshow
Cable Company incurs an economic loss if the regulator set its price at
A) $8.
B) $6.
C) $4.
D) None of the above prices force Bigshow to incur an economic loss.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

135
Copyright © 2014 Pearson Education, Inc.
93) The figure above shows the costs and demand curves for the Bigshow Cable Company. To avoid any
deadweight loss in the market served by Bigshow, the regulator must set the price at
A) $8.
B) $6.
C) $4.
D) $2.
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

94) The figure above shows the costs and demand curves for the Bigshow Cable Company. If the
regulator wants to set the price so that Bigshow earns the same normal profit as a perfectly competitive
firm, what price should be set?
A) $8
B) $6
C) $4
D) $2
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

136
Copyright © 2014 Pearson Education, Inc.
95) The figure above shows the costs and demand curves for the Bigshow Cable Company. If the
regulator of Bigshow Cable Company set its price at $4, the company would
A) receive a producer surplus equal to $18 million.
B) make zero economic profit.
C) incur an economic loss of $7 million.
D) none of the above
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

96) The figure above shows the costs and demand curves for the Bigshow Cable Company. If the firm is
required to set its price according to an average cost pricing rule, the price is ________ and the quantity
produced is ________ million.
A) $8; 1
B) $6; 1
C) $6; 2
D) $4; 3
Answer: D
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

137
Copyright © 2014 Pearson Education, Inc.
97) Consider the market for cable television in the figure above. This graph depicts a natural monopoly
because the
A) marginal cost curve is constant.
B) demand curve is downward sloping.
C) average cost curve is declining as it crosses the demand curve.
D) marginal revenue curve is downward sloping.
Answer: C
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

98) Consider the market for cable television, a natural monopoly, shown in the figure above. If the
regulator imposes a marginal cost pricing rule, the firm provides service to
A) 3.5 million households.
B) 6 million households.
C) 10.5 million households.
D) 12.5 million households.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

138
Copyright © 2014 Pearson Education, Inc.
99) Consider the market for cable television, a natural monopoly, shown in the figure above. If the
regulator imposes an average cost pricing rule, the firm provides service to
A) 3.5 million households.
B) 6 million households.
C) 10.5 million households.
D) 12.5 million households.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

100) Consider the market for cable television, a natural monopoly, shown in the figure above. If the
regulator imposes an average cost pricing rule, deadweight loss is equal to
A) $5 million.
B) $0 million.
C) more than $10 million and less than $20 million..
D) $20 million or more.
Answer: A
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

139
Copyright © 2014 Pearson Education, Inc.
101) The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the
firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated
according to the social interest theory, it will serve ________ million households and set a price of
________ per household per month.
A) 2; $12
B) 3; $24
C) 4; $12
D) 2; $36
Answer: C
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

102) The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the
firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated
according to an average cost pricing rule, it will serve ________ million households and set a price of
________ per household per month.
A) 1; $48
B) 4; $12
C) 2; $36
D) 3; $24
Answer: D
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

140
Copyright © 2014 Pearson Education, Inc.
103) The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the
firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated
according to an average cost pricing rule, there will be
A) a deadweight loss of $6 million per month.
B) a deadweight loss of $24 million per month.
C) a deadweight loss of $12 million per month.
D) no deadweight loss.
Answer: A
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

104) The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the
firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated
using rate of return regulation, and the regulator knows the firm's costs curves, the company will serve
________ million households and set a price of ________ per household per month.
A) 2.5; $30
B) 3; $24
C) 4; $12
D) 2; $36
Answer: B
Topic: Rate of Return Regulation
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

105) The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the
firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. Suppose Visual is
regulated according to a price cap rule, with the price cap set at $24 per household per month. The firm
will maximize its profit if it serves ________ million households.
A) 2
B) 2.5
C) 3
D) 3.5
Answer: C
Topic: Price Cap Regulation
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

141
Copyright © 2014 Pearson Education, Inc.
106) The firm shown in the figure above is
A) a natural monopoly.
B) a monopoly, but not a natural monopoly.
C) perfectly competitive.
D) naturally competitive.
Answer: A
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

107) The firm shown in the figure above is

A) a natural monopoly because its LRAC curve slopes downward where it intersects the demand curve.
B) not a natural monopoly because its LRAC curve slopes downward where it intersects the demand
curve.
C) not a natural monopoly because its MC curve is horizontal.
D) not a natural monopoly because its MC curve is below its LRAC curve.
Answer: A
Topic: Natural Monopoly
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

142
Copyright © 2014 Pearson Education, Inc.
108) If the firm in the figure above is unregulated, it will charge a price of
A) $5 per unit.
B) $25 per unit.
C) $40 per unit.
D) $20 per unit.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

109) If the firm in the figure above is unregulated, it will produce

A) 5 units.
B) 20 units.
C) 30 units.
D) 40 units.
Answer: B
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

110) If the firm in the figure above is unregulated, it will make an economic profit of
A) zero.
B) -$240.
C) $100.
D) $400.
Answer: C
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

111) If the firm in the figure above is unregulated, the consumer surplus will be
A) zero.
B) $100.
C) $400.
D) $200.
Answer: D
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

143
Copyright © 2014 Pearson Education, Inc.
112) If the firm in the figure above is unregulated, the deadweight loss will be
A) zero.
B) $100.
C) $200.
D) $400.
Answer: C
Topic: Natural Monopoly, Unregulated
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

113) If a marginal cost pricing rule is imposed on the firm in the figure above, the price will be
A) $5 per unit.
B) $25 per unit.
C) $40 per unit.
D) $20 per unit.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

114) If a marginal cost pricing rule is imposed on the firm in the figure above, the firm will produce
A) 5 units.
B) 20 units.
C) 30 units.
D) 40 units.
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

115) If a marginal cost pricing rule is imposed on the firm in the figure above, the consumer surplus will
be
A) zero.
B) $800.
C) $400.
D) $200.
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

144
Copyright © 2014 Pearson Education, Inc.
116) If a marginal cost pricing rule is imposed on the firm in the figure above, the total surplus will be
A) zero.
B) $800.
C) $400.
D) $200.
Answer: B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

117) If a marginal cost pricing rule is imposed on the firm in the figure above, the deadweight loss will be
A) zero.
B) $100.
C) $200.
D) $50.
Answer: A
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

118) If an average cost pricing rule is imposed on the firm in the figure above, the price will be
A) $5 per unit.
B) $25 per unit.
C) $15 per unit.
D) $20 per unit.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

119) If an average cost pricing rule is imposed on the firm in the figure above, the firm will produce
A) 5 units.
B) 20 units.
C) 30 units.
D) 40 units.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

145
Copyright © 2014 Pearson Education, Inc.
120) If an average cost pricing rule is imposed on the firm in the figure above, the firm will make an
economic profit of
A) zero.
B) -$240.
C) $150.
D) $400.
Answer: A
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

121) If an average cost pricing rule is imposed on the firm in the figure above, the consumer surplus will
be
A) zero.
B) $450.
C) $400.
D) $200.
Answer: B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

122) If an average cost pricing rule is imposed on the firm in the figure above, the deadweight loss will be
A) zero.
B) $150.
C) $50.
D) $250.
Answer: C
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
Status: Previous edition, Chapter 13
AACSB: Analytical Skills

123) When a firm is regulated so that its price enables it to earn a specified target percent return on its
capital, the regulation is called
A) rate of return regulation.
B) price cap regulation.
C) earnings limited regulation.
D) target pricing regulation.
Answer: A
Topic: Rate of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

146
Copyright © 2014 Pearson Education, Inc.
124) Rate of return regulation sets the price at a level that enables the regulated firm to earn a specified
target percent return on its
A) total cost.
B) sales revenue.
C) capital.
D) variable cost.
Answer: C
Topic: Rate of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

125) Rate of return regulation is typically imposed on

A) monopolistically competitive firms.
B) an oligopoly.
C) a natural monopoly.
D) perfectly competitive firms.
Answer: C
Topic: Rate of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

126) Rate of return regulation is equivalent to

A) average cost pricing rule.
B) marginal cost pricing rule.
C) maximizing consumer surplus.
D) maximizing producer surplus.
Answer: A
Topic: Rate of Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

127) Rate of return regulation is most similar to

A) a marginal cost pricing rule.
B) an average cost pricing rule.
C) an average variable cost pricing rule.
D) an inflation cost pricing rule.
Answer: B
Topic: Rate of Return Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

147
Copyright © 2014 Pearson Education, Inc.
128) Under rate of return regulation, a regulated firm has an incentive to
A) use an efficient amount of capital.
B) set its price equal to its marginal cost.
C) hide losses from bad debts.
D) inflate its costs.
Answer: D
Topic: Rate of Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

129) Rate of return regulation, as currently applied to many natural monopolies such as public utilities,
A) generally involves the use of price caps.
B) gives the firms an incentive to inflate their costs.
C) gives the firms an incentive to cut their costs as much as possible.
D) generally keeps their prices higher than if they were unregulated monopolists.
Answer: B
Topic: Rate of Return Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

130) Which of the following types of economic regulation is most likely to encourage firms to inflate their
costs?
A) price cap regulation
B) rate of return regulation
C) cartel regulation
D) earnings sharing and price cap regulation
Answer: B
Topic: Rate of Return Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

131) Under rate of return regulation, a natural monopoly ________.

A) has an incentive to inflate its costs
B) has an incentive to deflate its costs and capture more of the market
C) makes an economic profit
D) sets price equal to marginal cost
Answer: A
Topic: Rate of Return Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

148
Copyright © 2014 Pearson Education, Inc.
132) A rule that specifies the highest price that a regulated firm is permitted to set is called
A) rate of return regulation.
B) price cap regulation.
C) maximum price regulation.
D) average/marginal cost pricing.
Answer: B
Topic: Price Cap Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

133) A price cap regulation ________.

A) is illegal
B) is a price floor
C) is a price ceiling
D) encourages a firm to operate inefficiently
Answer: C
Topic: Price Cap Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

134) Price cap regulation is a type of regulation that

A) offers price subsidies to firms that comply with regulation guidelines.
B) is equivalent to rate of return.
C) sets the maximum price the firm can charge.
D) sets the minimum price the firm can charge.
Answer: C
Topic: Price Cap Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

135) Price cap regulation is a

A) price ceiling.
B) price floor.
C) form of marginal cost regulation.
D) type of rate of return regulation.
Answer: A
Topic: Price Cap Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

149
Copyright © 2014 Pearson Education, Inc.
136) Under a price cap regulation, the regulated industry has an incentive to
A) operate efficiently and not inflate its costs.
B) inflate costs.
C) decrease its output.
D) None of the above answers is correct.
Answer: A
Topic: Price Cap Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

137) Which of the following types of economic regulation is most likely to encourage a natural monopoly
to NOT inflate its costs?
A) average cost pricing rule
B) rate of return regulation
C) price cap regulation
D) None of the above encourages cost cutting.
Answer: C
Topic: Price Cap Regulation
Skill: Conceptual
Status: New 10th edition
AACSB: Reflective Thinking

138) Compared to the profit-maximizing equilibrium of a natural monopoly, a price cap regulation
________ price and ________ output.
A) raises; decreases
B) lowers; increases
C) raises; increases
D) lowers; decreases
Answer: B
Topic: Price Cap Regulation
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

139) Regulation that specifies that a firm's profits must be shared with its customers if the profit rises
above a target level is called
A) rate of return regulation.
B) minimum price regulation.
C) earnings sharing regulation.
D) average cost pricing.
Answer: C
Topic: Earnings Sharing Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

150
Copyright © 2014 Pearson Education, Inc.
140) If a natural monopoly is allowed to set its price above its average total cost, then
A) the company makes an economic profit.
B) the company incurs an economic loss.
C) competitors will enter the market.
D) the company will produce more than the efficient amount of output.
Answer: A
Topic: Study Guide Question, Natural Monopoly
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

141) If a natural monopoly does not inflate its costs, the output it produces is the smallest when the
monopoly is
A) left unregulated.
B) regulated according to an average cost pricing rule.
C) regulated according to a marginal cost pricing rule.
D) regulated to maximize total surplus.
Answer: A
Topic: Study Guide Question, Natural Monopoly
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

142) A natural monopoly under rate of return regulation has an incentive to

A) pad its costs.
B) produce more than the efficient quantity of output.
C) charge a price equal to marginal cost.
D) maximize consumer surplus.
Answer: A
Topic: Study Guide Question, Rate of Return Regulation
Skill: Recognition
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

6 News Based Questions

1) The iconic American drink-maker, Coca-Cola, announced plans in 2008 to buy the dominant Chinese
fruit juice company for $2.5 billion. But China just rolled out a new law to guard against business
monopolies. How would this rent-seeking behavior by Coca-Cola most likely affect efficiency in the drink
market?
A) Profit would increase.
B) Producer surplus would increase.
C) Consumer surplus would decrease.
D) Deadweight loss would increase.
Answer: D
Topic: Single-Price Monopoly, Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

151
Copyright © 2014 Pearson Education, Inc.
2) The United States Mint is the only legal entity to produce circulating coinage for the United States.
Michael Jackson's estate owns the copyrights to many of the Beatles songs. Xcel Energy is a public utility
company who is the sole provider of electricity and natural gas in some states such as Colorado, New
Mexico and Minnesota. Which of these entities, if any, is a natural monopoly?
A) United States Mint
B) Xcel Energy
C) Michael Jackson's estate
D) None of these are natural monopolies.
Answer: B
Topic: Natural Monopoly
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

3) The United States Mint is the only legal entity to produce circulating coinage for the United States.
What are the barriers to entry, if any, that protect this firm from competition?
A) The United States Mint is a natural monopoly.
B) The United States Mint has a government license to produce coinage.
C) The United States Mint is a public franchise to produce coinage.
D) The United States Mint has a patent or copyright to produce coinage.
Answer: C
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

4) In July 2008, the Federal Communications Commission approved the merger of satellite radio
providers XM Satellite and Sirius Satellite Radio, establishing a single satellite radio company in America.
Under the terms of the deal, the companies agreed not to raise prices for the next three years. Why would
the FTC require prices not to increase for three years?
A) Compared to competition, monopolies are always worse for consumers.
B) Compared to competition, monopolies restrict output and charge higher prices.
C) Compared to competition, monopolies increase prices and output.
D) Compared to competition, monopolies restrict output and charge lower prices.
Answer: B
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

152
Copyright © 2014 Pearson Education, Inc.
5) In July 2008, the Federal Communications Commission approved the merger of satellite radio
providers XM Satellite and Sirius Satellite Radio, establishing a single satellite radio company in America.
The deal is tough for many to swallow. "We continue to believe that consumers are best served by
competition rather than monopolies," said National Association of Broadcasters Vice President Dennis
Wharton. What does Wharton argue?
A) Producer surplus is greater with competition.
B) Total surplus is greater with a monopoly.
C) Consumer surplus is greater with competition.
D) Prices are lower with a monopoly.
Answer: C
Topic: Single-Price Monopoly, Consumer Surplus
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

6) In July 2008, the Federal Communications Commission approved the merger of satellite radio
providers XM Satellite and Sirius Satellite Radio, establishing a single satellite radio company in America.
If the new company was a natural monopoly, which of the following would be a regulation to ensure an
efficient quantity of satellite radio service?
A) Application of the average cost pricing rule
B) Government subsidization
C) Government taxation
D) Application of the marginal cost pricing rule
Answer: D
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

7) In July 2008, the Federal Communications Commission approved the merger of satellite radio
providers XM Satellite and Sirius Satellite Radio, establishing a single satellite radio company in America.
What do you predict will happen to efficiency in the market for satellite radio?
A) Deadweight loss will increase when an industry moves from competition to monopoly.
B) Consumer surplus will increase when an industry moves from competition to monopoly.
C) Producer surplus will decrease when an industry moves from competition to monopoly.
D) Total surplus will increase when an industry moves from competition to monopoly.
Answer: A
Topic: Single-Price Monopoly, Deadweight Loss
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

153
Copyright © 2014 Pearson Education, Inc.
8) Before summer 2008, if you wanted a cell phone in Bhutan, you only had one choice: B-Mobile, owned
and operated by the government. What does Kuenga Gyalthen mean he states that, "Up until now,
because of the monopoly, we've all been suffering. So, I mean, it's finally time the consumer actually is
king for a little while."?
A) He believes that producer surplus is greater with competition.
B) He believes that total surplus is greater with a monopoly.
C) He believes that prices are lower with a monopoly.
D) He believes that consumer surplus is greater with competition.
Answer: D
Topic: Single-Price Monopoly, Consumer Surplus
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

9) Before summer 2008, if you wanted a cell phone in Bhutan, you only had one choice: B-Mobile, owned
and operated by the government. Then, this past spring, a privately owned competitor, Tashi, was let in.
What do you predict will happen to equilibrium price and quantity in the cell phone market?
A) Price will decrease and quantity will increase.
B) Price will increase and quantity will decrease.
C) Both price and quantity will increase.
D) Both price and quantity will decrease.
Answer: A
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

10) While smoking is on the decline in the United States, China is still puffing away madly. That's not
because the government is eager to protect its citizens from the hazards of smoking. It's because China is
eager to protect its own tobacco industry which is a state monopoly. Why did China announce in 2009
that it won't allow foreign companies to build new cigarette factories or enter joint ventures?
A) Because China is concerned about the negative effects of smoking
B) Because China wants to protect the economic profits its state monopoly makes
C) Because China wants to protect jobs
D) Because China regulates the tobacco industry
Answer: B
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

154
Copyright © 2014 Pearson Education, Inc.
11) While smoking is on the decline in the United States, China is still puffing away madly. That's not
because the government is eager to protect its citizens from the hazards of smoking. It's because China is
eager to protect its own tobacco industry which is a state monopoly. What barriers, if any, exist in this
market?
A) Natural barriers to entry
B) Ownership barrier to entry
C) Legal barrier to entry; a government license
D) Legal barrier to entry; a public franchise
Answer: D
Topic: Legal Barriers to Entry
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

12) While smoking is on the decline in the United States, China is still puffing away madly. That's not
because the government is eager to protect its citizens from the hazards of smoking. It's because China is
eager to protect its own tobacco industry which is a state monopoly. How would entry of foreign
companies into the tobacco market affect the economic profit of the state monopoly?
A) Its economic profits would decrease because of increased competition.
B) Its economic profits would increase because of increased competition.
C) Its economic profits would decrease because of rent seeking activity.
D) Its economic profits would increase because of rent seeking activity.
Answer: A
Topic: Single-Price Monopoly and Competition Compared
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

13) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave,
which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is
the only place in San Diego where this service is offered. You can ride B. Max for $40 for the first hour,
$33 for the second hour, and $26 for the third hour. Why would WaveHouse charge different prices for
each subsequent hour of riding?
A) To capture consumer surplus among groups of buyers
B) To capture consumer surplus among units of a good
C) To create customer loyalty
D) To encourage skill development
Answer: B
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

155
Copyright © 2014 Pearson Education, Inc.
14) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave,
which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is
the only place in San Diego where this service is offered. You can ride B. Max for $40 for the first hour,
$33 for the second hour, and $26 for the third hour. Charging a different price for subsequent hours is a
form of:
A) Price discrimination among groups of buyers.
B) Rent seeking behavior.
C) Price discrimination among units of a good.
D) Monopoly regulation.
Answer: C
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

15) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave,
which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is
the only place in San Diego where this service is offered. You can ride B. Max for $40 for the first hour,
$33 for the second hour, and $26 for the third hour. An effect of this price discrimination is that:
A) Consumer surplus increases.
B) Deadweight loss increases.
C) Consumer surplus is completely eliminated.
D) Producer profit increases.
Answer: D
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Communication

16) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave,
which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is
the only place in San Diego where this service is offered. If you are a member of WaveHouse, you can
ride for half the price that a non-member pays. This is an example of:
A) Price discrimination among groups of buyers.
B) Price discrimination among units of a good.
C) Rent seeking behavior.
D) Monopoly regulation.
Answer: A
Topic: Price Discrimination
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

156
Copyright © 2014 Pearson Education, Inc.
17) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave,
which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is
the only place in San Diego where this service is offered. To maximize profits, WaveHouse would
produce a quantity where:
A) Marginal revenue is greater than marginal cost.
B) Marginal revenue is equal to marginal cost.
C) Marginal revenue is less than marginal cost.
D) Price is maximized.
Answer: B
Topic: Profit Maximization
Skill: Conceptual
Status: Previous edition, Chapter 13
AACSB: Reflective Thinking

157
Copyright © 2014 Pearson Education, Inc.