PRACTICE: 1. One defining characteristic of pure monopoly is that: A. the monopo

Question

PRACTICE: 1. One defining characteristic of pure monopoly is that: A. the monopolist is a price taker. B. the monopolist produces a product with no close substitutes C. the monopol list uses advertising. D. there is relatively easy entry into the industry, but exit is difficult 2. One feature of pure monopoly is that the demand curve: A is vertical. C. slopes upward. D. slopes downward B. is horizontal. 3. A pure monopoly 3. A pure monopoly firm will ever charge a price in the inelastic range of its demand curve because lowering price to get into this region will: A. increase total revenue, increase total cost, and decrease profit B. decrease total revenue, increase total cost, and decrease profit C. increase total revenue, decrease total cost, and decrease profit D decrease total revenue, total cost, and profit. Demand Quantity The quantity difference between areas A and C for the indicated price reduction 4. Refer to the above diagram. measures A marginal cost. B. marginal revenue. C. monopoly price. D. a welfare or efficiency loss 5. Suppose a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He could maximize profits (or minimize losses) by: A. decreasing price and increasing output. B. increasing price and decreasing output and leaving output unchanged. D decreasing output and leaving price unchanged 6. Many people believe level for a profit-maximizing monopoly is determined by: A. Marginal cost = Demand. C. Average total cost Demand. that monopolies charge any price they want to without affecting sales. Instead, the output B. Marginal revenue= Demand D Marginal cost= Marginal revenue

Explanation / Answer

1> B

Reason

There is no close substitute where the monopolist needs to face competition.

2> D

The demand curve is not dependent on the market structure,

3> B

It is never optimal for a monopoly to produce in the inelastic part.

4> D

When comparing different areas, we are comparing the welfares.

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