STUDY GUIDE for Chapter 24

Pure Monopoly



         1.    Pure monopoly means:

                A)   any market in which the demand curve to the firm is downsloping.

                B)    a standardized product being produced by many firms.

                C)    a single firm producing a product for which there are no close substitutes.

                D)   a large number of firms producing a differentiated product.



         2.    Which of the following is not a barrier to entry?

                A)   patents

                B)    X-inefficiency

                C)    economies of scale

                D)   ownership of essential resources



         3.    A natural monopoly occurs when:

                A)   long-run average costs decline continuously through the range of demand.

                B)    a firm owns or controls some resource essential to production.

                C)    long-run average costs rise continuously as output is increased.

                D)   economies of scale are obtained at relatively low levels of output.



         4.    Which of the following is characteristic of a pure monopolist's demand curve?

                A)   Average revenue is less than price.

                B)    Its elasticity coefficient is 1 at all levels of output.

                C)    Price and marginal revenue are equal at all levels of output.

                D)   It is the same as the market demand curve.



         5.    Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should:

                A)   retain its current price-quantity combination.

                B)    increase both price and quantity sold.

                C)    charge a higher price.

                D)   charge a lower price.



         6.    The MR = MC rule:

                A)   applies only to pure competition.

                B)    applies only to pure monopoly.

                C)    does not apply to pure monopoly because price exceeds marginal revenue.

                D)   applies both to pure monopoly and pure competition.



         7.    Economic profit in the long run is:

                A)   possible for both a pure monopoly and a pure competitor.

                B)    possible for a pure monopoly, but not for a pure competitor.

                C)    impossible for both a pure monopolist and a pure competitor.

                D)   only possible when barriers to entry are nonexistent.



         8.    In which one of the following market models is X-inefficiency most likely to be the greatest?

                A)   pure competition

                B)    oligopoly

                C)    monopolistic competition

                D)   pure monopoly



         9.    Price discrimination refers to:

                A)   selling a given product for different prices at two different points in time.

                B)    any price above that which is equal to a minimum average total cost.

                C)    the selling of a given product at different prices that do not reflect cost differences.

                D)   the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.



       10.    The practice of price discrimination is associated with pure monopoly because:

                A)   it can be practiced whenever a firm's demand curve is downsloping.

                B)    monopolists have considerable ability to control output and price.

                C)    monopolists usually realize economies of scale.

                D)   most monopolists sell differentiated products.




Answer Key -- SG24


         1.    C            

         2.    B            

         3.    A            

         4.    D            

         5.    C            

         6.    D            

         7.    B            

         8.    D            

         9.    C            

       10.    B