Exam 2 Questions

Question 1

• According to the dynamic view of monopoly, what constitutes a credible barrier to entry?
  o Large size of the incumbent
  o Insufficient capital
  o Government restrictions
  o Inability to advertise
  o All of the above

Answer 1

o Government restrictions

Question 2

• According to the dynamic view of monopoly, what constitutes a credible barrier to entry?
  o Large size of the incumbent
  o Government mandated licensing
  o Government restrictions of international trade
  o Inability to advertise
  o All of the above
  o B and c of the above

Answer 2

o B and c of the above
o Government mandated licensing
o Government restrictions of international trade

Question 3

• According to the neoclassical standard, perfect monopoly is characterized by
  o A single seller
  o A single buyer
  o A few sellers
  o A and b of the above

Answer 3

o A single seller

Question 4

• Which of the following U.S. educational setups represents the one with the highest degree of accountability to parents?
  o Charter schools
  o Public schools
  o A voucher system
  o All of the above are equal

Answer 4

o A voucher system

Question 5

• Which of the following U.S. educational setups represents the one with the highest degree of accountability to parents?
  o Charter schools
  o Public schools
  o Private scholarships
  o All of the above are equal

Answer 5

o Private scholarships

Question 6

• If natural monopolists were required to charge a price equal to marginal cost, they would
  o Maximize profits
  o Minimize costs
  o Lose money
  o All of the above
  o None of the above

Answer 6

o Lose money

Question 7

• If the producer’s marginal cost is below his average cost, their average cost must be
  o Rising
  o Falling
  o Constant
  o None of the above is true

Answer 7

o Falling

Question 8

• If the producer’s marginal cost is above his average cost, their average cost must be
  o Rising
  o Falling
  o Constant
  o May be rising or falling
  o None of the above is true

Answer 8

o Rising

Question 9

• In a cartel, which member has the greatest opportunity not to cheat on the agreement
  o The largest member
  o The smallest member
  o The second largest member
  o The medium-sized member
  o It is impossible to say

Answer 9

o The largest member

Question 10

• In a cartel which member’s behavior will be most difficult to predict as to whether or not he will cheat on the agreement?
  o The largest member
  o The smallest member
  o The second largest member
  o The medium sized member
  o It is impossible to say who will not cheat

Answer 10

o The medium sized member

Question 11

• In considering which price to charge, a monopolist will
  o Raise the price until it is no longer in the inelastic region of the demand curve
  o Choose the point at which MC = MR
  o Charge the highest possible price
  o All of the above
  o A and b of the above

Answer 11

o A and b of the above
o Raise the price until it is no longer in the inelastic region of the demand curve
o Choose the point at which MC = MR

Question 12

• In a monopoly, the marginal revenue curve facing a single producer is
  o Horizontal
  o Vertical
  o Downward sloping
  o Upward sloping
  o Rectangular

Answer 12

o Downward sloping

Question 13

• Monopsony power results in
  o A lower price received by the seller to the monopsony
  o A higher price received by the seller to the monopsony
  o A lower price received by the buyer from the monopsony
  o A higher price received by the buyer from the monopsony

Answer 13

o A lower price received by the seller to the monopsony

Question 14

• The anti-trust case against Microsoft used which of the following ideas?
  o Microsoft charged a price that was too high to be competitive
  o Microsoft acted like a predator, trying to destroy its competition by temporarily changing high prices
  o Microsoft illegally bundled high price products with low price products, thus forcing the consumer to buy both
  o B and c of the above
  o None of the above

Answer 14

o Microsoft illegally bundled high price products with low price products, thus forcing the consumer to buy both

Question 15

• The anti-trust case against Microsoft used which of the following ideas?
  o Microsoft charged a price that was too high to be competitive
  o Microsoft acted like a predator, trying to destroy its competition by temporarily changing high prices
  o Microsoft illegally advertised high price products.
  o B and c of the above
  o None of the above

Answer 15

o None of the above

Question 16

• The closest thing to a supply curve for a single seller under perfect competition is the
  o Demand curve
  o Average cost curve
  o Marginal cost curve
  o Marginal revenue curve
  o Fixed cost curve

Answer 16

o Marginal cost curve

Question 17

• According to U.S. law, the ultimate test of monopoly practice is
  o Harm to competitors
  o Harm to consumers
  o Either a or b of the above
  o None of the above

Answer 17

o Harm to consumers

Question 18

• According to U.S. law, the ultimate test of monopoly practice is
  o Harm to good taste
  o Harm to consumers
  o Harm to suppliers
  o A and b of the above

Answer 18

o Harm to consumers

Question 19

• Which of the following most resembles the model of perfect competition?
  o The used car market
  o eBay
  o The health care market
  o Al of the above are equally like the perfect competition model

Answer 19

o eBay

Question 20

• What identifies a natural monopoly?
  o An upward sloping average cost curve
  o An average cost curve that slopes downwards over the entire relevant range
  o An upward sloping marginal revenue curve
  o A downward sloping marginal revenue curve
  o A downward sloping demand curve

Answer 20

o An average cost curve that slopes downwards over the entire relevant range

Question 21

• What is appealing about the perfectly competitive equilibrium solution is
  o It identifies the point that is both socially efficient and socially fair
  o It identifies the price at which the producer pays the entire production cost
  o It identifies the point at which TR = TC
  o All of the above
  o A and b of the above

Answer 21

o It identifies the point that is both socially efficient and socially fair

Question 22

• What is appealing about the perfectly competitive equilibrium solution is
  o It identifies the lowest cost production point
  o It identifies the price at which the consumer pays the marginal cost
  o It identifies the point at which TR = TC
  o All of the above
  o A and b of the above

Answer 22

o All of the above
o It identifies the lowest cost production point
o It identifies the price at which the consumer pays the marginal cost
o It identifies the point at which TR = TC

Question 23

• Which is the most socially efficient situation?
  o Perfectly discriminating monopoly
  o Government monopoly
  o Regular monopoly
  o Subsidized monopoly

Answer 23

o Perfectly discriminating monopoly

Question 24

• Which is the most socially efficient situation?
  o Government monopoly
  o Imperfectly discriminating monopoly
  o Regular monopoly
  o Subsidized monopoly

Answer 24

o Imperfectly discriminating monopoly

Question 25

• Which of the following is a necessary condition for the existence of price discrimination?
  o The seller must be able to keep the markets separate
  o The markets must be different – they must have different elasticities of demand
  o Doctors become more generous
  o The elasticities of demand must be less than 1
  o A and b of the above

Answer 25

o A and b of the above
o The seller must be able to keep the markets separate
o The markets must be different – they must have different elasticities of demand

Question 26

• Which of the following is a necessary condition for the existence of price discrimination?
  o The seller must be able to keep the markets separate
  o The markets must be the same – they must have the same elasticities of demand
  o Doctors become more generous
  o The elasticities of demand must be less than 1
  o A and b of the above

Answer 26

o The seller must be able to keep the markets separate

Question 27

• Which of the following is a “monopolistic device” for keeping out the competition?
  o A steel tariff
  o A subsidy to farmers
  o Nationalization of the New York transit system
  o All of the above
  o None of the above

Answer 27

o All of the above
o A steel tariff
o A subsidy to farmers
o Nationalization of the New York transit system

Question 28

• Which of the following is a “monopolistic device” for keeping out the competition?
  o A steel tariff
  o Advertising
  o Allowing a merger between two large companies
  o All of the above
  o None of the above

Answer 28

o A steel tariff

Question 29

• From what we have learned in this course, which of the following do you think is a valid criticism of current monopoly theory?
  o The model of perfect competition is not applied flexibly enough
  o The model of perfect competition is the best approximation to reality that we have
  o There is no way to predict who will win the competitive struggle and today’s winner may be eclipsed tomorrow
  o All of the above
  o B and c of the above

Answer 29

o There is no way to predict who will win the competitive struggle and today’s winner may be eclipsed tomorrow

Question 30

• From what we have learned in this course which of the following do you think is a valid criticism of current monopoly theory?
  o All of the conditions of the model of perfect competition are violated in important ways that make the perfect competition standard inappropriate
  o In the real world the model of perfect competition is the best approximation we have to the thing.
  o The federal trade commission needs more power to find out who are the real monopolists
  o All of the above
  o None of the above

Answer 30

o All of the conditions of the model of perfect competition are violated in important ways that make the perfect competition standard inappropriate

Question 31

• Which of the following is true?
  o Monopolists are always less innovative than competitors
  o Monopolists are always more innovative than competitors
  o A single seller always charges a higher price than a competitor
  o Potential competition is a credible deterrent to monopoly behavior
  o None of the above are true

Answer 31

o Potential competition is a credible deterrent to monopoly behavior

Question 32

• Which of the following is true?
  o Being a single seller is a sufficient but not a necessary condition for the possession of monopoly power
  o Being a single seller is not a sufficient but is a necessary condition for the possession of monopoly power
  o Being a single seller is neither a sufficient nor a necessary condition for the possession of monopoly power
  o Being a single seller is both a sufficient and a necessary condition for the possession of monopoly power
  o A and b of the above

Answer 32

o Being a single seller is neither a sufficient nor a necessary condition for the possession of monopoly power

Question 33

• Which of the following is true?
  o Being a single seller is neither a sufficient nor a necessary condition for the possession of monopoly power
  o Being a single seller is a sufficient but not a necessary condition for the possession of monopoly power
  o Being a single seller with permanent government support is sufficient for the possession of monopoly power
  o Being a single seller is neither a sufficient nor a necessary condition for the possession of monopoly power
  o Being a single seller is both a sufficient and a necessary condition for the possession of monopoly power
  o A and b of the above
  o B and c of the above

Answer 33

o B and c of the above
o Being a single seller is a sufficient but not a necessary condition for the possession of monopoly power
o Being a single seller with permanent government support is sufficient for the possession of monopoly power

Question 34

• Which of the following is a natural monopoly?
  o Taxicabs
  o Newspapers
  o Water distribution in modern cities
  o All of the above
  o None of the above

Answer 34

o Water distribution in modern cities

Question 35

• Which of the following is a characteristic of dynamic competition?
  o Product differentiation
  o Innovation
  o Quality improvement
  o All of the above
  o A and c of the above

Answer 35

o All of the above
o Product differentiation
o Innovation
o Quality improvement

Question 36

• Which of the following is a characteristic of dynamic competition?
  o Product differentiation
  o Innovation
  o Marginal cost pricing
  o All of the above
  o A and b of the above

Answer 36

o A and b of the above
o Product differentiation
o Innovation

Question 37

• Which of the following is involved in the enforcement of anti-trust law?
  o The Federal Trade Commission
  o The Federal Aviation Authority
  o The Federal Reserve Bank
  o All of the above
  o A and b of the above

Answer 37

o The Federal Trade Commission

Question 38

• Which of the following is involved in the enforcement of anti-trust law?
  o The Federal Trade Commission
  o The Federal Aviation Authority
  o The state-level anti-trust departments
  o All of the above
  o A and b of the above
  o A and c of the above

Answer 38

o A and c of the above
o The Federal Trade Commission
o The state-level anti-trust departments

Question 39

• Which of the following is the basic question that “Competition Theory” (of the 1930’s) tried to answer?
  o What do monopoly and competition look like?
  o How can government do the most good?
  o What does an oligopoly look like?
  o What is life in the fast lane like?
  o All of the above

Answer 39

o What do monopoly and competition look like?

Question 40

• Which of the following statements is true?
  o Government projects are always inefficient
  o Private projects are always efficient
  o Government projects face conditions that tend to make them less efficient than private projects
  o Every project, involving more than one person, involves both an incentive and a knowledge problem
  o None of the above
  o C and d of the above
  o A and b of the above

Answer 40

o C and d of the above
o Government projects face conditions that tend to make them less efficient than private projects
o Every project, involving more than one person, involves both an incentive and a knowledge problem

Question 41

• In perfect competition, the demand curve facing a single producer is
  o Horizontal
  o Vertical
  o Downward sloping
  o Upward sloping
  o Rectangular

Answer 41

o Horizontal

Question 42

• A monopsony is
  o A monopoly seller
  o A monopoly buyer
  o Both of the above
  o None of the above

Answer 42

o A monopoly buyer

Question 43

• What aspect of “e-commerce” most resembles the model of perfect competition?
  o There are a large number of buyers
  o There are a large number of sellers
  o It is a natural monopoly
  o It is an unnatural monopoly
  o A and b of the above

Answer 43

o A and b of the above
o There are a large number of buyers
o There are a large number of sellers

Question 44

• Which of the following is the most likely explanation for the rising price of health care?
  o The supply is falling and the demand is rising
  o The demand is falling but the supply is falling faster
  o The demand is rising faster than the supply
  o The demand is rising slower than the supply

Answer 44

o The demand is rising faster than the supply

Question 45

• Which of the following are likely effects of the licensing of doctors?
  o Reduce the number of doctors
  o Increase the number of doctors
  o Increase the availability of doctors
  o Reduce the earnings of doctors

Answer 45

o Reduce the number of doctors

Question 46

• Which of the following occupations are not licensed?
  o Taxis
  o Beauty specialists
  o Doctors
  o Economists

Answer 46

o Economists

Question 47

• In which way do the licensed professions increase their earnings?
  o They limit the quantity and let the market price rise
  o They negotiate the price and limit the quantity of labor supplied
  o They do neither of the above
  o There are no limits on price or quantity imposed

Answer 47

o They limit the quantity and let the market price rise

Question 48

• Which of the following is the exact opposite of competition?
  o a. oligopoly
  o b. duopoly
  o c. monopoly
  o d. imperfect competition

Answer 48

monopoly

Question 49

• A natural monopoly is one in which
  o a. many firms will tend to dominate
  o b. one firm will tend to dominate
  o c. average costs fall throughout the production range
  o d. a and c of the above
  o e. b and c of the above

Answer 49

o e. b and c of the above
o b. one firm will tend to dominate
o c. average costs fall throughout the production range

Question 50

• According to the neoclassical standard, perfect monopoly is characterized by
  o a. a single seller
  o b. a single buyer
  o c. a few sellers
  o d. a and b of the above

Answer 50

o a. a single seller

Question 51

• Under perfect price discrimination, the seller’s profit can be measured by the
  o a. consumer surplus
  o b. producer surplus
  o c. total cost
  o d. any of the above
  o e. none of the above

Answer 51

o a. consumer surplus

Question 52

• According to the neoclassical paradigm monopoly is seen as a situation of __________.
  o a. social inefficiency
  o b. social efficiency
  o c. maximum efficiency
  o d. tolerable efficiency
  o e. none of the above

Answer 52

o a. social inefficiency

Question 53

• Network effects refer to
  o a. the cost of congestion on a network
  o b. the benefit to consumers that increases with the number of consumers there are in the network
  o c. the costs to each consumer that increases with the number of consumers there are in the network
  o d. the fact that marginal cost of production of the product is zero

Answer 53

o b. the benefit to consumers that increases with the number of consumers there are in the network

Question 54

• In monopoly equilibrium, the price will equal
  o a. marginal cost
  o b. average cost
  o c. lowest possible average cost
  o d. marginal revenue
  o e. none of the above.

Answer 54

o e. none of the above.

Question 55

• According to the dynamic view of monopoly,
  o a. monopoly is a very common problem of the market that requires regulation
  o b. monopoly is most likely the result of government imposed restrictions on competition
  o c. monopoly is a situation that can be easily remedied by the FTC if only it would do its job
  o d. monopoly never exits

Answer 55

o b. monopoly is most likely the result of government imposed restrictions on competition

Question 56

• Abolishing jury trials in medical malpractice suits will most likely result in
  o a. an increase in the damage awards given
  o b. a decrease in the damage awards given
  o c. a disappearance of damage awards
  o d. chaos

Answer 56

o b. a decrease in the damage awards given

Question 57

• Which of the following are subject to licensing restrictions?
  o a. barbers
  o b. doctors
  o c. dentists
  o d. taxis in New York
  o e. all of the above

Answer 57

o e. all of the above
o a. barbers
o b. doctors
o c. dentists
o d. taxis in New York

Question 58

• The persistently rising price of health care must be the result of
  o a. a decrease in the supply of health care
  o b. an increase in the supply of health care
  o c. a decrease in the demand for health care
  o d. an increase in the demand for health care larger than the increase in the supply
  o e. an increase in the supply for health care larger than the increase in the demand

Answer 58

o d. an increase in the demand for health care larger than the increase in the supply

Question 59

• The largest component of medical training costs are
  o a. the tuition fees
  o b. the foregone earnings
  o c. the supplies
  o d. the clothes

Answer 59

o b. the foregone earnings

Question 60

• Which of the following statements would you support as “most likely true”?
  o a. the licensing of medical physicians raises their earnings
  o b. the licensing of medical physicians lowers their earnings
  o c. the licensing of medical physicians has no effect on their earnings
  o d. the licensing of medical physicians results in an increase in the supply of physician services

Answer 60

o a. the licensing of medical physicians raises their earnings*