Multiple Choice

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Chapter 15
Monopoly

1. Monopolies use their market leverage to a. charge prices that equal minimum average total cost. b. attain normal profits in the long run. c. restrict output and increase price. d. dump excess supplies of their product on the market.
ANSWER: c restrict output and increase price.
SECTION: 1 OBJECTIVE: 1

2. If government officials break a natural monopoly up into several smaller firms, then a. competition will force firms to attain economic profits rather than accounting profits. b. competition will force firms to produce surplus output, which drives up price. c. the average costs of production will increase. d. the average costs of production will
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$60 b. $40 c. $20 d. $10
ANSWER: c $20
SECTION: 2 OBJECTIVE: 2

14. The maximum profit this monopolist can earn is a. $40 b. $30 c. $20 d. $15
ANSWER: d $15
SECTION: 2 OBJECTIVE: 2

15. To maximize profit, the monopolist sets price at a. $40 b. $20 c. $0 d. $10
ANSWER: b $20
SECTION: 2 OBJECTIVE: 2

16. Suppose potatoes were produced in Canada by many, many firms in perfect competition. In Belgium, only one firm produces potatoes for the Belgium market. Suppose further that for the competitive firms and the monopoly minimum ATC is the same. We would expect that in Belgium the price of potatoes is __________ and __________ potatoes are produced and sold than in Canada. a. higher; more b. lower; more c. higher; fewer d. lower; fewer
ANSWER: c higher; fewer
SECTION: 2 OBJECTIVE: 2

17. “Monopolists do not worry about efficient production and cost saving since they can just pass along any increase in costs to their consumers.” This statement is a. false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses). b. true; this is the primary reason why economists believe that monopolies result in economic inefficiency. c. false; the monopolist is a price taker. d. true; consumers in a monopoly market have no substitutes
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