# Part1 Ch24

6159 Words Mar 27th, 2015 25 Pages
CHAPTER 24-Monopoly

TRUE/FALSE

1. Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output.

ANS: T DIF: 1

2. If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%.

ANS: F DIF: 2

3. A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource and thus is able to exclude other producers.

ANS: F DIF: 1

4. Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries.

ANS: F DIF: 1

5. If he produces anything at all, a
a.
\$33
b.
\$12
c.
\$26
d.
\$17
e.
\$5

ANS: D DIF: 3

11. The demand for a monopolist’s output is , where p is its price. It has constant marginal costs equal to \$6 per unit. What price will it charge to maximize its profits?
a.
\$9
b.
\$18
c.
\$21
d.
\$15
e.
\$6

ANS: D DIF: 3

12. A monopolist faces a constant marginal cost of \$1 per unit. If at the price he is charging, the price elasticity of demand for the monopolist’s output is –0.5, then
a.
the price he is charging must be \$2.
b.
the price he is charging must exceed \$2.
c.
the price he is charging must be less than \$2.
d.
the monopolist cannot be maximizing profits.
e.
the monopolist must use price discrimination.

ANS: D DIF: 2

13. A profit-maximizing monopolist sets
a.
price equal to average cost.
b.
price equal to marginal cost.
c.
price equal to marginal cost plus a prorated share of overhead.
d.
price equal to marginal revenue.
e.
marginal revenue equal to marginal cost.

ANS: E DIF: 1

14. A monopolist has decreasing average costs as output increases. If the monopolist sets price equal to average cost, it will
a.
produce too much output from the standpoint of efficiency.
b.
lose money.
c.
produce too little output from the standpoint of efficiency.
d.
maximize its profits.
e.
face excess demand.

ANS: C DIF: 2

15. A profit-maximizing monopolist faces a downward-sloping demand curve that has a constant elasticity of –3. The firm finds it optimal to charge a