Chapter 15MonopolyTRUE/FALSE1. Monopolists can achieve any level of profit they desire because they have unlimited market power.ANS: F DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive2. Even with market power, monopolists cannot achieve any level of profit they desire because they will selllower quantities at higher prices.ANS: T DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive3. One characteristic of a monopoly market is that the product is virtually identical to products produced bycompeting firms.ANS: F DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Definitional4. The fundamental cause of monopolies is barriers to entry.ANS: T DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive5. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. Thisis evidence that it has a monopoly position to some degree.ANS: T DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive6. The De Beers Diamond company is not worried about differentiating its product from all other gemstones. ANS: F DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive7. The amount of power that a monopoly has depends on whether there are close substitutes for its product. ANS: T DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive8. If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone usedin jewelry which is found only in Afghanistan, the company benefits from a barrier to entry.ANS: T DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Applicative9. Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.ANS: T DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Patents MSC: Interpretive10. If the government deems a newly invented drug to be truly original, the pharmaceutical company is given theexclusive right to manufacture and sell the drug for 50 years.ANS: F DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Patents MSC: Interpretive11. A natural monopoly has economies of scale for most if not all of its range of output.ANS: T DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Natural monopoly MSC: Applicative12. Declining average total cost with increased production is one of the defining characteristics of a naturalmonopoly.ANS: T DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Natural monopoly MSC: Definitional1002Chapter 15/Monopoly 1003 13. A monopolist maximizes profit by producing an output level where marginal cost equals price.ANS: F DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive14. A monopolist produces an output level where marginal revenue equals marginal cost and charges a pricewhere marginal cost equals average total cost.ANS: F DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Applicative15. Average revenue for a monopoly is the total revenue divided by the quantity produced.ANS: T DIF: 1 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Average revenue MSC: Definitional16. For a monopoly, marginal revenue is often greater than the price they charge for their good.ANS: F DIF: 1 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Marginal revenue MSC: Interpretive17. Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginalcost.ANS: T DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive18. Like competitive firms, monopolies charge a price equal to marginal cost.ANS: F DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive19. A monopolist produces where P > MC = MR.ANS: T DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive20. A monopolist produces where P = MC = MR.ANS: F DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive21. A monopolist does not have a supply curve beca use the firm‟s decision about how much to supply isimpossible to separate from the demand curve it faces.ANS: T DIF: 2 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Supply curve MSC: Interpretive22. A monopolist‟s supply curve is vertical.ANS: F DIF: 1 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Supply curve MSC: Applicative23. A monopolist‟s supply curve is horizontal.ANS: F DIF: 1 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Supply curve MSC: Applicative24. During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantityat which marginal revenue equals marginal cost.ANS: T DIF: 1 REF: 15-2 NAT: AnalyticLOC: Monopoly TOP: Profit maximization MSC: Interpretive25. The socially efficient quantity is found where the demand curve intersects the marginal cost curve.ANS: T DIF: 2 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Interpretive26. The deadweight loss for a monopolist equals one-half of its profits for any given level of output.ANS: F DIF: 2 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Interpretive1004 Chapter 15/Monopoly27. A monopoly creates a deadweight loss to society because it earns both short-run and long-run positiveeconomic profits.ANS: F DIF: 2 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Interpretive28. A monopoly creates a deadweight loss to society because it produces less output than the socially efficientlevel.ANS: T DIF: 2 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Interpretive29. Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.ANS: F DIF: 3 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Analytical30. Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.ANS: T DIF: 3 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Analytical31. Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $1,500.ANS: T DIF: 3 REF: 15-3 NAT: AnalyticLOC: Monopoly TOP: Deadweight loss MSC: Analytical32. In order for a firm to maximize profits through price discrimination, the firm must have some market powerand be able to prevent arbitrage.ANS: T DIF: 2 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive33. Price discrimination is prohibited by antitrust laws.ANS: F DIF: 2 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive34. A monopolist earns higher profits by charging one price than by practicing price discrimination.ANS: F DIF: 3 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive35. A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society. ANS: T DIF: 3 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Perfect price discrimination MSC: Interpretive36. By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher isable to price discriminate and raise its profits.ANS: T DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive37. Movie theatres charge different prices to different groups of people based on the differing marginal costs thatexist from group to group.ANS: F DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: InterpretiveChapter 15/Monopoly 1005 38. Airlines often separate their customers into business travelers and personal travelers by giving a discount tothose travelers who stay over a Saturday night.ANS: T DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive39. University financial aid can be viewed as a type of price discrimination.ANS: T DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive40. By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.ANS: T DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Price discrimination MSC: Interpretive41. Goods that do not have close substitutes have downward-sloping demand curves.ANS: T DIF: 1 REF: 15-4 NAT: AnalyticLOC: Monopoly TOP: Demand curve MSC: Interpretive42. If the government regulates the price a natural monopolist can charge to be equal to the firm‟s average totalcost, the firm has no incentive to reduce costs.ANS: T DIF: 2 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Regulation MSC: Interpretive43. If the government regulates the price a natural monopolist can charge to be equal to the firm‟s marginal cost,the government will likely need to subsidize the firm.ANS: T DIF: 2 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Regulation MSC: Interpretive44. Antitrust laws give the Justice Department the authority to challenge potential mergers between companies inan effort to safeguard society from monopoly power.ANS: T DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Antitrust MSC: Interpretive45. Some companies merge in order to lower costs through efficient joint production.ANS: T DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Antitrust MSC: Interpretive46. A common solution to monopoly in European countries is public ownership.ANS: T DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive47. The proper level of government intervention is unclear when dealing with a monopoly.ANS: T DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Regulation MSC: Interpretive48. The government may choose to do nothing to reduce monopoly inefficiency because the “fix” may be worsethan the problem.ANS: T DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Do nothing MSC: Interpretive49. Government intervention always reduces monopoly deadweight loss.ANS: F DIF: 1 REF: 15-5 NAT: AnalyticLOC: Monopoly TOP: Do nothing MSC: Interpretive50. Firms with substantial monopoly power are quite common because many goods are truly unique.ANS: F DIF: 1 REF: 15-6 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive1006 Chapter 15/MonopolySHORT ANSWER1. Describe how government is involved in creating a monopoly. Why might the government create one? Give anexample.ANS:The government can create a monopoly by giving a single firm the exclusive right to produce some good. Monopolies are created for many reasons. When an industry is characterized by high fixed costs, a single firm can usually supply the entire market at a lower cost than having multiple firms in the industry. Examples include most utility companies. The government also grants sole ownership of inventions through patent laws in order to help eliminate the market failure that is likely to otherwise occur in the markets for those goods. Patents encourage creativity and research and development.DIF: 2 REF: 15-1 NAT: Analytic LOC: MonopolyTOP: Patents | Regulation MSC: Applicative2. What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.ANS:The defining characteristic of a natural monopoly is when a firm can supply a good or service to an entire market at a lower cost than could two or more firms. The example in the text is a bridge.DIF: 2 REF: 15-1 NAT: Analytic LOC: MonopolyTOP: Natural monopoly MSC: Definitional3. In the market for "home heating" consumers typically have several options (e.g., electricity, heating fuel,natural gas, propane, etc.), yet we often think of firms in this industry as behaving like monopolists. Discuss the context in which your electricity provider is a monopolist. Is this characterization universally applicable?Explain your answer.ANS:In this case, the firms are monopolists in the short run when consumers are unable to change their "home heating" systems. In the long run, consumers can change from electric appliances to natural gas appliances and thus lessen the monopoly power of utility providers. As long as consumers are able to substitute, in the long run the monopoly pricing power is reduced.DIF: 3 REF: 15-2 NAT: Analytic LOC: MonopolyTOP: Monopoly MSC: Analytical4. There has been much discussion of deregulating electricity and natural gas delivery companies in the UnitedStates. Discuss the likely effect of deregulation on prices in these two industries.ANS:If deregulation leads to increased competition, then production and prices should move toward the competitive equilibrium. If deregulation does not lead to increased competition, then the monopoly production and price outcome is likely. The success of deregulation movements hinges on their ability to use markets to promote competitive market outcomes. If the industry is characterized by economies of scale, deregulation may worsen rather than improve the market as costs and prices could rise if more than one firm supplies output to the market. DIF: 2 REF: 15-2 NAT: Analytic LOC: MonopolyTOP: Regulation MSC: Analytical5. Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.ANS:A profit-maximizing monopolist produces the output level where marginal revenue equals marginal cost and charges the corresponding price from the market demand curve. Note that a monopolist charges a price that exceeds marginal cost, unlike a competitive firm, for which price equals marginal cost.DIF: 2 REF: 15-2 NAT: Analytic LOC: MonopolyTOP: Profit maximization MSC: AnalyticalChapter 15/Monopoly 1007 6. Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss fromtaxation?ANS:A profit-maximizing monopolist will choose to produce Q0 units of output and sell at price P0. However, marginal cost is MC0. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost.DIF: 2 REF: 15-3 NAT: Analytic LOC: MonopolyTOP: Deadweight loss MSC: Analytical7. What is the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: Theprice charged for goods produced is $10. The intersection of the marginal revenue and marginal cost curves occurs where output is 100 units and marginal revenue is $5. The socially efficient level of production is 110 units. The demand curve is linear and downward sloping, and the marginal cost curve is constant.ANS:1/2*(110-100)*($10-$5) = $25DIF: 3 REF: 15-3 NAT: Analytic LOC: MonopolyTOP: Deadweight loss MSC: Applicative8. Assume that a monopolist decides to maximize revenue rather than profit. How does this operating objectivechange the size of the deadweight loss? If you are a "benevolent" manager of a monopoly firm and areinterested in reducing the deadweight loss of monopoly, should you maximize profits or maximize revenue?Explain your answer.ANS:A revenue maximizer operates where MR = 0. This solution moves the monopolist closer to the socially optimal competitive outcome and reduces deadweight loss. Revenue maximization is potentially a more "socially" optimal objective for monopoly markets than profit maximization.DIF: 3 REF: 15-3 NAT: Analytic LOC: MonopolyTOP: Total revenue MSC: Analytical9. One example of price discrimination occurs in the publishing industry when a publisher initially releases anexpensive hardcover edition of a popular novel and later releases a cheaper paperback edition. Use thisexample to demonstrate the benefits and potential pitfalls of a price discrimination pricing strategy.ANS:The answer should address the three basic lessons of price discrimination. First, price discrimination is a rational strategy that can lead to higher monopoly profits. Second, price discrimination requires an ability to separate customers according to their willingness to pay. Third, price discrimination can raise economic welfare.DIF: 2 REF: 15-4 NAT: Analytic LOC: MonopolyTOP: Price discrimination MSC: Analytical1008 Chapter 15/Monopoly10. What are the four ways that government policymakers can respond to the problem of monopoly?ANS:First, the government can try to make monopolized industries more competitive by using the power of antitrust laws. Second, the government can regulating the behavior of monopolies, which usually occurs with natural monopolies. Third, the government can own and run a monopoly. Four, the government can do nothing.DIF: 2 REF: 15-5 NAT: Analytic LOC: MonopolyTOP: Government MSC: Interpretive11. Give some examples of the benefits and costs of antitrust laws.ANS:Benefits include promoting competition by preventing mergers and breaking-up companies. Costs are that they may increase cost of operating if they restrict synergy mergers.DIF: 2 REF: 15-5 NAT: Analytic LOC: MonopolyTOP: Antitrust MSC: Interpretive12. In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers ofgoods and services. (In some cases these firms are "nationalized," and the government actually buys orconfiscates firms that operate in monopoly markets). What would be the advantages and disadvantages of such an approach to ensure that the "best interest of society" is promoted in these markets? Explain your answer. ANS:As long as the government "owner" pursues a production and pricing policy that approaches a competitive outcome, social well-being can be enhanced. In this case the government ownership would benefit society. However, in most cases, government owners operate much like private sector monopolists. The political economy of government institutions does not ensure that government owners will pursue socially optimal policy. Also, governments have no incentive to reduce costs or innovate.DIF: 3 REF: 15-5 NAT: Analytic LOC: MonopolyTOP: Government MSC: Analytical13. Why might economists prefer private ownership of monopolies over public ownership of monopolies?ANS:The private monopolist is governed by the market. Even though the market solution is sub-optimal, it may be better than outcomes generated by publicly owned monopolies. Publicly owned monopolies may restrict output to levels below the private market outcome and thus generate an even lower level of social surplus than a privateprofit-maximizing monopolist.Private owners have an incentive to minimize cost as long as they reap benefits in the form of higher profits. Government bureaucrats have no incentive to reduce costs. The losers are customers and taxpayers, whose only recourse is the political system.DIF: 2 REF: 15-5 NAT: Analytic LOC: MonopolyTOP: Monopoly MSC: Analytical14. One solution to the problems of marginal-cost pricing of a regulated natural monopolist is average cost pricing.In this model, the monopolist is allowed to price its production at average total cost. How does average-cost pricing differ from marginal-cost pricing? Does this solution maximize social well-being?ANS:Under average-cost pricing, the monopolist earns zero economic profits, but average-cost pricing does not ensure a socially optimal market solution. Under marginal-marginal cost pricing, the monopolist cannot cover its total costs, so it will earn negative economic profits. (Recall that for a natural monopoly, ATC is declining for all relevant quantities, and MC is below ATC.DIF: 3 REF: 15-5 NAT: Analytic LOC: MonopolyTOP: Regulation MSC: InterpretiveChapter 15/Monopoly 1009 Sec 00 - MonopolyMULTIPLE CHOICE1. Which of the following statements is correct?a.Both a competitive firm and a monopolist are price takers.b.Both a competitive firm and a monopolist are price makers.c. A competitive firm is a price taker, whereas a monopolist is a price maker.d. A competitive firm is a price maker, whereas a monopolist is a price taker.ANS: C DIF: 1 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Definitional2. One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firmproduces wherea.marginal cost equals price, while a monopolist produces where price exceeds marginal cost.b.marginal cost equals price, while a monopolist produces where marginal cost exceeds price.c.price exceeds marginal cost, while a monopolist produces where marginal cost equals price.d.marginal cost exceeds price, while a monopolist produces where marginal cost equals price.ANS: A DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive3. A monopolya.can set the price it charges for its output and earn unlimited profits.b.takes the market price as given and earns small but positive profits.c.can set the price it charges for its output but faces a downward-sloping demand curve so it cannotearn unlimited profits.d.can set the price it charges for its output but faces a horizontal demand curve so it can earnunlimited profits.ANS: C DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive4. A perfectly competitive marketa.may not be in the best interests of society, whereas a monopoly market promotes general economicwell-beingb.promotes general economic well-being, whereas a monopoly market may not be in the best interestsof society.c.and a monopoly market are equally likely to promote general economic well-being.d.is less likely to promote general economic well-being than a monopoly market.ANS: B DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive5. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly isoftena.not in the best interest of society.b.one that fails to maximize total economic well-being.c.inefficient.d.All of the above are correct.ANS: D DIF: 2 REF: 15-0 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive1010 Chapter 15/MonopolySec 01 - Monopoly - Why Monopolies AriseMULTIPLE CHOICE1. Which of the following is not a characteristic of a monopoly?a.barriers to entryb.one sellerc.one buyerd. a product without close substitutesANS: C DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional2. The fundamental source of monopoly power isa.barriers to entry.b.profit.c.decreasing average total cost.d. a product without close substitutes.ANS: A DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Applicative3. A monopoly market is characterized bya.many buyers and sellers.b.“natural” products.c.barriers to entry.d. a Nash equilibrium.ANS: C DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional4. A benefit of a monopoly isa.lower prices.b. a wide variety of similar products.c.decreasing long-run average total costs.d.greater creativity by authors who can copyright their novels.ANS: D DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive5. Which of the following are necessary characteristics of a monopoly?(i)The firm is the sole seller of its product.(ii)The firm's product does not have close substitutes.(iii)The firm generates a large economic profit.(iv)The firm is located in a small geographic market.a.(i) and (ii) onlyb.(i) and (iii) onlyc.(i), (ii), and (iii) onlyd.(i), (ii), (iii), and (iv)ANS: A DIF: 2 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Interpretive6. The simplest way for a monopoly to arise is for a single firm toa.decrease its price below its competitors‟ prices.b.decrease production to increase demand for its product.c.make pricing decisions jointly with other firms.d.own a key resource.ANS: D DIF: 1 REF: 15-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: InterpretiveChapter 15/Monopoly 10117. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers,a large diamond company, hasa.less incentive to advertise than it would otherwise have.b.less market power than it would otherwise have.c.more control over the price of diamonds than it would otherwise have.d.higher profits than it would otherwise have.ANS: B DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive8. Which of the following is not a reason for the existence of a monopoly?a.sole ownership of a key resourceb.patentsc.copyrightsd.diseconomies of scaleANS: D DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive9. Which of the following would be most likely to have monopoly power?a. a long-distance telephone service providerb. a local cable TV providerc. a large department stored. a gas stationANS: B DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Applicative10. A firm that is the sole seller of a product without close substitutes isa.perfectly competitive.b.monopolistically competitive.c.an oligopolist.d. a monopolist.ANS: D DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Definitional11. Most markets are not monopolies in the real world becausea.firms usually face downward-sloping demand curves.b.supply curves slope upward.c.price is usually set equal to marginal cost by firms.d.there are reasonable substitutes for most goods.ANS: D DIF: 1 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Monopoly MSC: Interpretive12. Which of the following is not an example of a barrier to entry?a.Mighty Mitch‟s Mining Company owns a unique plot of land in Tanzania, under which lies theonly large deposit of Tanzanite in the world.b. A pharmaceutical company obtains a patent for a specific high blood pressure medication.c. A musician obtains a copyright for her original song.d.An entrepreneur opens a popular new restaurant.ANS: D DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Barriers to entry MSC: Applicative13. Which of the following is not an example of a barrier to entry?a.Mighty Mitch‟s Mining Company owns a unique plot of land in Tanzania, under which lies theonly large deposit of Tanzanite in the world.b. A college student starts a part-time tutoring business.c. A novelist obtains a copyright for her new book.d. A taxi cab driver in New York City obtains a license to legally provide transportation in New YorkCity.ANS: B DIF: 2 REF: 15-1 NAT: AnalyticLOC: Monopoly TOP: Barriers to entry MSC: Applicative。