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AP Micro
Week 10 Practice Quiz: Y, # 32 – 34, 37
1. One justification for government regulation of a
monopoly is that the unregulated monopoly
A. earns a normal profit
B. pays its workers a lower wage than if the
market were competitive
C. has a very elastic demand curve
D. charges a price higher than a competitive
market price
E. sells too much of the product
2. The profit-maximizing output level produced
by an unregulated monopoly is
A. the socially optimal output level, since the
firm’s marginal revenue equals its marginal
cost
B. greater than the socially optimal level, since
the firm’s marginal cost exceeds its marginal
revenue
C. greater than the socially optimal level, since
the firm makes economic profits
D. less than the socially optimal level, since the
price paid by consumers exceeds the firm’s
marginal cost
E. less than the socially optimal level, since the
price of the product is less than the firm’s
marginal revenue
3. Which of the following will cause an
unregulated monopolist to produce a more
allocatively efficient level of output?
A. A tax based on the amount of profits
B. A tax that does not change as output
increases
C. A tax that increases as output increases
D. A subsidy that increases as output increases
E. A subsidy that does not change as output
increases
4. The graph above shows a firm’s cost and
revenue curves. This profit-maximizing firm
will
A. produce where demand is inelastic
B. charge a higher price than that necessary to
maximize revenues
C. have many profit-maximizing price and
quantity combinations
D. be unable to increase sales and total revenues
by lowering its price
E. never have a region of falling average total
cost
5. Which of the following statements about cost is
always true for both monopolies and perfectly
competitive firms?
A. Average total cost equals marginal cost
when average total cost is a minimum.
B. Marginal cost decreases as production
increases.
C. Average fixed cost is equal to marginal cost
when average fixed cost is a minimum.
D. Average variable cost is equal to marginal
cost when marginal cost is a minimum.
E. Average variable cost decreases as
production increases.
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AP Micro
Week 10 Practice Quiz: Y, # 32 – 34, 37
7. The primary purpose of antitrust laws is to
6. The graph above shows the cost and revenue
curves for a natural monopoly. Consider the
following two policies for regulating this natural
monopoly.
A. protect consumers from fraudulent business
practices
B. protect small businesses from unfair foreign
competition
C. prevent firms from monopolizing trade and
to promote competition
D. reduce lawsuits and limit the liabilities of
businesses
E. grant the government the right to take over
private property
Questions 8-9 refer to the diagram below,
which shows the cost and revenue conditions of
a monopolist.
Policy I: Require the monopoly to set
quantity and price where demand equals
marginal cost.
Policy II: Require the monopoly to set
quantity and price where demand equals
average total cost.
Which of the following is true of these policies?
A. Both would result in the same level of
output and price.
B. Both would result in an inefficient
allocation of resources relative to the
unregulated result.
C. Policy I would result in a lower level of
output than would Policy II.
D. Policy I would result in a higher price than
would Policy II.
E. Policy I might require the payment of a
subsidy to the firm.
8. If the monopolist chooses to maximize total
revenue rather than total profit, it will choose
which combination of price and output?
A.
B.
C.
D.
E.
Price
P1
P2
P3
P4
P5
Output
Q5
Q4
Q3
Q4
Q5
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AP Micro
9. If the monopolist produces the allocatively
efficient level of output rather than the profitmaximizing level of output, consumer surplus
will
A. decrease by the area P5JKP4
B. decrease by the area P5JMP2
C. increase by the area P5JGP1
D. increase by the area P5JKP4
E. increase by the area P5JMP2
10. A profit-maximizing monopolist selects its
output level in the
A. inelastic region of its demand curve
B. elastic region of its demand curve
C. range of output where marginal revenue is
rising
D. range of output where total cost is falling
E. range of output where marginal cost is
falling
Week 10 Practice Quiz: Y, # 32 – 34, 37
13. Which of the following statements is true for a
perfectly competitive firm but not true for a
monopoly?
A. The firm’s price is equal to its average
revenue.
B. The firm cannot affect the market price for
its good.
C. It is difficult for other firms to enter the
industry.
D. The demand for the firm’s product is unit
elastic.
E. The firm must lower its price in order to sell
more of its product.
Questions 14-15 are based on the graph below,
which shows the cost and revenue curves of a
natural monopolist.
11. Which of the following enables a seller to
capture the entire consumer surplus in a
market?
A. Perfect price discrimination
B. Perfect competition
C. An excise tax on buyers
D. Effective price ceiling
E. Effective price floor
12. Which of the following is a source of
monopoly power?
A. Scarcity
B. Elasticity of demand
C. Barriers to entry
D. Low profits
E. Free markets
14. If the government wants to regulate this
monopoly to produce the socially optimum
level of output, it should set a price equal to
A.
B.
C.
D.
E.
P1
P2
P3
P4
P5
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AP Micro
15. When the monopolist produces the socially
optimal level of output, it is
A. earning positive economic profit
B. earning zero economic profit
C. incurring economic losses and it requires a
subsidy to continue in business
D. maximizing its total revenue rather than
profits
E. maximizing profit
16. Which of the following statements is true for a
monopolist at the profit-maximizing output
level?
A. Price exceeds marginal revenue.
B. Marginal cost exceeds price.
C. Demand is price inelastic.
D. Price equals marginal cost, which equals
average total cost.
E. The demand curve intersects the supply
curve.
17. Monopolies are inefficient compared to
perfectly competitive firms because
monopolies
A. produce output with average total cost
exceeding average revenue
B. produce more output than is socially
desirable
C. charge a price less than marginal revenue
D. charge a price greater than marginal cost
E. charge a price less than average total cost
Week 10 Practice Quiz: Y, # 32 – 34, 37
18. Antitrust legislation is designed to make it
illegal for a firm to monopolize an industry.
Which of the following best states the
economic rationale for this legislation?
A. A monopolist produces too little of the
good, producing an output that minimizes
the average cost of production.
B. A monopolist produces too little of the
good, charging consumers a price that
exceeds the marginal cost of production.
C. A monopolist is more likely to pollute the
environment than are firms in a competitive
industry.
D. A monopolist engages in price
discrimination, charging low-income people
with elastic demand curves a higher price
than that charged to high-income people
with inelastic demand curves.
E. A monopolist produces too much of a good,
attracting scarce factors of production that
might be better utilized in other industries.
19. Generally, monopolies are considered
inefficient because they
(A) produce at a point where marginal cost is
less than marginal revenue
(B) produce at a point where marginal cost
exceeds price
(C) produce more output than does a
competitive industry with similar cost
conditions
(D) lead to an overallocation of resources in
the affected market
(E) lead to an underallocation of resources in
the affected market
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AP Micro
20. A monopoly is different from a perfectly
competitive firm in that a monopoly
(A) does not have a U-shaped average total
cost curve
(B) has an average fixed cost curve that is
perfectly horizontal
(C) has a marginal revenue curve that lies
below its demand curve
(D) always earns economic profits
(E) operates in the inelastic segment of its
demand curve
21. A single-price monopolist’s marginal revenue
is
(A) equal to its price
(B) less than its price
(C) greater than it price
(D) negative when it maximizes revenues
(E) zero when it maximizes profits
22. Which of the following is true if a
monopolist’s marginal revenue is negative at
the current level of output?
(A) Demand for its product is unit elastic.
(B) Demand for its product is price elastic.
(C) Demand for its product is price inelastic.
(D) Marginal cost is equal to price.
(E) Marginal revenue is equal to price.
23. If government regulators set price such that a
natural monopolist earns only normal profits,
price will be set equal to
(A) marginal revenue
(B) marginal cost
(C) average total cost
(D) average revenue
(E) average variable cost
Week 10 Practice Quiz: Y, # 32 – 34, 37
24. Assume that a profit-maximizing monopoly is
charging a single price. If the monopoly can
price discriminate and charge each consumer
what he or she is willing to pay, which of the
following will occur?
(A) The quantity of output produced will
increase.
(B) Total cost will decrease.
(C) Economic profit will decrease.
(D) Consumer surplus will increase.
(E) Demand will decrease.
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AP Micro
Week 10 Practice Quiz: Y, # 32 – 34, 37