Test on Monopoly Market Structures and Public Policy
Monopoly Market Structures & Public Policy: A Student Guide
Test: Monopoly
20 questions
Question 1: The primary example of a government-created monopoly is the ownership of a key natural resource.
A. Ano
B. Ne
Explanation: Government-created monopolies primarily arise when the government gives a single firm the exclusive right to produce some good, with patent and copyright laws being important examples. Ownership of a key resource is a potential source of monopoly, but not explicitly stated as the primary example of a *government-created* monopoly in the study materials.
Question 2: Average Revenue for a monopoly is calculated by multiplying the Price (P) by the Quantity (Q).
A. Ano
B. Ne
Explanation: Average Revenue (AR) for a monopoly is calculated as Total Revenue (TR) divided by Quantity (Q), or simply equals the Price (P). Total Revenue (TR) is calculated by multiplying Price (P) by Quantity (Q).
Question 3: A monopoly firm charges a price that exceeds its marginal cost, which differs from a competitive firm where price equals marginal cost.
A. Ano
B. Ne
Explanation: For a competitive firm, price equals marginal cost (P = MR = MC). In contrast, a monopoly firm's price exceeds its marginal cost (P > MR = MC).
Question 4: The deadweight loss from monopoly includes the costs a monopoly incurs to maintain or create its monopoly power.
A. Ano
B. Ne
Explanation: The study materials state: 'If the monopoly incurs costs to maintain (or create) its monopoly power, those costs would also be included in deadweight loss.'
Question 5: A monopoly firm faces a horizontal demand curve, indicating it is a price taker.
A. Ano
B. Ne
Explanation: A monopoly firm faces a downward-sloping demand curve, which gives it the ability to control price, making it a price maker, not a price taker. A competitive firm faces a horizontal demand curve and is a price taker.