1.

The only requirement for a market to be perfectly competitive is for the market to
have many buyers and sellers.
ANSWER: F
POINTS: 0 / 1
2. For a competitive firm, marginal revenue equals the price of the good it sells.
ANSWER: T
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3. If a competitive firm sells three times the amount of output, its total revenue also
increases by a factor of three.
ANSWER: T
POINTS: 0 / 1
4. A firm maximizes profit when it produces output up to the point where marginal
cost equals marginal revenue.
ANSWER: T
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5. If marginal cost exceeds marginal revenue at a firm's current level of output, the
firm can increase profit if it increases its level of output.
ANSWER: F
POINTS: 0 / 1
6. A competitive firm's short-run supply curve is the portion of its marginal cost curve
that lies above its average total cost curve.
ANSWER: F
POINTS: 0 / 1
7. A competitive firm's long-run supply curve is the portion of its marginal cost curve
that lies above its average variable cost curve.
ANSWER: F
POINTS: 0 / 1
8. In the short run, if the price a firm receives for a good is above its average variable
costs but below its average total costs of production, the firm will temporarily shut
down.
ANSWER: F

POINTS: 0 / 1
9. In a competitive market, both buyers and sellers are price takers.
ANSWER: T
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10. In the long run, if the price firms receive for their output is below their average
total costs of production, some firms will exit the market.
ANSWER: T
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11. In the short run, the market supply curve for a good is the sum of the quantities
supplied by each firm at each price.
ANSWER: T
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12. The short-run market supply curve is more elastic than the long-run market supply
curve.
ANSWER: F
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13. In the long run, perfectly competitive firms earn small but positive economic
profits.
ANSWER: T
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14. In the long run, if firms are identical and there is free entry and exit in the market,
all firms in the market operate at their efficient scale.
ANSWER: T
POINTS: 0 / 1
15. If the price of a good rises above the minimum average total cost of production,
positive economic profits will cause new firms to enter the market, which drives the
price back down to the minimum average total cost of production.
ANSWER: T
POINTS: 0 / 1

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.
16. Which of the following is not a characteristic of a competitive market?
a. All of these answers are characteristics of a competitive market.
b. There are many buyers and sellers in the market.
c. The goods offered for sale are largely the same.
d. Firms generate small but positive economic profits in the long run.
e. Firms can freely enter or exit the market.
ANSWER: D
POINTS: 0 / 1
17. Which of the following markets would most closely satisfy the requirements for a
competitive market?
a. electricity
b. cable television
c. cola
d. milk
e. All of these answers represent competitive markets.
ANSWER: D
POINTS: 0 / 1
18. If a competitive firm doubles its output, its total revenue
a. doubles.
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall.
ANSWER: A
POINTS: 0 / 1
19. For a competitive firm, marginal revenue is
a. total revenue divided by the quantity sold.
b. equal to the quantity of the good sold.
c. average revenue divided by the quantity sold.
d. equal to the price of the good sold.
ANSWER: D
POINTS: 0 / 1
20. The competitive firm maximizes profit when it produces output up to the point
where
a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.

d. marginal cost equals marginal revenue.

ANSWER: D
POINTS: 0 / 1
21. If a competitive firm is producing a level of output where marginal revenue
exceeds marginal cost, the firm could increase profits if it
a. decreased production.
b. maintained production at the current level.
c. temporarily shut down.
d. increased production.
ANSWER: D
POINTS: 0 / 1
22. In the short run, the competitive firm's supply curve is the
portion of the marginal-cost curve that lies above the average variable cost curve.
a. upward-sloping portion of the average total cost curve.
b. upward-sloping portion of the average variable cost curve.
c. portion of the marginal cost curve that lies above the average total cost
curve.
d. entire marginal cost curve.
e. portion of the marginal-cost curve that lies above the average variable cost
curve.
ANSWER: E
POINTS: 0 / 1
23. In the long run, the competitive firm's supply curve is the
a. entire marginal cost curve.
b. upward-sloping portion of the average total cost curve.
c. portion of the marginal cost curve that lies above the average total cost
curve.
d. upward-sloping portion of the average variable cost curve.
e. portion of the marginal cost curve that lies above the average variable cost
curve.
ANSWER: C
POINTS: 0 / 1
24. A grocery store should close at night if the
a. variable costs of staying open are less than the total revenue due to staying
open.
b. total costs of staying open are less than the total revenue due to staying
open.
c. variable costs of staying open are greater than the total revenue due to

staying open.
d. total costs of staying open are greater than the total revenue due to staying
open.
ANSWER: C
POINTS: 0 / 1
25. The long-run market supply curve
a. is always more elastic than the short-run market supply curve.
b. is always perfectly elastic.
c. has the same elasticity as the short-run market supply curve.
d. is always less elastic than the short-run market supply curve.
ANSWER: A
POINTS: 0 / 1
26. In the long-run, some firms will exit the market if the price of the good offered for
sale is less than
a. marginal revenue.
b. marginal cost.
c. average total cost.
d. average revenue.
ANSWER: C
POINTS: 0 / 1
27. If all firms in a market have identical cost structures and if inputs used in the
production of the good in that market are readily available, then the long-run
market supply curve for that good should be
a. downward sloping.
b. perfectly inelastic.
c. upward sloping.
d. perfectly elastic.
ANSWER: D
POINTS: 0 / 1
28. If an input necessary for production is in limited supply so that an expansion of the
industry raises costs for all existing firms in the market, then the long-run market
supply curve for a good could be
a. perfectly inelastic.
b. perfectly elastic.
c. upward sloping.
d. downward sloping.
ANSWER: C

POINTS: 0 / 1
29. If the long-run market supply curve for a good is perfectly elastic, an increase in the
demand for that good will, in the long run, cause
a. an increase in the number of firms in the market but no increase in the price
of the good.
b. an increase the price of the good and an increase in the number of firms in
the market.
c. an increase the price of the good but no increase in the number of firms in
the market.
d. no impact on either the price of the good or the number of firms in the
market.
ANSWER: A
POINTS: 0 / 1
30. In long-run equilibrium in a competitive market, firms are operating at
a. the minimum of their average-total-cost curves.
b. all of these answers are correct.
c. their efficient scale.
d. zero economic profit.
e. the intersection of marginal cost and marginal revenue.
ANSWER: B
POINTS: 0 / 1
Name:
Score: 0 / 33 points (0%)

Chapter 15

Mankiw/Taylor, Economics

True/False
Indicate whether the sentence or statement is true or false.
1. Monopolists are price takers.
ANSWER: F
POINTS: 0 / 1
2. The most common source of a barrier to entry into a monopolist's market is that the
monopolist owns a key resource necessary for production of that good.
ANSWER: F

POINTS: 0 / 1
3. A monopoly is the sole seller of a product with no close substitutes.
ANSWER: T
POINTS: 0 / 1
4. A natural monopoly is a monopoly that uses its ownership of natural resources as a
barrier to entry into its market.
ANSWER: F
POINTS: 0 / 1
5. The demand curve facing a monopolist is the market demand curve for its product.
ANSWER: T
POINTS: 0 / 1
6. For the monopolist, marginal revenue is always less than the price of the good.
ANSWER: T
POINTS: 0 / 1
7. The monopolist chooses the quantity of output at which marginal revenue equals
marginal cost and then uses the demand curve to find the price that will induce
consumers to buy that quantity.
ANSWER: T
POINTS: 0 / 1
8. The supply curve for a monopolist is always positively sloped.
ANSWER: F
POINTS: 0 / 1
9. A monopolist produces an efficient quantity of output but it is still inefficient
because it charges a price that exceeds marginal cost and the resulting profit is a
social cost.
ANSWER: F
POINTS: 0 / 1
10. Using regulations to force a natural monopoly to charge a price equal to its
marginal cost of production will cause the monopoly to lose money and exit the
industry.

ANSWER: T
POINTS: 0 / 1
11. Most economists argue that the most efficient solution to the problem of monopoly
is that the monopoly should be publicly owned.
ANSWER: F
POINTS: 0 / 1
12. Price discrimination is only possible if there is no arbitrage.
ANSWER: T
POINTS: 0 / 1
13. Price discrimination can raise economic welfare because output increases beyond
that which would result under monopoly pricing.
ANSWER: T
POINTS: 0 / 1
14. Perfect price discrimination is efficient but all of the surplus is received by the
consumer.
ANSWER: F
POINTS: 0 / 1
15. Universities are engaging in price discrimination when they charge different levels
of tuition to poor and wealthy students.
ANSWER: T
POINTS: 0 / 1

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
16. Which of the following is not a barrier to entry in a monopolized market?
a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some
good.
c. The costs of production make a single producer more efficient than a large
number of producers.
d. A key resource is owned by a single firm.
ANSWER: A
POINTS: 0 / 1

17. A firm whose average total cost continually declines at least to the quantity that
could supply the entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.
ANSWER: A
POINTS: 0 / 1
18. When a monopolist produces an additional unit, the marginal revenue generated by
that unit must be
a. below the price because the price effect outweighs the output effect.
b. above the price because the output effect outweighs the price effect.
c. above the price because the price effect outweighs the output effect.
d. below the price because the output effect outweighs the price effect.
ANSWER: A
POINTS: 0 / 1
19. A monopolist maximizes profit by producing the quantity at which
a. marginal revenue equals marginal cost.
b. marginal revenue equals price.
c. marginal cost equals price.
d. marginal cost equals demand.
e. none of these answers.
ANSWER: A
POINTS: 0 / 1
20. Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets,
price exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets,
price equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized
markets, price exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized
markets, price equals marginal cost.
ANSWER: A
POINTS: 0 / 1
21. Thomson is a monopolist in the production of your textbook because

a.
b.
c.
d.

Thomson has a legally protected exclusive right to produce this textbook.

Thomson owns a key resource in the production of textbooks.
Thomson is a natural monopoly.
Thomson is a very large company.

ANSWER: A
POINTS: 0 / 1
22. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and
quantity represented by point

a.
b.
c.
d.
e.

A.
B.
C.
D.
none of these answers.

ANSWER: A
POINTS: 0 / 1
23. Refer to Exhibit 4. The efficient price and quantity are represented by point

a.
b.
c.
d.
e.

D.
A.
B.
C.
none of these answers.

ANSWER: A
POINTS: 0 / 1
24. The inefficiency associated with monopoly is due to
a. underproduction of the good.
b. the monopoly's profits.
c. the monopoly's losses.
d. overproduction of the good.
ANSWER: A
POINTS: 0 / 1
25. Compared to a perfectly competitive market, a monopoly market will usually
generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.
ANSWER: A
POINTS: 0 / 1
26. The monopolist's supply curve
a. does not exist.
b. is the marginal cost curve above average variable cost.
c. is the marginal cost curve above average total cost.

d. is the upward-sloping portion of the average total cost curve.

e. is the upward-sloping portion of the average variable cost.
ANSWER: A
POINTS: 0 / 1
27. Using government regulations to force a natural monopoly to charge a price equal
to its marginal cost will
a. cause the monopolist to exit the market.
b. improve efficiency.
c. raise the price of good.
d. attract additional firms to enter the market.
ANSWER: A
POINTS: 0 / 1
28. The purpose of antitrust (also known as competition) laws is to
a. increase competition in an industry by preventing mergers and breaking up
large firms.
b. regulate the prices charged by a monopoly.
c. increase merger activity to help generate synergies that reduce costs and
raise efficiency.
d. create public ownership of natural monopolies.
e. do all of these answers.
ANSWER: A
POINTS: 0 / 1
29. Public ownership of natural monopolies
a. tends to be inefficient.
b. usually lowers the cost of production dramatically.
c. creates synergies between the newly acquired firm and other governmentowned companies.
d. does none of the things described in these answers.
ANSWER: A
POINTS: 0 / 1
30. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers
according to their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable
to engage in arbitrage.

ANSWER: A
POINTS: 0 / 1
31. If regulators break up a natural monopoly into many smaller firms, the cost of
production
a. will rise.
b. will fall.
c. will remain the same.
d. could either rise or fall depending on the elasticity of the monopolist's
supply curve.
ANSWER: A
POINTS: 0 / 1
32. A monopoly is able to continue to generate economic profits in the long run
because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers
ANSWER: A
POINTS: 0 / 1
33. If marginal revenue exceeds marginal cost, a monopolists should
a. increase output.
b. decrease output.
c. keep output the same because profits are maximized when marginal revenue
exceeds marginal cost.
d. raise the price.
ANSWER: A
POINTS: 0 / 1