How to maintain monopoly over the production of electricity

Reference no: EM13192702

1. Why can a monopolist continue to make positive profits even in the long-run while a perfectly competitive firm can make only zero economic profits in the long-run?

Because a monopoly only has one firm while perfect competition has many.

Because monopoly has barriers to entry and perfect competition has free entry.

Because perfect competition has barriers to entry and monopoly has free entry.

Because in perfect competition everyone produces the same product and because in monopoly there are no close substitutes.

2. What is the difference between diminishing returns and diseconomies of scale?

Diminishing returns is in the short run while diseconomies of scale is in the long run.

Diminishing returns is in the long run while diseconomies of scale is in the short run.

They are both the same thing.

There is no such thing as diseconomies of scale.

3. What does the LAC look like for a firm with constant returns to scale?

It slopes downwards.

It slopes upwards.

It is a horizontal straight line.

It is a vertical straight line.

4. Natural monopoly occurs when there are:

large economies of scale.

firms joining together to limit output and raise prices.

different prices for different consumers or groups of consumers.

patents.

5. Marginal cost intersects average variable cost:

when average variable cost is increasing

when average variable cost is decreasing.

at the lowest point of MC.

at the lowest point of AVC.

6. The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are

$3,000

$5,000

indeterminate because the firm's ouput level is not known.

7. You own a building that has 4 possible uses: a cafe, a craft store, a hardware store, and a bookstore. The value of the building in each use is $2000; $3000; $4000; and $5000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is

$2000, the value if the building is used as a cafe.

$3000, the value if the building is used as a craft store.

$3333, the average of the values if the building is used for either a cafe, a craft store, or a bookstore.

$5000, the value if the building is used for a bookstore.

8. If a firm's total costs are $80 when 10 units of output are produced and $90 when 11 units of output are produced, the marginal cost of the 11th unit is

$8.09

$10

9. As long as price is sufficient to cover __________, the firm is better off by operating rather than by shutting down in the short run.

marginal cost

average fixed cost

average variable cost

marginal revenue

10.The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advise. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 in the short run and an AC of $25. What would you recommend to him?

To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions.

To shut down in the short run, as he is incurring a loss and to leave the industry in the long run, if there are no changes in economic conditions.

To continue to produce in the short run, even though he is earning a loss, and to expand in the future with the hope of increasing market share and total revenue.

You tell him you cannot make any recommendations until you know what his fixed costs are.

11. Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?

a patent

economies of scale

diseconomies of scale

ownership of a scarce factor of production.

12. XYZ Computer Company has a monopoly on the sale of a specialized color printer. If it sells two of these printers its total revenue is $1000, and if it sells three color printers its total revenue is $1600. The marginal revenue of the third color printer sold is

$200

$300

$600

$1300

13. Suppose we know that a monopolist is maximizing its profits. Which of the following must be true? The monopolist has

maximized its total revenue.

set price equal to its average cost.

maximized the difference between marginal revenue and marginal cost.

set marginal revenue equal to marginal cost.

14. Comparing long-run equilibrium in monopoly to that in perfect competition we find that

the monopolist charges higher prices.

output is lower in the perfectly competitive equilibrium.

the monopolist can earn positive profits.

both 1 and 3 are correct.

15. Which of the following is ALWAYS true for a monopolist even if he is not maximizing profits.

P is equal to MC

P is greater than MR

MR is equal to MC

None of the above.

16. Monopolistic competition differs from perfect competition primarily because

in monopolistic competition firms can differentiate their products.

in perfect competition firms can differentiate their products.

in monopolistic competition entry into the industry is blocked.

in monopolistic campetition there are relatively few barriers to entry.

17. The market structure in which the behavior of any given firm depends on the behavior of other firms in the industry is

perfect competition

monopoly

monopolistic competition

oligopoly.

Reference no: EM13192702

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