Monopoly and Market Power Quiz

What is the key characteristic of a monopoly?

• Many producers

• A single producer

• Free entry and exit

• No control over prices

Why do monopolies have market power?

• They face competition from many firms

• They can set prices without concern for substitutes

• Consumers have many alternative products to choose from

• They sell identical products as competitors

What is an example of a natural monopoly?

• A local grocery store

• A power plant

• A clothing brand

• A coffee shop

Which of the following is a barrier to entry in a monopoly?

• High consumer demand

• Legal protections like patents

• Low production costs

• Many substitute products

What happens when a monopolist lowers its price to sell more units?

• Marginal revenue increases at a constant rate

• Price and marginal revenue remain equal

• Marginal revenue decreases because of price cuts on previous units

• Demand for the product becomes perfectly inelastic

Why does a monopoly fail to achieve allocative efficiency?

• It produces at a point where P > MC

• It produces at the minimum ATC

• It sets output where MR = MC

• It allows easy entry of new firms

Which of the following is an example of price discrimination?

• A movie theater charging the same price for all tickets

• A grocery store selling all products at a single price

• An airline charging different prices based on booking time

• A clothing brand having one fixed price for all sizes

Why do monopolists avoid producing in the inelastic portion of the demand curve?

• Total revenue decreases in this region

• Demand is highest in this region

• Marginal revenue becomes positive in this region

• It leads to productive efficiency

What condition must exist for price discrimination to be successful?

• Consumers must be unable to resell the product

• Consumers must all have the same willingness to pay

• The firm must not have monopoly power

• The firm must allow free market entry

How does a monopoly affect consumer surplus?

• Consumer surplus remains the same as in perfect competition

• Consumer surplus increases, benefiting consumers

• Consumer surplus decreases as it is transferred to the monopolist as profit

• Consumer surplus is unaffected by price discrimination