Lesson 3.4.5

3.4.5 Monopoly Quiz: Pearson Edexcel Economics A, Unit 3

20 questions

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Lesson 3.4.5, Monopoly: 20 multiple choice questions for the Pearson Edexcel Economics A (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. Which best describes a monopoly?

    • A few sellers that are interdependent in their pricing decisions
    • A seller whose demand curve is perfectly elastic at the market price
    • A single seller with significant barriers to entry and no close substitutes
    • Many sellers offering identical products in a competitive market

  2. A monopolist maximises profit by producing where:

    • MC equals MR, and price is read off the demand curve at that output
    • Output is at the minimum point of average total cost
    • Price equals marginal cost at the chosen output
    • Average revenue equals marginal revenue at all outputs

  3. At a monopoly's profit-maximising output, which statement is true?

    • Marginal revenue equals price at every output the firm can choose
    • Output is at the minimum point of ATC, so productive efficiency holds
    • Price equals marginal cost, so allocative efficiency is achieved
    • Price is above marginal cost, so allocative efficiency is not achieved

  4. Third-degree price discrimination means:

    • Charging the same price to all buyers in every market
    • Charging a price equal to marginal cost to every customer
    • Charging different prices to groups with different price elasticities of demand, where the market can be separated
    • Setting price based on cost alone, ignoring demand

  5. Which condition is necessary for third-degree price discrimination?

    • Market power, the ability to separate markets, and different elasticities of demand between groups
    • Government price controls that fix the price for every group
    • Perfect competition and many identical buyers in each group
    • Free entry and identical elasticities across all buyer groups

  6. A cinema charges students less for tickets than other adults. Which pricing strategy is this?

    • Limit pricing aimed at deterring entry into the cinema market
    • Third-degree price discrimination, based on group elasticity
    • Cartel pricing agreed between cinemas in the same area
    • Predatory pricing aimed at driving rivals out of the market

  7. A natural monopoly arises when:

    • The government creates a legal monopoly by licence in the market
    • There are many small firms competing for the same customers
    • Demand is perfectly elastic at the market price for the product
    • Economies of scale are so large that one firm can supply the whole market at the lowest cost

  8. What is a main cost of monopoly to consumers?

    • Higher prices and lower output than under perfect competition
    • No change in welfare, since monopoly does not affect consumers
    • Lower prices and higher output than under perfect competition
    • Greater variety and lower prices in every market at all times

  9. What is a benefit of monopoly to firms?

    • No risk from competition at any time in the market
    • Supernormal profit can fund investment and research and development
    • Lower wages are always paid to workers in the firm
    • Lower average costs are automatically guaranteed by market power

  10. How can a monopolist's dominance affect its suppliers?

    • Suppliers always receive higher prices from the monopolist
    • Suppliers gain full market power whenever a monopolist exists
    • Suppliers have unlimited buyers for their products
    • Suppliers may have fewer alternative buyers, so the monopolist can dictate terms

  11. A monopolist faces P = 100 - 2Q and MC = 20. What are the profit-maximising output and price?

    • Q = 25 and P = 50
    • Q = 20 and P = 60
    • Q = 40 and P = 20
    • Q = 10 and P = 80

  12. Using the same monopolist (P = 100 - 2Q, MC = 20), what is the allocatively efficient output where P = MC?

    • Q = 20
    • Q = 80
    • Q = 40
    • Q = 50

  13. A monopolist's supernormal profit may persist because:

    • High barriers to entry stop rivals from competing the profit away
    • Marginal revenue is always above price for the monopolist
    • Demand for its product is perfectly elastic at every price
    • The product is homogeneous and rivals cannot differentiate it

  14. Why is a monopolist's marginal revenue below its price?

    • Because MR equals price at every output the monopolist produces
    • Because MR is always above the price in every market
    • Because the price is set by government in every monopoly market
    • Because it faces a downward sloping demand, so cutting price to sell more lowers the price of all units

  15. Why might a regulator set a price at average cost for a natural monopoly?

    • Average cost pricing equals marginal revenue at all outputs
    • Average cost pricing is required by law in every market
    • Marginal cost is always above average cost in every natural monopoly
    • Marginal cost pricing would cause losses because MC is below ATC for a natural monopoly

  16. Evaluate the claim: 'Monopoly is always bad for consumers.'

    • True in every case, since monopolies always set prices at the highest level
    • False, since monopolies never set prices at all in any market
    • Overstated: monopoly can raise prices and cut output, but scale and dynamic benefits may offset this in some cases
    • True, because monopolies have no costs of production

  17. A monopolist faces P = 50 - Q with MC = 10. What are the profit-maximising output and price?

    • Q = 20 and P = 30
    • Q = 10 and P = 40
    • Q = 25 and P = 25
    • Q = 40 and P = 10

  18. Using the monopolist in the previous case (P = 50 - Q, Q = 20, P = 30), what is consumer surplus?

    • £100
    • £400
    • £600
    • £200

  19. A monopolist sells to two groups. Group A has PED -2 and group B has PED -4. Which group pays the higher price?

    • Neither group pays a price because the monopolist gives the good away
    • Group A, whose demand is less elastic (PED -2)
    • Both groups pay the same price under discrimination
    • Group B, because PED -4 means demand is less elastic

  20. Why might price discrimination benefit some consumers?

    • Some groups who would be priced out at a single price gain access to the good at a lower price
    • It always raises prices for every buyer in every market
    • It reduces output to zero in the market
    • It has no effect on any buyer in any market

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