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Question 1

Multiple choice - select the correct option

A distinguishing feature of a natural monopoly is that:

  1. It is the only supplier in a given market

  2. It will be nationalised

  3. It will always make losses

  4. Its average costs rise continuously with output

  5. Its average costs fall continuously with output


If a monopolist switches from profit maximisation to sales maximisation it will plan to:

  1. Reduce price

  2. Increase price

  3. Reduce output

  4. Increase MR

  5. Increase super-normal profits

Question 3

Price discrimination by a monopolist can only be beneficial if:

  1. Advertising costs do not rise

  2. Price elasticities of demand are the same in both markets

  3. It creates a barrier to entry

  4. Consumers can move freely from one market to another

  5. There is no seepage by consumers between markets

Question 4

Cartels are least likely to be formed when:

  1. There are no barriers to entry

  2. The industry is highly concentrated

  3. There is a weak regulatory regime

  4. The industry is dominated by a few firms

  5. Collusion is easy

Question 5

The profit maximising monopolist will always:

  1. Make profits

  2. Derive economies of scale

  3. Produce at the lowest average total cost

  4. Produce in the elastic portion of the AR curve

  5. Produce up to the point where the extra costs of production are less than the extra sales revenue

Question 6

  1. Using a diagram, and with reference to an example,  explain that is meant by ‘a natural monopoly’.

  2. To what extent should natural monopolies be regulated?