Barriers to entry can let a firm keep earning economic profits for many years because new competitors cannot come in.
Correct Answer
True
True. Without barriers, profits would attract entrants who would bid them away, but legal, technological or market barriers block that entry and let profits persist.
Category: Barriers to Entry
Question 2
A trademark expires permanently after a fixed number of years, even if the firm keeps using it.
Correct Answer
False
False. A trademark can be renewed again and again for as long as the firm keeps actively using it, unlike a patent, which runs for a fixed term.
Category: Intellectual Property
Question 3
Intellectual property law includes patents, trademarks, copyrights and trade secrets.
Correct Answer
True
True. These four protections together make up intellectual property law, which protects ownership of ideas, inventions, names and creative works rather than physical property.
Category: Intellectual Property
Question 4
Patents give inventors a chance to earn back their research and development costs before rivals can copy the product.
Correct Answer
True
True. By granting temporary exclusive rights, a patent lets the inventor charge a price above cost long enough to recover research and development spending, which encourages innovation.
Category: Intellectual Property
Question 5
In a natural monopoly, splitting the market between two firms would lower the average cost of production.
Correct Answer
False
False. In a natural monopoly, average cost falls over the whole range of market demand, so two firms each producing half the output would have higher average costs than one firm producing it all.
Category: Natural Monopoly
Question 6
Running a second set of water pipes to every home in a city is an example of costly duplication that makes competition in water supply inefficient.
Correct Answer
True
True. A second network would roughly double the infrastructure cost without serving more customers, which is why water supply is a classic natural monopoly.
Category: Natural Monopoly
Question 7
A legal monopoly arises when one firm's costs are so low that no rival can match them.
Correct Answer
False
False. A legal monopoly arises from legal prohibitions against competition, such as a government-granted exclusive right or a regulated utility franchise; low costs that keep rivals out describe a natural monopoly.
Category: Barriers to Entry
Question 8
Large advertising budgets and well-established brand names can discourage new firms from entering a market.
Correct Answer
True
True. A new entrant may need to outspend established firms on advertising to win customers away from familiar brands, which raises the cost of entering.
Category: Barriers to Entry
Question 9
A perfectly competitive firm faces a downward-sloping demand curve for its own output.
Correct Answer
False
False. A perfectly competitive firm is a price taker and faces a horizontal demand curve at the market price; it can sell any quantity it produces at that price.
Category: Monopoly Demand
Question 10
For a perfectly competitive firm, marginal revenue equals the market price.
Correct Answer
True
True. Because the competitive firm can sell each extra unit at the same market price, each additional unit adds exactly that price to total revenue.
Category: Monopoly Demand
Question 11
A monopolist can charge any price it wants and still sell any quantity it wants.
Correct Answer
False
False. A monopolist can choose its price, but the market demand curve limits how much it can sell at that price; selling more requires charging less.
Category: Monopoly Demand
Question 12
Because a monopolist is the only seller of its product, it does not have to match a competitor's price for that product.
Correct Answer
True
True. A monopolist has no current rival selling the same good, so there is no competitor's price to match. Its pricing is limited instead by the market demand curve, since a higher price means buyers purchase fewer units.
Category: Monopoly Demand
Question 13
For a straight-line demand curve, the marginal revenue curve starts at a higher vertical intercept than the demand curve.
Correct Answer
False
False. The marginal revenue curve starts at the same vertical intercept as the demand curve and then falls twice as steeply.
Category: Monopoly Revenue
Question 14
The output that maximizes a monopolist's total revenue is generally different from the output that maximizes its profit.
Correct Answer
True
True. Total revenue peaks where marginal revenue is zero, but profit also depends on costs, so with positive marginal cost the profit-maximizing output is smaller.
Category: Profit Maximization
Question 15
A trade secret, like a patent, loses its legal protection after 20 years.
Correct Answer
False
False. A trade secret has no set expiration date; it stays protected for as long as the firm keeps the information secret, as with a soft drink formula. A patent, by contrast, normally lasts 20 years, after which anyone may use the invention.
Category: Intellectual Property
Question 16
Allocative efficiency occurs where the marginal benefit to society of the last unit produced equals its marginal cost.
Correct Answer
True
True. At that point no reallocation of resources toward or away from the good could make society better off, which is the meaning of allocative efficiency.
Category: Monopoly Efficiency
Question 17
Because a monopolist sets price above marginal cost, it produces more output than is socially efficient.
Correct Answer
False
False. A monopolist produces less output than is socially efficient; at its chosen quantity, buyers still value another unit more than it would cost to produce.
Category: Monopoly Efficiency
Question 18
Economists worry that a monopolist protected by barriers to entry may have little incentive to innovate or cut costs.
Correct Answer
True
True. Without competitors threatening its sales, a protected monopolist faces less pressure to improve its product or efficiency, which is why some economists say the best monopoly profit is a quiet life.
Category: Monopoly Efficiency
Question 19
Economies of scale mean that a firm's average cost rises as it produces more output.
Correct Answer
False
False. Economies of scale mean that average cost falls as output increases; when these economies are large relative to market demand, one firm can serve the market most cheaply.
Category: Natural Monopoly
Question 20
A copyright protects an inventor's new machine or production process.
Correct Answer
False
False. A new machine or production process is protected by a patent; copyright protects original creative works such as books, music and art.
Category: Intellectual Property