Principles of Economics (5)

What are the characteristics of a monopoly market?

• one seller and large number of buyers

• no close substitutes

• new market entry is impossible

• price maker

• all the 4 characteristics

Which of the following is correct?

• I is marginal cost curve

• II is average total cost curve

• III is the demand curve (average revenue curve)

• IV is the marginal revenue curve

• all the four statements are correct.

I = MC, II=ATC, III = demand curve, IV = MR. How does a monopoly choose its profit maximizing output and price?

• Choose Q2 and P6 for which MR = MC and P = AR

• Choose Q2 and P4 for which MR = MC and P = ATC

• Choose Q1 and P5 for which MR = ATC and P = ATC

• Choose Q1 and P5 for which MR = ATC and P = ATC

• Choose Q3 and P5 for which MR = minimum of ATC and P = AR

Which of the following is not the feature of monopoly market?

• A single seller and price maker

• No close substitute good and price discrimination

• Price is higher than marginal cost or marginal revenue

• No barriers to entry and/or exit

In monopolistically competitive markets, zero economic profit is associated with:

• inefficient output and excess capacity.

• efficient output and no excess capacity.

• competitive equilibrium because other firms entered the market.

• no deadweight loss

Which of the following is not true? Monopolistic competition is a structure in which:

• A large number of firms compete.

• Each firm differentiate product by quality, price, marketing and branding

• A firm in monopolistic competition can set both its own price and output

• Firms are not free to enter and exit the market.

Which of the following is not true?

• In monopolistic competition, buyers pay a higher price than in perfect competition.

• In monopolistic competition, buyers pay less than firm’s marginal cost.

• Firms in the monopolistic competition market operate with excess capacity in the long run.

• Monopolistically competitive firms make zero economic profit in the long run.

One factor that distinguishes monopolistic competition from perfect competition is that:

• No barriers to entry/exist in monopolistic competition.

• Firms in monopolistic competition can set its own price and output.

• Firms in monopolistic competition make zero economic profit in the long run.

• Close substitutes are available in monopolistic competition.

In monopolistic competition, each firm supplies a ……... part of the total industry output and its actions ……… the actions of the other firms.

• Large; directly affect.

• Small; do not directly affect.

• Small; directly affect.

• Large; do not directly affect.

Explain, using a diagram, why a monopolistically competitive firm is not efficient as a competitive firm even though both firms do not earn an economic profit in the long-run

• It is not productively efficient because the ATC is not at the minimum

• It is not allocative efficiency because the market price is higher than the marginal cost.

• Both are essential parts of the answer.