Market Power Review Quiz

Firm A is producing at a level of output Q1, which is equal to 1500 units per month, and its costs and revenues are shown in Table 1.

Using the data in Table 1, state the reason why Firm A is operating in a perfectly competitive market.

Figure 2 illustrates a perfectly competitive market in equilibrium and a perfectly competitive firm operating in this market. S is supply, D is demand, Po is the short-run equilibrium price, Qo is the short-run equilibrium quantity, MC is marginal cost, ATC is average total cost, AR is average revenue, MR is marginal revenue.

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Firm B is a monopoly producer of diamonds. Figure 3 illustrates its demand (D), marginal

revenue (MR), average total cost (ATC) and marginal cost (MC) curves at different output levels.

Using Figure 3, calculate the profit when Firm B is maximizing its profits.

Mathematical Equivalence

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