Econ 4.1 Reading Questions, 2025-26

Using the reading, explain how prices and output in your local community might change if a perfectly competitive industry became a monopoly.
a. Define both "perfect competition" and "monopoly" using the reading.
b. Describe two specific effects this change might have on consumers or producers in your local area.
c. Explain how this example illustrates the relationship between market structure and resource allocation.

Compare the way monopolists and perfectly competitive firms determine how much to produce and at what price.
a. Identify and define the profit-maximizing rule (MR = MC) and explain how it applies to both market types.
b. Describe how the demand curve affects pricing decisions in a monopoly versus perfect competition.
c. Analyze the implications of these differences for consumer access and pricing fairness.

Imagine you’re explaining monopoly pricing to someone who thinks businesses always set prices based solely on their costs.
a. Use the concepts of marginal revenue and price effect from the reading to explain why monopolists price differently.
b. Provide two examples (real or hypothetical) that show how a monopolist’s pricing behavior differs from competitive firms.
c. Reflect on how understanding marginal revenue might shift your peer’s perspective on business pricing strategies.

Evaluate the claim that monopolies reduce economic welfare compared to competitive markets.
a. Define “economic welfare” in the context of prices and output.
b. Use the reading’s example of De Beers to provide one piece of evidence supporting this claim.
c. Conclude by stating whether you agree or disagree with the claim and justify your position using reasoning from the text.

Consider how the monopolist’s need to lower prices to sell additional units affects total revenue.
a. Define the quantity effect and price effect using the reading.
b. Use the De Beers diamond example to describe how selling the 10th diamond affects revenue.
c. Analyze how these opposing effects shape the monopolist’s decision about how much to produce.

The reading discusses how the monopolist’s demand curve and marginal revenue curve differ. Why is this difference important for understanding monopolistic behavior?
a. Define both demand curve and marginal revenue curve in your own words, based on the reading.
b. Explain how the gap (“wedge”) between them influences profit-maximizing decisions.
c. Provide an example of how this knowledge could help consumers or regulators understand monopoly pricing.

Imagine a new tech company becomes the only provider of a popular software and faces no competition. Predict how its behavior will change compared to when it operated in a competitive market.
a. Define a “monopolist” and explain how its incentives differ from firms in perfect competition.
b. Predict how the quantity produced and the price charged might change.
c. Argue whether this shift would benefit or harm consumers overall, citing concepts from the reading.

The reading implies that monopolies can lead to long-term profits due to barriers to entry. What does this suggest about the role of government in markets?
a. Identify and define what “barriers to entry” mean in this context.
b. Provide one real-world or hypothetical example where government regulation might reduce the harm of monopoly power.
c. Reflect on how your understanding of monopolies might affect your views on consumer rights or antitrust policies.