Question

1)

At the profit-maximizing level of output, for both a pure monopolist and a purely competitive firm, which of the following is true:

	a.	marginal revenue equals average total cost.
	b.	marginal revenue equals average variable cost.
	c.	marginal revenue equals marginal cost.
	d.	average revenue equals average total cost.

2)

Which of the following is not an example of why markets may not provide efficient outcomes:

	a.	A natural monopoly such as the distribution of electricity to homes and businesses.
	b.	A situation where one firm owns all of the resources necessary to produce a product.
	c.	The production, marketing and sales of pencils.
	d.	A public good such as police protection.

3)

Answer 1

1) (c) Marginal revenue equals marginal cost2)b) A situation where one firm owns all of the resources necessary to produce a prouct

resaons

(i) it leads to market failure as the price is high and quantity is low,

(ii)it creates dead weight loss by charging high price and giving low quantity therefore, less economic welfare leading to low consumer surplus.