In: Economics
1. We previously discussed the assumptions that define
both competitive and monopoly markets. Which of the following
is/are assumptions that are present in competitive markets but not
present in monopoly markets?
a. Firms are profit maximizers
b. Firms incur marginal costs
c. Price equals marginal revenue
d. Markets are efficient and maximize total surplus
e. c and d are both correct
2. Suppose that the manufacture of widgets involves large economies
of scale. In other words, as the scale of production grows for a
single firm, long run ATC falls. Suppose further that a single firm
enters this market first and invests heavily in capital equipment.
Is this market likely to evolve into a monopoly and if so
why?
a. This market may indeed evolve into a “natural monopoly” because
of the presence of economies of scale and an aggressive and
well-financed first entrant
b. This market cannot evolve into a monopoly because of the absence
of barriers to entry
c. This market will not evolve into a monopoly because firms desire
to maximize total surplus for society and themselves
d. This market will evolve into a monopoly because the government
will likely confer a monopoly right on the first entrant
3. True or false. The law of copyright provides an example of a
government created monopoly.
a. True
b. False
4. Which of the following are differences between competitive and
monopoly markets?
a. Monopoly markets under-produce from societies standpoint
b. Positive economic profits in the long-run are possible in a
monopoly market
c. For competitive firms, price equals marginal revenue
d. All of the above are differences
5. Which of the following best explains the welfare costs (the
inefficiency) of monopoly markets?
a. A monopolist maximizes profits
b. A monopolist under produces such that there are units not
produced for which marginal costs are less than willingness to pay
of consumers (some positive surplus transactions are not
enjoyed)
c. A monopolist charges a price greater than what a competitive
market would charge for the same good
d. None of the above explains the welfare costs imposed by
monopolies
6. Following up on question 5 above, your answer demonstrates which
of the following terms?
a. Perfect competition
b. Consumer surplus
c. Deadweight loss
d. Average total costs
(1) In perfect Competition firm price equals to marginal revenue and average revenue and perfect competition is a market condition where market is fully efficient and produce maximum surplus
so option E is correct
(2) This market is example of natural monopoly and in and there are high barrier to entry
so option A is correct
(3) copyright is not a type of monopoly and government create monopoly where government is a sole a producer of good or service where creation of competition is not easy. above statement is false
so option B is correct
(4)
Monopoly is inefficient because it produce lower amount with higher cost so monopoly
and in long run monopoly can produce economic profit
In perfect Competition firm price equals to marginal revenue and average revenue
so option A B C are correct
so option E is answer
(5) a monopolist work on higher marginal cost with lower output so
A monopolist under produces such that there are units not produced for which marginal costs are less than willingness to pay of consumers
so option B is correct explanation for welfare cost in monopoly market
(6) Loss in welfare demonstrated by dead weight loss
so option C is correct