Question

A monopoly *

a-Is a firm that sets its own price

b-Has several sellers.

c-Has at least a few sellers.

d-Has many buyers and sellers.

Which of the following statements about a monopoly is FALSE? *

a-A monopoly is the only supplier of the good.

b-Monopolies have no barriers to entry or exit.

c-The good produced by a monopoly has no close substitutes.

d-None of the above; that is, all of the above answers are true statements about a monopoly

The closest example of a monopoly market is *

a-Mercedes Benz

b-Apple phones

c-wheat

d-Electricité du Liban

For a monopolist, the demand curve lies: *

a-Below the supply curve

b-Above the supply curve

c-Below the marginal revenue curve

d-Above the marginal revenue curve

For a monopoly, the industry’s demand curve is the firm's *

a-profit function.

b-marginal revenue curve.

c-supply curve.

d-demand curve.

Answer 1

1. A monopoly :

a. is a firm that sets its own price

Monopolist decides its own price because it has the market power.

2. The following statement about a monopoly is FALSE:

Monopolies have no barriers to entry or exit.

Monopolies have barriers to entry or exit. If new firms enter the industry, the monopolist will not have sole control on the supply.

3. The closest example of a monopoly market is

Electricité du Liban

4. For a monopolist, the demand curve lies:

d. Above the marginal revenue curve

It is because the market demand curve is conditional, the demand curve for a monopolist lies above the marginal revenue curve. For example, if we charge a higher price we would sell a particular quantity say Q1. If we charge a lower price we would sell another quantity, say Q2. When we increase the quantity by one unit, marginal revenue is affected in two ways:

a) we sell one additional unit at the new price,
b) all the previous units, which we sold at the higher price now sell at a low price.

Due to this lower price at which all units sold, the marginal revenue of selling one unit is less than the price of that unit and that's why the demand curve is above the marginal revenue or MR curve is below the demand curve.

5. For a monopoly, the industry’s demand curve is the firm's :

d. demand curve

A monopolist is the only seller for a particular product, so there is no difference between the firm and industry. The industry’s demand curve is the same as firm's demand curve.