Question

(Select all that applies) Select the statements that describe the differences between a monopoly market and a perfectly competitive market.

1. a monopolist has market power while a perfectly competitor does not.
2. unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.
3. monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
4. a monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure.

(Select all that applies) The year is 2278, and the starship Enterprise is running low on dilithium crystals, which are used to regulate the matter/antimatter reactions to propel the ship across the universe. Without the crystals, space-time travel is not possible. If the crystals are government owned or regulated, and the government wants to create the greatest welfare for society, the government should set the price:

1. at monopoly price.
2. so only the rich can afford space-time travel.
3. using the marginal-cost-pricing rule.
4. at the efficient price.
5. so everyone can afford space-time travel.
6. at the profit-maximizing price.

(Select all that applies) Identify the barriers to entry for a Monopoly market.

1. engages in advertising.
2. single seller.
3. standardized product.
4. unique product.
5. economies of scale.
6. many firms in the industry.

Answer 1

Answers:

1.

1. a monopolist has market power while a perfectly competitor does not.
2. unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.
3. a monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure.

2.

1. using the marginal-cost-pricing rule.
2. at the efficient price.

Since government wants to maximize welfare, it will set the price at the efficient price and using marginal cost rule, so that the marginal cost gets recovered.

3. Economies of scale