Question

1. In a monopoly:

a. Abnormal profits can only be earned in the short run

b. A firm produces where total revenue equals total costs

c. There are many firms competing

d. There are barriers to entry

2. In monopolistic competition...

a. firms may not increase price without losing all sales

b. firms can easily exit the market in the short-run before economic losses occur

c. firms work together to maximize profits

d. firms may realize positive economic profits in the short-run

3. In monopolistic competition...

a. a few firms dominate the market

b. firms face a horizontal demand curve

c. there is entry and exit in the long run

d. only normal profits can be earned in the short run

3. In a cartel...

a. firms compete against each other

b. firms act together as if they were a monopolist

c. each firm inevitably profit maximizes

d. only normal profits can be made

4. In oligopoly...

a. a few firms dominate the market

b. one firm dominates the market

c. firms always collude

d. the products of firms are identical

Answer 1

1.

A monopoly firm is a single seller because there are barriers to entry. In a pure monopoly industry, there is a single firm. The barriers to entry are those factors which lead to the restriction of entry by the new firms. These are patent laws that restrict the entry of new firms. License and copyrights are also an example of barriers to entry.

A monopolist firm is a maker and profit-maximizing condition is

MR=MC

Corresponding to this condition profit-maximizing quantity is determined.

Hence in a monopoly there are barriers to entry.

Hence option d is the correct answer.

2.

Since a monopolistic firm is that form of market in which there is large number of buyers and sellers and firm sells differentiated product based on quality, size, shape etc, therefore product is not homogeneous. Since firm is price maker but firm does not compete on the price but they compete in the market based on size, quantity quality etc. In short-run a monopolistic competitive firm profit-maximizing condition is

MR=MC

In the monopolistically competitive market, firm does not change price but uses non-price factors for affecting their sales. But in this market firm can earn positive economic profit in the short-run.

Hence option d is the correct answer.

3.

Since a monopolistic firm is that form of market in which there is large number of buyers and sellers and firm sells differentiated product based on quality, size, shape etc, therefore product is not homogeneous. Since firm is price maker but firm does not compete on the price but they compete in the market based on size, quantity quality etc. In short-run a monopolistic competitive firm profit-maximizing condition is

MR=MC

In the monopolistically competitive market, firm does not change price but uses non-price factors for affecting their sales. But in this market firm can earn positive economic profit in the short-run.

In this market, firm may earn economic profit or economic loss in the short-run but in the long-run firm earns only normal profit or zero economic profit. Hence those firms which are bearing loss can exit market and if existing firm is earning profit, new firm can enter in the market in the long-run. Hence there is entry and exit in the long-run.

Hence option c is the correct answer.

4.

In case of cartel, few large Oligopolist firms comes together and reduce competition for maximizing joint profit. Hence they are able to charge higher prices by controlling quantity.

Hence in a cartel firms act together as if they were a monopolist.

Hence option b is the correct answer.

5.

Since in the oligopoly there are few firms who control whole markets, therefore in this market structure firms are dependent on the action of their rival firms.

There are many kinds of oligopoly firms

Cournot duopoly, Bertrand Duopoly and Stackelberg Duopoly, cartel. The aim of these kind of oligopoly is to maximize their profit.

Hence it can be said that in oligopoly a few firms dominate the market.

Hence option a is the correct answer.