Question

An important economic problem associated with monopolies is that, at the profit-maximizing equilibrium rate of output, resources are

there are no economic problems re monopolies; it's all in your head

wasted and firms always charge any price (typically the highest possible) they want

underallocated (i.e., not enough is being made) because marginal cost exceeds price

underallocated because price exceeds marginal cost

overallocated (1.e., too much is being made) because price exceeds marginal cost

The demand curve facing a firm will be more elastic,

the more differentiated the product

the larger the economic profit

if there are barriers to entry

the fewer the substitutes there are for its product

the greater the number of firms

Which of the following basically gives monopolistic competitors "market power"?

the ability to charge different prices to different consumers

the ability to differentiate its product from other firms in the market

nothing, because monopolistic competitors are price takers with no market power

barriers to entry

a downward sloping demand curve

Answer 1

1. option D IS CORRECT.

monopoly's profit maximising level of output is attained at a point where the marginal cost equals marginal revenue. thus P>MC, underallocation of resources.

2. option E is correct

elastic demand implies a slight change in price brings about a larger change in demand. More number of firms implies price change is very sensitive.

3. Option B is correct.

Only product differentiation makes a difference between monopolistic and perfect competition markets.