Question

In: Economics

1. Compared to a perfectly competitive market, a market with a monopoly firm will _____. This...

1. Compared to a perfectly competitive market, a market with a monopoly firm will _____. This is because monopoly firms have _____

A) always trade a higher quantity; no need to consider consumer demand

B) have a lower quantity traded and a market product price; the ability to set prices

C)have a lower quantity traded and the same market price; no ability to set prices

D) have the same quantity traded and a lower price; no ability to increase or decrease prices

2. Marginal utility

A) tends to decline beyond some level of consumption during a given time period

B) is unrelated to total utility

C) is equal to total utility at all points of consumption

D) always increases at an increasing rate

Solutions

Expert Solution

Answer 1.            Option B is correct i.e. have a lower quantity traded and a market product price; the ability to set prices.

In monopoly market, the firm has the power to set price or quantity but not both. Since the objective of the firm is to maximize profit, the firm ends up charging higher price and thus producing lower quantity as compared to the situation in perfectly competitive market.

Answer 2.            Option A is correct i.e. tends to decline beyond some level of consumption during a given time period

Law of diminishing marginal utility states that after a point of time, as you consume more of kind of commodity, marginal utility starts decreasing or total utility increases but a decreasing rate.

{Marginal utility is the addition to the total utility when one more unit of a commodity is consumed.}


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