Question

Write down whether the statement below is True or False. Explain why.

1. The requirement to get the maximum profit for a monopolist is P> (MC = MR). Monopolist is a "price maker" because there are no other competitors in the market that they do. In the monopolist market, if the MC curve is linear with a positive slope, then "deadweight social loss" that occurs is only a "consumer surplus" that is lost, consumers are disadvantaged in this case.
2. The basic requirements that must be met in a price discrimination policy so that the effective (a) market can be distinguished by its behavior, different demand elasticities and (b) market separation must be truly effective, goods purchased at low prices cannot be sold in market segments the price is higher.
3. The existence of negative externalities, such as pollution, causes social marginal costs to be higher than private marginal costs so that the optimal output quantity produced is smaller than the quantity of output produced by the market.
4. In the Structure-Conduct-Performance (SCP) approach, the view of "Feedback Critique" believes that there is no one-way causal relationship between the structure, conduct and performance.
5. The HH index is one measure that can be used to determine the concentration level of a market in an industry. One researcher found that the HH index of an industry is greater than 10000, so the market studied has a strict oligopoly structure.

Answer 1

1.A For the Maximum Profit, MC = MR. For the monopolist to earn Supernormal profits, P should be > (MC=MR). Hence, True.

1. B. In a monopoly, as there is a single producer, the price determination depends on the whims of the monopolist. Hence, its called the Price maker orientation. True

1.C If the deadweight loss is only the loss of Consumer Surplus, then Consumers are at a disadvantage. Although, the Deadweight loss is made up of both CS and PS. If CS is reduced, then Consumer is at loss and Producer is at gain. IF PS is reduced, then Consumer at gain and Producer has loss.

2. For the Price discrimination to be effective, the supply should be controlled and the producer must make sure that the goods can't be resold by the buyer. This is ensured by making the segments of differing price elasticities.

3. Due to the negative externality, society as a whole has more to lose with each new product than the private entity producing it. In such a scenario, the optimal quantity is lower than the produced quantity while the socially optimal price is higher than the equilibrium price. Consider Pollution as a cost incurred by the society, To counter this, we use Pigouvian tax equal to the extent of externality. Hence, True.

4. True. The fundamentals of Feedback critique are - No One-way Causal Link which means Conduct can affect market structure and Performance can affect Structure as well as conduct.

5. HHI is a measure of concentration equal to the sum of squares of the market share of all firms. For the HHI = 10000. It indicated, One firm has 100% market share which is a condition for Strict Monopoly. Hence, False.