ECO1010F/ECO1110F/ECO1008F Monopoly & Monopolistic Competition Practice Questions

Flashcards based on the practice questions for monopoly and monopolistic competition.

A profit maximizing monopolist will produce

In the elastic range of its demand curve

A monopoly will emerge naturally whenever

Economies of scale are large relative to market demand

The marginal revenue curve of a non-price-discriminating monopolist is steeper than the demand curve faced by that monopolist because

Selling more requires lowering the price of all units sold

A profit-maximizing monopolist will unavoidably incur economic losses if, at every feasible level of output

Average total costs lie above the demand curve

Assuming that marginal revenue equals R4 and marginal cost equals R5, a monopolist could increase profits by

Increasing price and decreasing output

A monopolist maximizes its total revenue where marginal revenue

Is zero

Most monopolists that continue to operate in the long run are able to charge a price

Greater than minimum average total costs

Price discrimination in the sale of a good implies charging different prices which

Do not reflect differences in production costs

Natural monopolies arise primarily because of

Decreasing long-run average costs

A profit-maximizing monopolist will unavoidably incur economic losses if, at every feasible level of output

Average total costs lie above the demand curve

A monopolist maximizes its total revenue where marginal revenue

Is zero

Should a perfectly competitive industry suddenly become a monopoly, we would expect there to be a(n) ………… in the price, a(n) ………………… in consumer surplus and a(n)………………… in producer surplus.

Increase; decrease; increase

The “Deadweight Loss” of a monopoly

1. results from the difference in output between the monopolistic and competitive equilibria in an industry
2. is the loss of welfare imposed on society by the monopoly
3. is the loss of consumer surplus imposed on society by the monopoly
4. is the net surplus lost, from both consumers and producers, as a result of monopoly

1, 2 and 4 are true

The aim of product development and advertisement is to

Reduce the price elasticity of the demand curve

Under monopolistic competition the firm will earn ……….. in the short run and ……………… profits in the long run.

Economic profits or losses; normal

The reason a monopolistically competitive firm has a downward sloping demand curve is

Because due to product differentiation the firm is able to raise their price and not lose all their demand

In the long run, in which of the following types of markets would a firm produce 100 units when maximizing profit?

Monopolistic competition

Under the assumptions of monopolistic competition,

Each firm can set the price of its particular good or service.

Monopolistic competition is characterized by a relatively number of sellers producing _ products and engaging in extensive __ competition.

Large, differentiated, non-price