ECO101H1 Lecture Notes - Perfect Competition, Monopoly Price, Demand Curve

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To sell an additional unit of output, monopolist must lower price. Perfectly competitive firm can sell an additional unit of output at unchanged price. Answer: the demand curve identifies the price the monopolist must set to sell output q. Answer: if p > atc, monopolist earns economic profits (if p < atc, monopolist suffers economic loss and will eventually leave industry) Remember: because there are barriers to entry, monopolist may earn economic profits in the long run. Profit maximizing output: monopolist chooses profit-maximizing output (qm) where mr = mc. At q1, mr > mc => expand output. At q2, mr < mc => contract output. To sell qm, monopolist must charge price pm. At qm, p > atc => economic profits. The market for pubs is perfectly competitive and in long run equilibrium. One pub owner buys all of the other pubs, and (thus) has a monopoly. Market ss = sum of firms" ss schedules.

Related Questions

1. A monopolist can increase profits by decreasing production if its currently producing at a point where:

Select one:

P = MC

P > MC

P < MR

MR = MC

2. The reason a monopoly creates a deadweight loss is that a monopolist charges a price that is _________ marginal cost.

Select one:

the same as

greater than

less than

None of the other choices is correct

3. A monopolist maximizes profits when it produces an output at the point where:

Select one:

None of the other choices is correct

P > MC

P = MC

MR > MC

P < MR

4. A monopolist knows an increase in price will have no impact on total revenue when its price elasticity of demand is:

Select one:

price inelastic

perfectly elastic

price elastic

equal to 1 (in absolute terms)

coppertoad717

6. Power Printers Total Costs (per hour)

q TC

0 65

1 80

2 95

3 120

4 150

5 200

If the price of a printer is $50 in this perfectly competitive industry, what is the profit-maximizing rate of output?

7. Which of the following is NOT true in a perfectly competitive market?

a. There is free entry and exit into the industry.

b. Each firm produces a differentiated product.

c. Each firm faces a perfectly elastic demand curve.

d. Price is equal to marginal revenue at every output level for the firm.

8. A perfectly competitive firm should always continue to operate in the short run as long as:

a. P < ATC at the rate of output where MR = MC.

b. P < AVC at the rate of output where MR = MC.

c. MR > AVC at the rate of output where MR = MC.

d. MR > AFC at the rate of output where MR = MC.

9. A firm that makes zero economic profits:

a. Must eventually go bankrupt.

b. Should shut down.

c. Incurs a loss, but should not shut down.

d. Covers all its costs, including a provision for normal profit.

10. A monopoly firm is different from a competitive firm in that:

A. There are many substitutes for the monopolistâs product whereas the competitive firmâs demand curve is perfectly elastic.

B. The monopolistâs demand curve is perfectly inelastic, whereas the competitive firmâs demand curve is perfectly elastic.

C. The monopolist can influence the price in the market, whereas the competitive firm is a price taker.

D. All of the above

taupewombat30

45) A firm in a perfectly competitive industry is maximizing its economic profit by producing 500 units of output. At 500 units of output, which one of the following must be false? A) MR< ATC B) MC ATC D) MR > AVC E) MC< ATC

ECO101H1 Lecture Notes - Perfect Competition, Monopoly Price, Demand Curve

ECO101H1 Full Course Notes

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