ECO101H1 Chapter Notes - Chapter 10: Joseph Schumpeter, Natural Monopoly, Demand Curve

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Monopoly: a market containing a single firm. Monopolist: a firm that is the only seller in a market. Unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve. Since the demand curve shows the price of the product, d curve = ar curve. The monopolist"s mr is less than the price at which it sells its output. Thus the monopolist"s mr curve is below its demand curve. When mr > 0, > 1. When mr < 0, < 1. A profit-maximizing firm will always produce on the elastic portion of its demand curve (more precisely where mr = mc). Nothing guarantees that a monopolist will make positive profits in the short run, but if it suffers persistent losses, it will eventually go out of business. A monopolist does not have a supply curve because it is not a price taker; it chooses its profit-maximizing price-quantity combination from among the possible combinations on the market demand curve.

Related Questions

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

QUESTION 22

For a perfectly competitive firm, profit maximization (or loss minimization) occurs at the level of output at which

	a.	MR = MC.
	b.	MR = AVC.
	c.	P = ATC.
	d.	MR = ATC.

4 points

QUESTION 23

If MR > MC, then

	a.	profits are being maximized.
	b.	the firm is producing too much of the good to be maximizing profits.
	c.	the firm can increase its profits (or minimize its losses) by increasing output.
	d.	the firm must be incurring losses.

4 points

QUESTION 24

If firms are earning zero economic profits, they must be producing at an output level at which

	a.	price minus marginal cost.
	b.	total revenue equals total costs, in other words, normal profits.
	c.	price equals average variable cost.
	d.	marginal revenue equals marginal cost.
	e.	none of the above

4 points

QUESTION 25

In the theory of perfect competition,

	a.	the market demand curve is horizontal.
	b.	the single firm faces a horizontal demand curve.
	c.	the single firm faces a downward-sloping demand curve.
	d.	the market demand curve is downward sloping.
	e.	b and d

azureshark954

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

ECO101H1 Chapter Notes - Chapter 10: Joseph Schumpeter, Natural Monopoly, Demand Curve

ECO101H1 Full Course Notes

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