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The model of monopoly - self-test questions

question

1
Monopoly

Choose appropriate options below to make up an appropriate paragraph describing the characteristics of monopoly.

Under , can only exist in the , as in the new firms are attracted into the industry and the abnormal profits are competed away as the market supply curve shifts to the right and the market price falls. However, under new firms are unable to enter the market as there are various which are the very source of monopoly power. Thus a single firm may remain the only supplier, and supernormal profits may persist in both the short and long run; in monopoly, there is therefore no distinction between short and long run equilibrium.

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2
Monopoly

Which of the following are true in monopoly? (Select all responses that are correct)

a)
b)
c)
d)
e)
f)
a) Yes, that's correct. The monopolist can set EITHER price OR output but not both.a) No, that's not right. The monopolist can set EITHER price OR output but not both.b) Yes, that's correct. The monopolist can make supernormal profits in both the short run and long run thanks to barriers to entry.b) No, that's not right. The monopolist can make supernormal profits in both the short run and long run thanks to barriers to entry.c) Yes, that's correct. The monopolist faces the market demand curve.c) No, that's not right. The monopolist faces the market demand curve.d) Yes, that's correct. Though a monopolist CAN make supernormal profits, these are not guaranteed.d) No, that's not right. Though a monopolist CAN make supernormal profits, these are not guaranteed.e) Yes, that's correct. Barriers to entry enable the firm to protect their supernormal profits in the long run.e) No, that's not right. Barriers to entry enable the firm to protect their supernormal profits in the long run.f) Yes, that's correct. The monopolist will always produce on the section of the demand curve that is elastic.f) No, that's not right. The monopolist will always produce on the section of the demand curve that is elastic.
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3
Output levels - Monopoly

At which output level in the diagram below will the monopolist produce to maximise profits?

monop_output_level

a)
b)
c)
d)
e)
Please select an answerYes, that's correct. Profits are maximised where MC=MR.No, that's not right. This is the point where the firm will be productively efficient (minimum of average cost).No, that's not right. This is the point where the firm will be allocatively efficient (MC=price).No, that's not right. This is where total revenue will be maximised (MR=zero).No, that's not right. This is where the firm will make normal profits (AC=AR).
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4
Output levels - Monopoly

At which output level in the diagram below will the monopolist produce to maximise revenue?

monop_output_level

a)
b)
c)
d)
e)
Please select an answerNo, that's not right. Profits are maximised where MC=MR.No, that's not right. This is the point where the firm will be productively efficient (minimum of average cost).No, that's not right. This is the point where the firm will be allocatively efficient (MC=price).Yes, that's correct. This is where total revenue will be maximised (MR=zero).No, that's not right. This is where the firm will make normal profits (AC=AR).
Check your answer