Question

1. What is a price maker? illustrate with good examples

2. A monopolist faces the following demand schedule, Compute the price that maximizes profit. Explain your answer

3.For a monopolist, when does marginal revenue exceed average revenue?

Never

When output is less than the profit-maximizing level of output

When output is greater than the profit-maximizing level of output

For all levels of output greater than zero

4. Which of the following companies most closely approximates a monopolistic competitor?

Subway Sandwiches

Microsoft company

Etisalat company

None of the above

5. The arrangement among producers and processors to make their business decisions jointly is called

Collusive oligopoly.

A marketing order.

Non-price competition

None of the above

Answer 1

1) Price makers are producers who have market power and can influence the price of the product in the market. They face a downward sloping demand curve. Price makers are part of imperfectly competitive markets. For example consider a market where there is only a single seller for a particular product and the product does not have close substitute. This market is called a monopoly market and the single seller act as a price maker in the market because he can determine the price of his product and buyers have no other alternate available to them. Similarly the airline manufacturing industry is an oligopoly market with few large sellers dominating the market. They have enough market power that they can fix the price of an airline and are price makers.