Question

Please answer the following questions:

1) List the five characteristics of pure monopoly.

2) Describe the demand curve facing a pure monopoly and how it differs from that facing a firm in a purely competitive market.

3) Explain why the marginal revenue is equal to the price in pure competition but not in monopoly.

4) Use the chart to solve the following:

Calculate the Marginal Cost at Q 100?

Calculate the Marginal Cost at Q 200?

Calculate the Marginal Cost at Q 300?

Calculate the Average Total Cost at Q 100?

Calculate the Average Total Cost at Q 200?

Calculate the Average Total Cost at Q 300?

Q	P=D	TC
0	$10.00	$1,000
100	$20.00	$2,500
200	$30.00	$4,500

300

$40.00

$7,500

Answer 1

1) Characteristic of pure monopoly:

SINGLE SELLER: There is a single seller in the entire industry.

PRICE SETTER: Due to monopoly power, it sets its price itself.

MR=MC: The equilibrium condition is where MR = MC.

MARKUP: The price is well above the marginal cost by the amount of markup.

BARRIERS TO ENTRY: Due to market structure, there are high barriers to entry in case of monopoly.

2) The demand curve faced by perfectly competitive market is perfectly elastic. It means that unlimited amount can be supplied at the prevailing market price. The demand curve faced by monopoly is the market demand curve. In this, more output can be sold only by reducing the price level.

3) The P=MC is the equilibrium condition of perfect competittve market. This is because firms are price takers. At the given price, profit is maximized at P=MC. on the other hand, in case of monopoly, equilibrium condition is MR=MC and not P=MC. This is because the profit of monopoly is maximized at MR=MC.

4)

QUANTITY	MARGINAL COST	AVERAGE COST
100	$1500	$25
200	$2000	$22.5
300	$3000	$25