Question

1. Which of the following is true about a monopoly?

1-) It will always earn economic profit

2-) It will always produce the same as a perfectly competitive firm

3-) It will always be subject to government regulation

4-) Its demand curve is generally less elastic than in more competitive markets

5-) None of these are correct.

2. For its cookies Paradise Bakery has the cost function c(Q) =1/3 Q³, where Q is the number of cookies it can make in one month. If the owner faces a competitive market for cookies, with a price of $100 a case, how many Q will the owner produce?

1-) 0

2-) 9

3-) 10

4-) 11

5-) 12

6-) 15

7-) None of these are correct

3. The relationship between MC and AC can best characterized as:

1-) when AC increases, MC starts to increase.

2-) when MC increases, AC starts to increase.

3-) when MC decreases, AC decreases.

4-) when MC exceeds AC, AC increases.

Answer 1

4-) Its demand curve is generally less elastic than in more competitive markets

Monopoly is a market where there is only one supplier so the supply is limited while in case of perfect competition, there are many suppliers leading to infinite quantity at a particular price. So, demand curve of monopoly is less elastic as compared to competitive firms.

3-) 10

c(Q) =1/3 Q3

MC = MR = AR = price in perfect competition

MC = Q2

Q2 = 100

Quantity = 10 units

3-) when MC decreases, AC decreases.

This can be seen from below given diagram