Question

Help with 5-7 please.

5. Which of the diagrams correctly portrays a non-discriminating pure monopolist's demand (D) and marginal revenue (MR) curves? DEMR DEMR Q MR DOO (A) (B) (C) D MRQ (D) 6. The MR = MC rule: A. Applies only to pure competition. B. Applies only to pure monopoly. C. Applies to both pure monopoly and pure competition. D. Does not apply to pure monopoly because price exceeds marginal revenue. 7. In the short run, a monopolist's economic profits: A. Are always positive because the monopolist is a price-maker. B. Are usually negative because of government price regulation, C. Are always zero because consumers prefer to buy from competitive sellers D. May be positive or negative depending on market demand and cost conditions

Answer 1

5. Answer: (B)

A non-discriminating pure monopolist's demand curve lies above its marginal revenue curve.

6. Answer: C. Applies both to pure monopoly and pure competition.

Marginal cost is equal to marginal revenue is the profit maximization rule applicable to both pure monopoly and pure competition. Profit is maximum when marginal cost is equal to marginal revenue. Marginal revenue is the addition made to the total revenue by selling one more unit of a commodity. Marginal cost is the addition made to the total cost by producing one more unit of a commodity.

7. Answer: D. May be positive or negative depending on market demand and cost conditions.

If the monopoly is making economic profits, the short run and the long run are the same. Economic profit is based on the demand and cost conditions.