Question

1- Consider the following characteristics of the market for soup. Which characteristic(s) might allow a seller to hold high market power? (Select all that apply)

There are absolute unit-cost advantages for established firms.

There are no import or export restrictions on soup.

There are many sellers in the soup market.

There are distinctly differentiated soup products in the market.

2- What is the main reason why sellers in monopolistic competition have some market power to adjust the price?

They differentiate their products through advertising and sales.

There are barriers preventing other firms from entering the market.

They are they only sellers in the market.

None of these answers are correct.

3- Which of the following measurements increase in a monopolistic market as compared to a perfectly competitive market? (Select all that apply).

Deadweight loss

Producer surplus

Consumer surplus

Total surplus

4- Select all of the statements that are true about a monopolistic market.

(Hint: it may help to draw the monopoly graph from class)

When profit is maximized, there is no deadweight loss.

The monopolist maximizes revenue by producing where MC=MR.

The equilibrium price occurs where MR=MC

The equilibrium quantity occurs where MR=MC.

5- Imagine that Delaware Foods has a near-monopoly over the meatpacking market in Delaware. Suppose that Delaware Foods decided to fix the price of chicken across the market. This would be illegal due to the:

Capper-Volstead Act

Price-fixing Exclusion Act

Sherman Antitrust Act

Lump-sum tax

Answer 1

1. Option 1 and 4. Because of the cost advantage and differentiated goods, firms gain competitive advantage and hence can gain market power

2. Option 2. Because of differentiated goods firms can price high so that they would gain more profit

3. Option 1 and 3

4. Option 3 and 4

5. Option 3. It was formed to avoid monopolies and forming cartels