Question

Which market structure can earn long-run economic profits?

	a.	Perfect competition
	b.	Monopolistic competition
	c.	Oligopoly
	d.	Monopoly
	e.	c and d only

All firms produce where

	a.	marginal benefits are greater than marginal profits
	b.	short-run profits are less than long-run profits
	c.	marginal revenues are greater than or equal to marginal costs
	d.	average total costs are greater than marginal costs

A perfect competitor is a __________ and can earn economic profits ____________.

	a.	price maker, in both the short run and long run
	b.	price taker, in both the short run and long run
	c.	price taker, in only the short run
	d.	price maker, never
	e.	price maker, in only the long run

Economic profit

	a.	does not exist in competitive markets.
	b.	provides incentive for investors to undertake risky projects.
	c.	motivates entrepreneurial innovation.
	d.	does all of the above.
	e.	is both b and c.

An import tariff on an imported good will result in

	a.	higher domestic consumer prices for that good.
	b.	increased market share for the domestic producer.
	c.	increased revenues for the domestic government.
	d.	deadweight losses to society.
	e.	only a, b, and c.
	f.	a, b, c, and d.

Answer 1

1.

Since a monopolistic industry is that form of market in which there is large number of buyers and sellers and firm sells differentiated product based on quality, size, shape etc, therefore product is not homogeneous. Since firm is price maker but firm does not compete on the price but they compete in the market based on size, quantity quality etc.

A monopoly firm is a kind of market structure in which there is only one seller and many buyers, therefore a monopolist firm has market power both in the short-run as well as in the long-run.

Hence a monopolist firm earns economic profit both in the short and long-run.

Since in the oligopoly there are few firms who control whole markets, therefore in this market structure firms are dependent on the action of their rival firms.

Therefore if there is profit in the short-run, then more firms may enter in the long-run and so the profit will decrease.

Hence it can be said that only in the monopoly market firm will earn profit in the long-run.

Hence option d is the correct answer.

2.

Since the profit-maximizing condition of the firm is that marginal revenue should be either greater than or equal to the marginal cost.

Hence it can be said that all firms produce an output level at which marginal revenue is either greater than or equal to the marginal cost.

Hence option c is the correct answer.

3.

The necessary condition for the perfect competition are;

Homogenous product; In the perfect competition, firm sells identical product based on color, size and quality.

A perfectly competitive firm is price taker and industry is price maker.

The profit-maximising condition is

P=MC

Price and MR are same for all unit of output.

Hence it can be said that A perfect competitor is a price taker, in both the short run and long run and can earn economic profits.

Hence option b is the correct answer.

4.

A perfectly competitive market earns economic profit in the short-run

An economic profit provides incentive for investors to undertake risky projects. It also motivates entrepreneurial innovation for the expectation of economic profit.

It means only option b and c are correct about the economic profit.

Hence option e is the correct answer.