Question

Suppose that some firms in a perfectly competitive market are making positive economic profits. Which one of the following would not be expected to occur?

a. All firms’ economic profits would eventually be driven to zero at equilibrium.

b. The equilibrium quantity sold will fall.

c. The equilibrium price will fall.

d. The supply curve will shift to the right.

e. More firms would enter the market.

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Which one of the following is not characteristic of a pure monopoly?

a. The monopolist is a price maker

b. Barriers to entry exist

c. The marginal revenue curve is horizontal at the market price

d. The good or service has no close substitutes

e. There is only one seller

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The demand curve for the output of a monopolistic firm is equal to

a. the market supply curve for the product in question.

b. the marginal revenue curve for the product in question.

c. the market demand curve for the product in question.

d. the demand curve for a firm in a perfectly competitive market.

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Suppose a firm can sell one unit of product for $50, two units for $45 each, three units for $40 each, or four units for $35 each. When the firm sells four units, marginal revenues is equal to

a. $5

b. $25

c. $20

d. $30

e. $35

Answer 1

1. The equilibrium quantity sold will increase with positive economic profit. Therefore, Option B is correct.

2. MR curve is downward sloping in pure monopoly. Therefore, Option C is correct.

3. The demand curve for the output of a monopolistic firm is equal to MR curve. Therefore, Option B is correct.

4. Total revenue when three units for $40 each sold = $120

Total revenue when four units for $35 each sold = $140

Marginal revenue for the four units = $140 - $120 = $20.

Therefore, Option C is correct.