Question

1) Compared with a purely competitive industry, a monopolist produces

a.

more output at a lower price.

b.

less output at a higher price.

c.

more output at a higher price.

d.

less output at a lower price.

2) Which one of the following statements about monopoly firms and firms in a purely competitive industry is true?

a.

In the long run, monopoly firms and firms in a purely competitive industry operate at the minimum point of their average total cost curves.

b.

Both monopoly firms and purely competitive firms set price equal to marginal cost to determine their profit-maximizing output.

c.

A monopoly can likely earn positive profits in the long run, but the average firm in a purely competitive industry does not.

d.

The consumer surplus under a monopoly is lower than the consumer surplus in a purely competitive industry.

3) Positive economic profits in pure competition in the short run

a.	are market signals that indicate saturation of a market and thus no exit or entry of firms from an industry.
	b.	are market signals that encourage the entry of firms into an industry.
	c.	are market signals that encourage the exit of firms from an industry.
	d.	indicate barriers of entry and unfair business practices.

Answer 1

1. (B)

Monopolists charge a higher price and produce less output than a competitive industry.

2. c. A monopoly can likely earn positive profits in the long run, but the average firm in a purely competitive industry does not.

monopolist is single seller and keep the price higher and produce the less output in the logn run but average comapetitive firm seeking the profit in the short run enter the market and increase the supply but reduce the profit equal to normal profit.

3. (B)

reason Positive economic profits in pure competition in the short run will allow the other firm to enter into the market. it leads to increase in supply and reduce the profit