Question

A: What are the basic assumptions associated with a perfectly competitive market? B: What are the basic assumptions associated with a pure monopoly market? C: For a given level of demand, which market would have the lower price? D: for a given level of demand, which market would have the higher level of output? 2) A: What are the differences between horizontal, vertical and conglomerate mergers? B: What is predatory pricing? C: What is limit pricing and who do economists say it shouldn’t be considered predatory? D: How do Tie-In Contracts and Bundle Pricing differ? Which one is classified as an unfair business practice?

Answer 1

1 (A). The basic assumptions of a perfectly competitive market are:

There should be large number of buyers and sellers in the market.

All sellers must sell homogeneous products

There is free entry and exit for firms

There must be perfect knowledge of the market among all buyers and sellers.

Perfect mobility among the factors of production.

B. The basic assumptions for a pure monopoly are:

There should be only one seller of a product.

There are barriers to entry of firms.

There is a unique product that a pure monopoly firms sells. In other words there are no close substitutes of a product.

C. For a given level of demand, a perfect competition has a lower price that a pure monopoly firm.

D. For a given level of demand, a perfect competitive market produces a higher level of output than a pure monopoly firm as a pure monopoly firm maximizes its profits.