Question

Which of the following statements about a monopoly firm are true? (Check all that apply.)

1) it always experiences economies of scale

2) it is always profitable in the short run

3) its long-run average total cost curve is always downward sloping

4) its marginal revenue is always below the price

5) it is the only seller of a good or service with no close substitutes available

Answer 1

Monopoly is a form of market with a single seller who sold goods which does not have close substitutes. There are barrier in the entry of new firms. The firm is a price maker because it determines the price for its product. Firm has free control over the supply of the product. A monopolist firm faces a market demand curve which is negatively sloped. Demand curve of a firm under monopoly is less elastic because the product has no close substitutes.

4) its marginal revenue is always below the price

5) it is the only seller of a good or service with no close substitutes available

Monopoly does not experience economies of scale always. It is not always profitable in the short run as if firm produces more output then MC exceeds MR. Long run ATC is not always downward sloping, after a point it slopes upward.