Question

a) In a monopoly, the profit maximizing quantity occurs where                            [choose]                       ["marginal cost", "average cost", "total cost", "variable cost"]         equals                            [choose]                       ["marginal revenue", "the minimum possible value", "zero", "average cost"]         .

b) The existence of                            [choose]                       ["barriers to entry", "competition", "decreasing returns to scale", "demand"]         allows a monopoly to consistently earn positive economic profits in the long-run.  

c) Unlike a firm in competitive markets, a monopoly faces                            [choose]                       ["downward sloping", "upward sloping", "flat", "elastic"]         demand curve. This means that if a monopoly wants to sell more of their product/service, they must                            [choose]                       ["lower their price", "decrease costs", "increase competition", "have increasing returns to scale"]         .  

Answer 1

a) A monopoly will produce at the point were the MR=MC i.e. the marginal cost in the market is equal to the marginal revenue.

b) The existence of barriers to entry allows the firm to earn an economic profit in the long run.

c) monopoly faces a downward sloping demand curve, if they want to sell more then they will have to reduce the prices.