1. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is
ID: 1202357 • Letter: 1
Question
1. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total cost is the area of rectangle:
a) IPDH.
b) 0IHJ.
c) 0SBJ.
d) 0PDJ.
2. Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:
a) price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.
b) price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to rise.
c) price to rise, output to fall, consumer surplus to rise, producer surplus to rise, and deadweight loss to fall.
d) price to fall, output to rise, consumer surplus to rise, producer surplus to fall, and deadweight loss to fall.
3. In general, economists are critical of monopoly where ________ exist(s).
a) only a few firms
b) no natural monopoly
c) persistent economies of scale
d) a natural monopoly
Explanation / Answer
Answer 1:
Total Cost is given by the area below the Average Total Cost Curve. The economy maximizes its profit at OJ level of output where MR + MC. AT this , level of the output, are below AC curve is the Total Cost given by OSBJ ( Option c).
Answer 2:
Option a. Prices are more than in Perfect Competition, Output is lower, Consumer Surplus fall due to rise in prices and producer surplus rises. Monopoly also creates DWL as Price is not equal to Marginal Cost.
Answer 3:
Natural monopoly exist. Option d
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