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Microeconomics Monopoly questions!!! please be right!!!?

Microeconomics Monopoly questions!!! please be right!!!?

Postby deangelo51 » Thu Jun 28, 2012 8:48 pm

1/A statement that best reflects an evaluation of monopoly firms is that:
A/they are economically efficient.
B/they have little or no market power.
C/regulation is sometimes a solution to monopolies.

2/If a change in fixed cost in the long run raises average total cost above the demand curve:
A/price and output will remain unchanged.
B/more monopolies will enter.
C/the monopoly will go out of business.
D/none of the above is true.

3/A _______ price charged by a monopoly than would be the case if P = MC _______ consumer surplus.
A/lower; decreases
B/higher; reduces
C/higher; increases
D/None of the above is true
deangelo51
 
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Microeconomics Monopoly questions!!! please be right!!!?

Postby kenway » Thu Jun 28, 2012 8:54 pm

1 is C. Monopolies are usually not economically efficient and they always have market power.

2 is C. If Long run Average Total cost curve is above the demand curve then there is no price at which the good can be sold for a profit or even break even.

I don't understand the wording of 3, please re-write.
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Microeconomics Monopoly questions!!! please be right!!!?

Postby caffar » Thu Jun 28, 2012 9:03 pm

1. C, there is a deadweight loss,and need regulation to control it.
2. C, it cannot survive a loss in the long run,even a monopolist.
3. B, higher price,less output,reduce consumer surplus.
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Microeconomics Monopoly questions!!! please be right!!!?

Postby adusa37 » Thu Jun 28, 2012 9:07 pm

1 is C and 2 is C as is already explained.

3 is B as a monopoly sets price at MR=MC and MR is always lower than D (it falls at twice the slope). Therefore the"higher price charged by a monopoly than would be the case if P=MC reduces consumer surplus" as it lowers Q. The wording of the question is terrible.
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