Principles of Microeconomics - Compare the Characteristics of Perfect Competitive versus

PRINCIPLES OF MICROECONOMICS.

PREAMBLE TO Test #3

Part A: SHORT ANSWER QUESTIONS.

 

1A. Compare the Characteristics of Perfect Competitive versus Monopolistic Competitive, and Monopoly Markets in the categories shown in the left column.

Pure Monopolistic Monopolist

Competition Competition

Demand curve

MR Curve

S-R Econ profit

L-R Econ profit

Efficiency:

a) Output

b) Price levels

1B. what is the nature of the demand and marginal revenue curves facing a firm selling in a Monopolistic Competitive market? Feel free to draw the relevant diagrams to aid and/or enhance your answer. Why is the marginal revenue always less than the price in this market?

 

2A. Why do we call a seller in a competitive market a price-taker; and the seller in the monopolist market a price-maker? Use graphs to illustrate your answers.

For a typical competitive firm, draw the demand curve facing each seller in the market. Then draw the average total cost and the marginal cost curves on the same diagram such that the average total cost is higher than the price.. Then show the profit maximizing situation in the short- run.

Finally, describe the expected adjustment from the short-run situation above to the long-run equilibrium.

2B. Compare the conditions for profit maximization in a Perfect Competitive Market with those of a monopolist market .

Pure Competition Monopoly

2C. For a typical monopolist, and on the same diagram : i) Draw the demand curve and the marginal revenue curve facing the monopolist in the market. What is the relationship between the demand curve and the marginal revenue curve?

ii) Then also draw the average total cost, and the marginal cost curves facing the firm. What is the relationship between the average total cost and the marginal cost?

iii) Determine the profit maximizing level of output, and mark the appropriate profit in the short run. Given the short-run profit situation, indicate if there any adjustment to be expected in the market.