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# Profit Maximizing Price in Market Structure

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Market Structure and Policy. See attached file for full problem description.

https://brainmass.com/economics/economic-policy/profit-maximizing-price-market-structure-106375

#### Solution Preview

(a) The MR curve starts from the top point of the demand curve and goes to half the width on the
horizontal axis. The MC curve is a straight horizontal line at P = 6. The point of intersection of these
two lines, when projected to the horizontal axis, gives the profit-maximizing ...

#### Solution Summary

Find the profit maximizing price and other factors.

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## Market structure questions - fill in the blank

1. The four major characteristics of a purely competitive market structure are _________________, __________________________, _______________________, ________________________.

2. The demand curve facing a pure competitor is ____________________ elastic; such a demand curve is (horizontal, vertical)________________ at the going price.

3. We assume that the goal of the firm is to maximize profits; if so, the pure competitor should produce up to the point where MR equals ________________; total profits are defined as ____________ minus _______________.

4. Marginal revenue equals __________________, divided by ___________________.

5. Because we include the opportunity cost of capital as a cost of production, the profits we define are (accounting, economic) profits.

6. The marginal cost curve eventually is upward sloping, due to the law of _____________________; the marginal cost curve intersects the average variable cost curve at ________________________, and it intersects the average total cost at ________________________.

7. If marginal cost is below average cost, average cost will _________________; if marginal cost is above average cost, average cost will ____________________.

8. If the firm is earning zero economic profits, it (would, would not) __________________ continue to operate.

9. The competitive firm's short-run supply curve is its __________________ curve; the industry short-run supply curve is derived by ___________________ all the firm supply curves.

10. In the long run a firm in a purely competitive industry will earn exactly zero economic profits.
This is true because if economic profits are positive, some firms will _______________ the industry and price will fall; if economic profits are negative, some firms will _______________ the industry and price will rise.

11. If an industry expands and input prices do not change, such an industry is a ______________- cost industry and the long-run supply curve is horizontal; if input prices rise, the industry is a(n)__________________-cost and the long run industry supply curve is _______________ sloping; if input prices fall, the industry is a(n)_______________________ - cost industry and the industry's long-run supply curve is __________________ sloping.

12. In the long run a purely competitive firm will earn (negative, positive, zero) _________________ economic profits. Its price will be (greater than, less than, equal to) ___________________ marginal cost, and output (will, will not) ________________ be produced at minimum average total cost.

Chapter 12
I TRUE-FALSE QUESTIONS

T F 1. The more broadly we define an industry, the less likely it is to be a monopoly.

T F 2. Because of barriers to entry, a monopolist must earn long-run profits.

T F 3. The monopolist's marginal revenue curve lies below its demand, or average revenue, curve.

T F 4. A monopolist must charge the same price to all buyers.

T F 5. The monopolist total revenue curve is linear.

T F 6. The monopolist will never produce on the inelastic portion of its demand curve.

T F 7. Total Profits are maximized where total revenue equals total costs.

T F 8. If MR > MC, the firm can increase profits if it produces less.

T F 9. A monopolist can select only one profit-maximizing price, given the output it
chooses to produce.

T F 10. Because there are no close substitutes for a monopolist's output, its demand curve is inelastic
throughout.

II COMPLETION QUESTIONS

11. A monopolist is a ____________________ supplier that constitutes the entire industry; its demand
curve is __________________ sloped.

12. Before a monopolist can earn monopoly profits, there must be ____________________ entry.

13. If a monopolist must charge the same price to everyone, when it produces more, its marginal revenue
will be ( less than, greater than, equal to) ______________________ its price.

14. The monopolist maximizes total profits at that output for which ________ equals ________; given
its profit maximizing output, the monopolist (need not, must) ___________charge a price consistent
with that quantity.

15. If a monopolist need not charge the same price to everyone, then it can ______________, and its
profits will rise; a monopolist can charge different prices to different groups if it can prevent the
________________________ of its product.

16. A monopolist charges a price that is too _______________________, and it produces an output that
is too ___________________; therefore the monopolist is ( less, more) ______________ socially
efficient than pure competition.

III MULTIPLE-CHOICE QUESTIONS

17. Which of the following is not a characteristic of the monopoly market structure?

a. one seller
b. homogenous product
c. restricted entry
d. price taker

18. Which of the following is a potential barrier to entry?

b. sole ownership of a key resource.
c. great economies of scale, relative to demand
d. All of the above.

19. Which is not true about monopolies?

a. linear total revenue curve
b. may earn long run economic profits
c. negatively sloped demand curve
d. All of the above

20. The firm maximizes total profits at that output where

a. total revenue equals total cost
b. marginal revenue equals marginal costs
c. negatively sloped demand curve
d. All of the above.

21. Once a monopolist produces a profit-maximizing output,

a. the price is determined for it, given its demand curve.
b. it can select any price it wants.
c. it s competitors select price.
d. price cannot be determined.

22. If MR < MC, then the firm

a. is maximizing total profits.
b. can increase total profits by producing more.
c. can increase total profits by producing less.
d. is maximizing total revenues.

23. Monopoly profit

a. equals (AR - AC) times quantity sold.
b. equals price times quantity sold.
c. exist only in the short run.
d. exist because no entry barriers exist.

24. A monopolist will price discriminate if

a. price differentiation exist.
b. it can separate markets by different price elasticities of demand and prevents resale.
c. it chooses to maximize average revenues.
d. all buyers have the same price elasticity of demand.

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