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3 Review Questions about Competition and Market Power

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1. Explain the difference between the demand curve facing a monopoly firm and the demand curve facing a perfectly competitive firm.

2. Name one monopoly firm you deal with. What is the source of its monopoly power? Do you think it seeks to maximize its profits?

3. There are four basic types of firms:
(a) perfectly competitive
(b) monopoly
(c) monopolistic competitive
(d) oligopoly

Which of the above firms would most likely have zero economic profit in the long run (can be more than one type)? Explain.

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Solution Summary

This solution gives detailed answers to three review questions of the type commonly found on Microeconomics exams.

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1. A perfectly competitive firm's demand curve is horizontal because it is a price taker; if it raises its price, its sales will fall to zero. A monopolist's demand curve slopes downwards because it has control over what price it ...

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