Monopoly

Question 1

Monopoly

Answer 1

Market structure where a single firm is the only producer of a good with no close substitutes

Question 2

Market Power in Monopoly

Answer 2

Ability of monopolist to raise prices above competitive level by reducing output

Question 3

Price Setting in a Monopoly

Answer 3

Monopolist sets prices based on desired output level

Uses market demand curve to determine price

Question 4

Relationship between Marginal Revenue and Demand

Answer 4

In a monopoly

Marginal revenue curve lies below demand curve

Monopolist must lower price to sell more units

Question 5

Profit Maximization in Monopoly

Answer 5

Monopolist maximizes profit by producing where MC = MR

Question 6

Elasticity of Demand in Monopoly

Answer 6

Can vary

Typically more inelastic at higher prices (few substitutes) and more elastic at lower prices

Question 7

Monopolist’s Response to Price Changes

Answer 7

When monopolist conducts a change in price makes quantity demanded change inversely