Question 17

Monopoly refers to a market situation in which only one firm operates in the market.

Since, in monopoly, only one firm operates, the firm is considered as the entire industry.

Monopoly is generally get created due to increasing returns to scale over a large output, or through patents, or through government licensing.

A monopoly maximizes profit when it produce that level of output corresponding to which MR equals MC.

However, at profit maximizing level of output, price is always greater than the marginal cost and marginal revenue.

Since, monopoly being the only seller can undertake undue advantage of its market power, it is deemed illegal in most countries including the United States.

Hence, the correct answer is the option (2) [A patent can help a firm to become a monopoly], option (3) [In a pure monopoly, the firm is the industry], option (4) [At the profit maximizing output for a monopoly, P > MR], option (5) [Monopolies are illegal in the U.S.]

Question 18

When a monopolist charges each consumer a price which is equal to the maximum willingness of that consumer then monopolist is said to be practicing first degree price discrimination.

When a monopolist charges different price based on quantity being purchased by the consumers then monopolist is said to be practicing second degree price discrimination.

When a monopolist charges different prices from different group of customers then monopolist is said to be practicing third degree price discrimination.

In the given case, car rental company is charging different price from different group of customers.

Thus, it is practicing third degree price discrimination.