DeVry University, Chicago

ECON ECON312

chapter 11

1)What are the major characteristics of pure monopoly?

2. What are the major barriers to entry that explain the existence of monopoly?

3. What is the relationship between economies of scale and a natural monopoly?

4. Some economists argue that pure monopolists will purposely avoid the price-output combination that will maximize their profits. Explain how this less-than-maximum profit behavior could be rational.

5. Why is marginal revenue less than price for every level of output except the first?

6. A pure monopolist determines that at the current level of output the marginal cost of production is $2.00, average variable costs are $2.75, and average total costs are $2.95. The marginal revenue is $2.75. What would you recommend that the monopolist do to maximize profits?

7. A pure monopolist sells output for $4.00 per unit at the current level of production. At this level of output, the marginal cost is $3.00, average variable costs are $3.75, and average total costs are

$4.25. The marginal revenue is $3.00. What is the short-run condition for the monopolist and what output changes would you recommend?

8.Do you agree or disagree with the statement that: “A monopolist always charges the highest possible price.” Explain.

9. “Pure monopoly guarantees economic profits.” Discuss whether this is a valid statement.

10.How does monopoly compare with pure competition in terms of price, output, and efficiency?

11.Explain how monopoly causes an inefficient allocation of resources when the competitive firm does not, even when both seek to maximize profits.