Monopoly
"Barriers to entry enables monopolist to continue to maintain economic profit from short to long run."
True or False
True
What case is this? (Refer to slide)
Normal Profit Case
Fill in the Blank:
In the kinked demand curve model, the demand curve is relatively
elastic for price ________ and relatively inelastic for price _________.
Answer: Increases, Decreases
Co-operative Behaviour: Why do firms have to act together as one for profits?
Answer: To ensure profit margin is maximised in the market
In the short run, a monopolist maximizes its profit by producing at the quantity where:
A) Marginal revenue (MR) is greater than marginal cost (MC)
B) Marginal revenue (MR) equals marginal cost (MC)
C) Marginal revenue (MR) is less than marginal cost (MC)
D) Average total cost (ATC) equals price
B) Marginal revenue (MR) equals marginal cost (MC)
Why monopolistic competitors will earn only normal profit in the long run?
Due to easy entry,new firms can quickly start competing which result in competition to increase.
As competition increases, the market price tends to fall, and firms are forced to lower prices to remain competitive which lead to long run equilibrium where they only earn normal profit.
Explain why firms in an oligopoly tend to avoid price competition
Firms in an oligopoly avoid price competition because they know that competitors are likely to match price cuts, which would erode profits for all firms involved. Raising prices could lead to a loss of market share, as competitors might not follow the price increase.
Which goals of firm is most important?
Answer: no wrong answers, but look for providing livelihood. Profit is primary goal as it ensures sustainability, growth, and the ability to meet other 3 goals.