Questions (19) 1. Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case justify your classification 2. Use the following demand schedule to determine total and marginal revenues for each possible level of sales: Product Price ($) Quantity Demanded 2 0 2 1 2 2 2 3 2 4 2 5 Total Revenue ($) Marginal Revenue ($) a. What can you conclude about the structure of the industry in which this firm is operating? Explain. b. Graph the demand, total-revenue, and marginal-revenue curves for this firm. c. Why do the demand and marginal-revenue curves coincide? d. “Marginal revenue is the change in total revenue associated with additional units of output.” Explain verbally and graphically, using the data in the table. 3. “No firm is completely sheltered from rivals; all firms compete for the consumer dollars. If that is so, then pure monopoly does not exist.” Do you agree? Explain. How might you use Chapter 18’s concept of cross elasticity of demand to judge whether monopoly exists? 4. Discuss the major barriers to entry into an industry. Explain how each barrier can foster monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable? 5. Suppose a pure monopolist is faced with the demand schedule shown below and the same cost data as the competitive producer discussed in question 4 at the end of Chapter 21. Calculate the missing total- and marginal-revenue amounts, and determine the profitmaximizing price and profit-earning output for this monopolist. What is the monopolist’s profit? Verify your answer graphically and by comparing total revenue and total cost. Price $115 100 83 71 63 55 48 42 37 33 29 Quantity demanded 0 1 2 3 4 5 6 7 8 9 10 total revenue Marginal revenue $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ $____ 6. How does monopolistic competition differ from pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit. 7. Compare the elasticity of the monopolistically competitor’s demand curve with that of a pure competitor and a pure monopolist. Assuming identical long-run costs, compare graphically the prices and output that would result in the long run under pure competition and under monopolistic competition. Contrast the two market structures in terms of productive and allocative efficiency. Explain: “Monopolistically competitive industries are characterized by too many firms, each of which produces too little.” 8. “Monopolistic competition is monopoly up to the point at which consumers become willing to buy close-substitute products and competitive beyond that point.” Explain.