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.