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Eco 101 Final

This document contains answers to multiple choice questions about market structures. It discusses the key differences between perfect competition, monopoly, monopolistic competition, and oligopoly. For monopoly and perfect competition, it explains how their assumptions and profit maximization points differ. It also provides calculations to determine profit and consumer surplus values based on given demand and cost curves for perfect competition and monopoly markets.

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Shahidin Shirsho
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58 views4 pages

Eco 101 Final

This document contains answers to multiple choice questions about market structures. It discusses the key differences between perfect competition, monopoly, monopolistic competition, and oligopoly. For monopoly and perfect competition, it explains how their assumptions and profit maximization points differ. It also provides calculations to determine profit and consumer surplus values based on given demand and cost curves for perfect competition and monopoly markets.

Uploaded by

Shahidin Shirsho
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Name: Ahamad shahidin

ID: 2011849630

Part A:
Ans to q no 1:

The assumptions and differences between monopoly and perfect market are pointed out below:

The assumptions of Monopoly market are:

• There is only one seller

• The products the seller sells, that doesn’t have any close substitute

• There are high barriers to enter in a monopoly market

• They are the price setter

The assumptions of perfect market:

• There are so many sellers and buyers that if some producers joins or leaves the market no
one would notice

• There are other substitutes that’s why the competition is high

• The entry and exit in a perfect market is easy.

• They are the price taker.

So, we can see, monopoly market and perfect market assumptions quite different from each
other. In a monopoly market there is one seller whereas perfect competition has a huge number
of sellers, sellers can’t easily enter in a monopolistic market. Also, the monopolists can set the
price as per demand curve but in a perfect market the price is taken from market equilibrium.
Even though these two markets are different from each other their profit maximization formula is
same. Which is MC=MR.

Ans to q no 2:
The MR curve for single monopolist market is different from the MR curve of a perfect market.

The marginal revenue curve and the demand curve is same for a perfect market, where increasing
or decreasing the price will be loss for the firm and the part where marginal cost will intersect the
marginal revenue curve that would be the profit maximization point, for different firm the
intersecting point will be different basically it will depend on the firm’s efficiency.

For a single monopolist market, the MR and demand curve are two separate curves. Here, the
MR curve will be diminishing, it will decrease faster than the demand curve as a result it will
always lie below the demand curve but like the part where marginal cost will intersect the
marginal revenue curve that would be the profit maximization point.

Ans to q no 4:

An oligopoly is just a market arrangement in which only a few enterprises can prevent the others
from exerting considerable influence. Assumption of oligopoly market is, small number of big
firm, high degree of independence, difficult to trace firms demanding curve.

Part B:
Ans to q no 3
(a) Monopoly competition is a market situation where a huge number of buyer and seller is
present and sells differentiated product. In a monopolistically competitive market, the
firm face a downward curve or maybe an average revenue. So, to increase the sell the
firm has to decrease the price of a product. And the demand curve that face a
monopolistically competitive firm is more elastic. In conclusion it is clear that product
differentiation causes a downward sloping demand curve.
(b) The reason of earning positive economic profit in short run and zero economic profit in
long run is discussed below:

In short run, normal profit or loss will depend on revenue and cost condition. But in long
run monopolistic competitive firm looks for normal profit because free entry and exit is
there. In the long run process, A monopolistically competitive firm's demand curve is
shifted when additional businesses enter the same general market (such as gas,
restaurants, or detergent). The quantity desired at a specified price for any one business
will fall when additional competitors enter the market, and the firm's observed demand
curve will move to the left. On the other hand, in a short run process, by creating the
amount where marginal revenue = marginal cost, a monopolistically competitive
company maximizes profit or minimizes losses. If the average costs are less than the
market rate, the company will make a profit. And if the firm is going through losses in
the short run, it will exit the existing firm and profit of the remaining firm will increase.

( c) The concept of excess capacity is associated with long run monopolistic competition. Which
is the difference between the idea socially optimum or output at minimum AC. Excess capacity,
according to Chamberlin, presupposes that:

1. The number of firms maybe large.


2. Products are similarly independent comparing others.
3. It can offer a cheaper price and attract clients from other businesses, or it can raise its
pricing and lose some of its customers.
4. Consumer preferences are very evenly divided throughout the many product variations.
5. Firm are always open to enter its field or production.
So, it is clear that absence of active price will lead the competition into excess capacity in
monopoly market.

Ans to q no 2:

(a)

(b) As we know the profit maximization formula for any market is MC=MR. so, as per the curve
the value of profit would be the point where the marginal cost curve will intersect the marginal
revenue curve and for a perfectly competitive market the point is 50 taka for 100 units which is
0.5 taka per unit.

(c) For a Single-price monopoly market, what would be the value of profit? Show your
calculation of the value. For a perfect monopolist market, the value of profit would be 50 taka for
50 unit because that’s the intersecting point. So, the price will be 1 taka per unit.

(d) In Perfectly competitive market, what is the Value of consumers’ surplus will be

90/50=1.8 taka per unit.

( e) In Monopoly market, what is the Value of consumers’ surplus will be 120/50=2.4 taka per
Unit.

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