Q: Which formula correctly expresses the relationship between monopoly markup and the price elasticity of demand ($$\varepsilon$$)?

$$\text{Markup} = \frac{P - MC}{P} = -\frac{1}{\varepsilon}$$

Question 1

In a perfectly competitive market in the long run, which of the following is true about firms' economic profits and the market price?

Accepted Answer

Firms earn zero economic profits, and price equals minimum average total cost.

Question 2

Suppose a perfectly competitive industry experiences an increase in demand. In the short run, firms earn positive economic profits. What will happen in the long run?

Accepted Answer

New firms will enter the industry, increasing market supply and driving price down to the minimum average total cost.

Question 3

Which of the following best describes the 'invisible hand' in the context of perfect competition?

Accepted Answer

It is the process by which individual self-interest leads to industry cost minimization and efficient resource allocation.

Question 4

A constant-cost industry is characterized by which of the following?

Accepted Answer

Industry expansion does not affect input prices, so the long-run supply curve is perfectly elastic.

Question 5

Suppose a monopolist faces the following demand curve: $$P = 100 - 2Q$$, and has constant marginal cost $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 6

A monopolist's marginal revenue is given by $$MR = 60 - 4Q$$, and marginal cost is $$MC = 12. $$What is the monopoly price?

Accepted Answer

$$P = 48$$

Question 7

Which formula correctly expresses the relationship between monopoly markup and the price elasticity of demand ($$\varepsilon$$)?

Accepted Answer

$$	ext{Markup} = \frac{P - MC}{P} = -\frac{1}{\varepsilon}$$

Question 8

Which of the following is a necessary condition for a firm to successfully price discriminate?

Accepted Answer

The firm must be able to prevent resale (arbitrage) between consumers.

Question 9

Compared to perfect competition, a single-price monopoly results in:

Accepted Answer

Lower output and higher prices.

Question 10

A natural monopoly is most likely to occur in which of the following industries?

Accepted Answer

Electricity distribution.

Question 11

Suppose a monopolistically competitive firm is earning positive economic profits in the short run. What will happen in the long run?

Accepted Answer

New firms will enter, shifting the firm's demand curve leftward until profits are zero.

Question 12

Which of the following best explains the role of advertising in monopolistic competition?

Accepted Answer

Advertising is used to differentiate products and increase brand loyalty.

Question 13

If a monopolist can perfectly price discriminate, what is the effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is eliminated.

Question 14

Which of the following is an example of creative destruction?

Accepted Answer

A new technology makes an existing industry obsolete, leading to the exit of old firms and entry of new ones.

Question 15

Suppose the demand for a monopolist's product is $$P = 80 - Q$$, and marginal cost is constant at $$MC = 20. $$What is the monopolist's profit-maximizing price?

Accepted Answer

$$P = 50$$

Question 16

In the context of experimental economics, which of the following is a key insight from laboratory markets simulating perfect competition?

Accepted Answer

Market prices quickly converge to equilibrium even when participants lack full information.

Question 17

A monopolistically competitive firm faces the following demand curve: $$P = 60 - 2Q$$, and marginal cost $$MC = 20. In $$the short run, what quantity maximizes profit?

Accepted Answer

$$Q = 20$$

Question 18

Which of the following statements about the long-run equilibrium in monopolistic competition is correct?

Accepted Answer

Firms earn zero economic profit, but do not produce at minimum average total cost.

Question 19

Suppose a monopolist faces a price elasticity of demand of $$-2 at $$the profit-maximizing output. If marginal cost is $$MC = 30$$, what is the monopoly price using the markup formula?

Accepted Answer

$$P = 45$$

Market Structures: Perfect Competition, Monopoly, and Monopolistic Competition

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