4.1. Explain why the P = MR rule is the same as the MC = MR rule for perfectly competitive firms and why this is also the demand curve for the individual firm. (3)

4.2. Explain and graphically show why a price-setting firm (monopolist) will always set its revenue maximising price below the price that will maximise its profits. (6)

4.3. Will the firm in 4.2. always make an economic profit? Why? Why not? (3)

4.4. Indicate whether each of the following statements is true or false and explain why.

4.4.1. A competitive firm that is incurring a loss should immediately cease operations. (3)

4.4.2. A pure monopoly does not have to worry about suffering losses because it has the power to earn normal profits. (3)

4.4.3. When P > AVC, the perfect competitive firm will always make a normal profit. (3) 4.4.4. When a firm is able to set its price, its price will always be higher than its MR. (3)

4.4.5. A monopoly will always earn economic profits because it is able to set any price that it wants to.