Question 1

Which of the following factors lead to a monopoly market structure?

(i) No close substitutes being available

(ii) Perfect competition in the market

(iii) Legal barriers to entry into the market

(iv) No natural barriers to entry into the market

A. Only (iii) and (iv) are correct.

B. Only (i) and (iii) are correct.

C. Only (ii) and (iv) are correct.

D. Only (i), (iii) and (iv) are correct

E. Only (i) and (ii) are correct

Question 2

Which combination of the following statements is/are correct with regard to unregulated monopolies?

(i) A monopoly produces the profit maximizing level of output.

(ii) A monopoly sells output at prices greater than Marginal Cost.

(iii) A monopoly does not make positive economic profits because it produces a level of output whereby Marginal Revenue = Marginal Cost.

(iv) A monopoly does not produce any deadweight loss because it produces a level of output whereby Marginal Revenue = Marginal Cost.

A. Only (i) is correct.

B. Only (i) and (ii) are correct.

C. Only (i) and (iii) are correct.

D. Only (ii) and (iv) are correct.

E. Only (iii) and (iv) are correct.

Question 3 Consider the following information for a monopoly: 3 4 5 6 7 8 P R200 R180 R160 R140 R120 R100 Suppose that the marginal cost of the fifth unit of output produced is R100. At this level of output, we can say: (i) Marginal Revenue of the fifth unit is R80. (ii) producer surplus is maximized. (iii) elasticity of demand is greater than 1. (iv) the monopoly can increase profits by decreasing quantity and increasing price. A. Only (i) and (ii) are correct B. Only (ii) and (iii) are correct. C. Only (i) and (iv) are correct. D. Only (i), (iii) and (iv) are correct. E. Only (iii) is correct