Question 3

(a)Draw and clearly label a diagram that shows the level of output at which a monopoly maximises profits. Show the monopoly price and level of profits made by your monopoly firm. Use 2 or 3 sentences to explain the key features of your diagram. (9 marks)

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(b)Refer to the diagram you drew for part (a). How is this situation similar to that of a competitive market? How is it different? Explain the reason(s) for each of the differences you note. Hint: list and explain as many similarities and differences as you can think of. (16 marks)