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. Explain the key features of your diagram. (9 marks)

(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)