True or False

______ 1. In the theory of perfect competition, price is smaller than marginal revenue.

______ 2. Perfect competitive firm is a price taker.

______ 3. A monopoly firm always earns economic profit.

______ 4. An increasing-cost industry is an industry in which average total costs decrease as industry output increases.

______ 5. Free entry is the basic reason that monopolistically competitive firms have excess capacity.

Problems

1. Analyze the 4 market models (pure competition, pure monopoly, monopolistic competition, oligopoly) according to the following category:

a. Number of firms,

b. Type of product.

c. Control over price

d. Conditions of entry.

e. Technological improvement

2.Based on the demand and cost data for a pure monopolist given in the table below, answer the following questions

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Output012345

Price ($)1000600 500 400300 200

Total Cost500 520 580 700 1000 1500

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a. Calculate the marginal revenue and marginal cost for this monopolist.

b. How many units of output will the profit-maximizing monopolist produce? At what price?

c. If this is a perfectly discriminating monopolist and he sells 4 units of this product, what is his total revenue?

3. Draw a graph according to the following descriptions, label all the curves you used and indicate the area of economic profit or loss.

a. a purely competitive firm in earning economic profits in the short run.

b. a natural monopoly

c. a monopolistically competitive firm experiencing economic losses in the short run.

d. a monopolistically competitive firm in long run equilibrium.

e. an oligopoly in which the members are behaving in collusion.

4 Assume that a purely competitive firm has the schedule of the average and marginal costs given in the table below

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OUTPUT AFC AVC ATCMC

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1$300 $100 $400 $100

21507522550

31007017060

4757314880

56080140110

65090140140

743103146180

838119156230

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a. At a price of $68, the firm will produce _____ units of output. The firm's economic profit is ________.

b. At a price of $80, the firm will produce ______ units of output. The firm's economic profit is ______.

Will the firm break-even at this price? _____. If not, what will be this firm's break-even price? ______.

Explain why. ______________________________________________________________________

c. At a price of $190, the firm will produce ________ units of output. Will $190 be the long run price for

this firm? _____ Explain your answer. _________________________________________________

If this is not the long run price, what will be the long run price? _____.