Palawan State University

El Nido, Palawan
Microeconomics-module-7

Villanueva, Christian
BS Entrepreneurship 1

Food for Thought:

Compare and contrast the monopoly model with the purely competitive model.
-Monopoly and purely competitive model mark the two extremes of market structure, but
there are some similarities between firms in a perfectly competitive market and monopoly firms.
Both face the same cost and production, and both seek to maximize profit but in monopoly there is
a single seller in the market while in the pure competitive entry and exit is free in the sense that
there are no barriers to entry. Therefore, the basic difference between perfect competition and
monopoly is that purely competitive involves a large number of sellers which a large market has
one single seller for a number of buyers.
Critically evaluate the social optimum and fair rate of return theories of rate regulation of
monopolies.
-the social optimism is the allocation chosen by a benevolent social planner who is
constrained only by the endowment of resources while the fair of return is a protection for the
costumer to avoid higher prices due of monopoly power while allowing the monopoly to cover its
cost and earn a fair return for its owner.
Develop and explain the monopoly model, showing an economic profit, a normal profit, and
an economic lost. Can there be maintain in a long run? EXPLAIN.
-since monopoly is a business entity that has significant market power, that is, the power to
charge over high prices, which is associated with a decrease in social surplus. Let’s check now the
types of monopolies model of firm play in the market.
In a firm which earn normal profit. If their average cost of production is equal to the average
revenue for the corresponding output. That is normal profit.
-In the figure, you can see that the MC curves cuts the MR curve at the Equilibrium point E. Also, the
AC curve touches the AR curve at a point corresponding to the same point. Therefore, the firm earns
normal profit.
-In the firm earns losses happened when the average cost of production is higher than the average
revenue for the corresponding output.

-In the figure above, you can see that the average cost curves lie above the average revenue curve
for the same quantity. The average revenue=OP and the average cost=OP’. therefore, the firm is
incurring an average loss of PP’ and the total loss is PP’BA. In the short-run, a monopolist
sometimes sets a lower price and incurs losses to keep new firm away.

-Like non-monopolies, monopolists will produce the quantity such the marginal revenue (MR)
equal marginal cost (MC). However, monopolists have the ability to change the market price-based
of the amount they produce since they are the only sources of products in the market. When the
monopolist produces the quantity. Therefore, monopolists produce less but charge more than a
firm in a competitive market and the result will earn economic profit like in the graft bel

-But the monopolist incurs losses in the long-run, they will stop operating if the losses exceed to its
fixed cost.

Sample Questions:
Multiple Choice:
A regulated monopolist when compared with a purely competitive industry will.
Answer: C. produce less, and charge more

Which of the following statement is true of an unregulated monopolist?

Answer: C. price is more the marginal revenue
TRUE-FALSE:
Society would be an ambiguously better-off without monopolist. {FALSE}

A monopolist can maintain an economic profit in the long run, because there are sustainable barriers to entry
into its market. {TRUE}

Chapter 10: Food for Thought:

Fully explain the profit maximizing rule for employee resources and the list cost combination of
resources rule.

-a firm maximizes profit by operating where marginal revenue equals marginal cost. In the short run, a
change in fixed cost has no effect on the profit maximizing output or price. The firm merely treats short term
fixed cost as sunk cost and continues to operate as before. This can be confirmed graphically.

Using the following data complete the following table and derived the demand curve for labor (price of output
is $ 2 per unit):

WORKERS TOTAL PRODUCT MARGINAL PRODUCT MRP

1 22 0
2 42 64 128
3 60 51 102
4 76 45.3 90.6
5 90 41.5 83
6 102 38.4 76.8
7 112 35.7 71.4
8 120 33.1 66.2
9 126 30.75 61.5

Fully explain the concept of derived demand

-it is an economic term that refers to the demand for a good or service that result from the demand of
different, or related, good or service. It means derived demand is related solely to the demand placed on a
product or service for its ability to acquire or produce another good or service. Meaning, if the demand
increases to the new houses it will leads to increase the demand of construction worker.

Illustrate a resource market and compare and contrast it with a product market.

-resource market and product market are a market where goods and service are sold to household
and the government the household used the income, they receive from the sale of its resources to purchase
product. The money they spent is returned to the business as revenue (not profit). The product resources are
the product design in engineering and contract manufacture which expertise in designing to building conflict,
scientific instrumentation, medical devices and industrial equipment
Sample Question: Multiple Choices:
Which of the following decision rule to determine the optimal combination of productive factors?

Answer: D.

An increase productivity of a factor of production will typically increase the demand of that factor. Which of
the following is associated with an increase in the demand for a factor of production?

Answer: A. a person’s acquisition of human capital

TRUE-FALSE:

Monopsony is one buyer for a commodity in the market. {TRUE}

The MRP slopes downward in an imperfectly competitive (resource) market serving an imperfectly
competitive product market because the MP diminishes in the price of the output must be lower to sale more.
{TRUE}