DEL CAMPO, BLESSIE ANN C.

BSBA HRM 2C
ECO-MODULE 6

I. ASSIGNMENT

REVIEW EXERCISES
MONOPOLY
Exercise I

Indicate whether the following characteristics exist in monopolistic competition. Write YES on the
black for those that do exist and NO FOR THOSE THAT DO NOT.
____________1. Freedom of entry into the market.
____________2. Consumers enjoy variety of products.
____________3. The seller is a price maker.
____________4. The seller can set price as high as he can without affecting demand.
____________5. The seller's demand curve is downward sloping.
____________6. The seller's marginal revenue is lower than price.
____________7. Perfect knowledge of market conditions.
____________8. The seller advertises his product.
____________9. Profit is maximized where MR=MC.
____________10. Extraordinary profits are enjoyed when price exceeds the average cost.
Exercise 2
Enumerate the differences between a purely competitive economy and a purely monopolistic
economy.
1.
2.

Exercise 3
Complete the following table. Accomplish the tasks the following.

Quantity Price Total Average Marginal Total Marginal Total

Cost Cost Cost Revenue Revenue Profit
0 ₱200 145
1 180 175
2 160 200
3 140 220
4 120 150

Quantity Price Total Average Marginal Total Marginal Total

 Cost Cost Cost Revenue Revenue Profit
5 100 300
6 80 370
7 60 460
8 40 570

1. Compute and graph profit maximization using:

a. TR - TC Approach
b. MR = MC Approach

2. How much is maximum profit?

3. Graph the profit area.
Exercise 4

Discuss the following;

1. Producers would prefer a market characterized by monopoly. Explain the theoretical and
practical reasons for your answer.
2. How do you characterize monopolies in the Philippine? Relate your answer to the study
made by the group of UP economists.

Exercise 5

Write C for a purely competitive market, M for a monopolist market/industry, or F if neither one.
____________1. Each seller takes the role of a price taker.
____________2. Shutdown point is when determined selling price is less than a firm's AVC.
____________3. Firm maximizes profit when determined selling price is less than a firm's AVC.
____________4. In the long run, all costs become variable.
____________5. No good substitutes are available for the good or service the only firm offers.
____________ 6. Break-even position is when marginal cost is equal to AVC.
____________7. Only more than normal profits can be earned by the farms.
____________8. A firm's supply curve is its variable cost curve.
____________9. Profit is maximized at an output level where MR is equal to MC.
____________10. The firm and the industry are one.
____________11. Confined to a geographic area and regulated by a government agency
____________12. Faces a downward sloping demand curve and must maximize profits given
the market demand and its cost of production.
____________13. No advertising cost
____________14. Affects no other firms with his actions and the actions of other firms do not
affect him
____________15. If selling price ice is higher than average cost, there is zero profit.

II. EVALUATION (Note: Not to be included in the student’s copy of the IM)
 REVIEW EXERCISES
Exercise 1
Indicate if the following characteristics exist in oligopolistic market by putting a check (√) on the
blank before those that are and a cross (x) for those that are not.
_______ 1. Easy entry into the market.
_______ 2. Uniform pricing of product
_______ 3. Interdependence of action among sellers
_______ 4. Products sold may be homogeneous or differentiated.
_______ 5. Prevalent nonprice competition
_______ 6. Sellers enjoy a degree of market control.
_______ 7. The seller’s marginal revenue is lower than price.
_______ 8. Profit is maximized where MR = MC.
_______ 9. A decrease in the price of one seller is usually matched by price decreases of his rivals.
_______ 10. The marginal revenue curve is truncated.

Exercise 2
Put a (√) on the box whether the following characteristics fall under their category or
cross (x) if not.
Monopolistic Pure
Monopoly Oligopoly
Competition Competition
a. Differentiated products 1. 2. 3. 4.
b. Sellers act independently 5. 6. 7. 8.
c. Freedom of entry is easy 9. 10. 11. 12.
d. MC > P 13. 14. 15. 16.
e. MR = MC 17. 18. 19. 20.
f. Lower prices to sell more 21. 22. 23. 24.
g. Uses nonprice competition 25. 26. 27. 28.
h. Uses advertising to sell more 29. 30. 31. 32.
i. Allows consumer choice 33. 34. 35. 36.
j. Demand curve reflects price 37. 38. 39. 40.

Exercise 3
Write T if the statement is true and F if it is not.
_________ 1. Monopoly is a market structure characterized by product differentiation.
_________ 2. Consumers’ welfare is maximized under oligopoly.
_________ 3. Equilibrium situation exists in pure competition where P = MR = MC.
_________ 4. Collusion is prevalent under monopolistic competition.
_________ 5. Under monopolistic competition, product differentiation allows some firms to
obtain higher prices.
_________ 6. Consumer prefers a market characterized by oligopoly rather than monopolistic
competition.
_________ 7. In order to sell more, a monopolist has to lower his price.
_________ 8. Under pure competition, economic profits are increased by the entry of new firms.
_________ 9. The demand curve of a firm under pure competition is infinitely elastic.
_________ 10. Collusion in its most complete form is exemplified by centralized cartel.
_________ 11. Under monopolistic competition, profit is maximized where P = MR = MC.
_________ 12. Under monopoly, sales per unit of time at different levels are attained where MR = P.
_________ 13. A monopolist follows the MC as its supply curve.
_________ 14. Short-run equilibrium under monopolistic competition implies that all firms change
Identical prices.
_________ 15. Monopolistic competition is the only market form embracing elements of both
monopoly and pure competition.
_________ 16. Under pure competition, the value of the marginal product of a resource is equal
to its marginal revenue product.
_________ 17. Easy entry into the industry is compatible with a high degree of collusion.
_________ 18. In the short-run equilibrium, the firm has an opportunity to change what it is doing.
_________ 19. Both collusive oligopolies and pure monopolies restrict output and raise prices for
greater profits.
_________ 20. Deterioration of the quality of goods or services is more prevalent under monopoly.

Exercise 4
Choose the letter of the correct answer. Write your answer on the line before each
number.
_________ 1. A monopolist is in equilibrium if ___________.
a. his profits are in excess of normal
b. his price causes sales of the quality at which MR = MC.
c. consumers are satisfied with his price
d. he sells the amount at which MR crosses the quantity axis
_________ 2. One oligopolist is in equilibrium if _________.
a. it does not exist
b. it may be altered depending on the reactions of his rivals
c. it represents the demand for the whole industry
d. it may be altered since conditions constantly change
_________ 3. Freedom of entry in monopolistic competition is _________.
a. a limiting force in excessive profits
b. significantly inhibited because of complex technical requirements
c. denied by collusion
d. expensive because of fixed cost
_________ 4. Which is a characteristic of an oligopoly?
 a. an open market for the best interests of consumers
b. a market situation with no competition
c. a market situation with only one buyer
d. a market situation with only a few competing sellers
_________ 5. In the kinked demand curve model of simple oligopoly, the price established in
the
industry will not fall because if one firm attempts to _________.
a. increase price, other firms will follow
b. decrease price, other firms will not follow
c. decrease price, other firms will follow to start a price war
d. decrease price, other firms will increase price
_________ 6. Nonprice competition often takes the form of ____________.
a. homogeneous products
b. price wars
c. product differentiation
d. collusion
_________ 7. The marginal revenue product is equal to ___________.
a. a summation of the variable and fixed cost
b. the marginal product times the price of the output
c. price times marginal cost
d. the interaction of demand and supply
_________ 8. The marginal revenue product declines because of ____________.
a. increasing returns to scale
b. diminishing returns to scale
c. the falling price of the input
d. interaction of marginal utility and marginal cost
_________ 9. A monopoly finds that its present level of output and sales revenue are equal to
P5
and marginal cost is P4.10. Which of the following maximizes profits?
a. leave price and leave output unchanged
b. increase price and leave output unchanged
c. increase price and decrease output
d. increase price and increase output
________ 10. Price leadership in oligopoly means __________.
a. one firm sets new prices
 b. one firm alters price
c. all firms collude
d. small firms make price changes
Exercise 5
Complete the following table. Answer the questions that follow.
1. Compute, graph, and explain profit maximization using:
a. TR = TC approach; and
b. MR = MC approach.

Average Marginal Total Marginal

Price Quantity Total Cost Profit
Cost Cost Revenue Revenue

P40 0 P30
35 2 50
30 4 100
25 6 120
20 8 150
15 10 175
10 12 200
5 14 250

2. How much is the maximum profit?

3. what kind of market is this? Why?