Multiple Choice
The marginal revenue (MR) curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
Which of the following is a reason for a monopoly's loss of economic profit?
A
Entry of new competitors due to the breakdown of barriers to entry
B
Ability to set any price without affecting quantity demanded
C
Perfectly elastic demand for the monopolist's product
D
Constant marginal cost regardless of output level
Verified step by step guidance1
Understand the concept of economic profit for a monopoly: Economic profit occurs when total revenue exceeds total cost, including opportunity costs.
Recall that monopolies typically maintain economic profit due to barriers to entry that prevent new competitors from entering the market.
Analyze the effect of the breakdown of barriers to entry: When barriers fall, new competitors can enter the market, increasing supply and driving down prices.
Recognize that increased competition reduces the monopolist's market power, leading to a decrease or loss of economic profit.
Evaluate the other options: Ability to set any price without affecting quantity demanded is generally false for monopolies; perfectly elastic demand and constant marginal cost do not directly explain loss of economic profit.
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