Microeconomics Answers

Q7) Answer the following questions making the comparisons between the perfectly competitive and monopoly

firms.

a) Differentiate both with respect to market, nature, resource mobility price information and demand curves.

b) Looking at the short run and long run conditions is it possible for a perfectly competitive firm to survive in the

long run with zero profits? Explain your answer with reason (s).

c) Looking at the short run and long run conditions is it possible for a monopoly firm to survive in the short run

with losses? Explain your answer with reason (s).

Q4) a) Assuming that food is a normal good up to a certain level of income, show that an increase in price would

induce the substitution and income effects to move in the same directions. What would be the total effect on the

quantity of food.

b) Assuming that food is inferior up to a certain level of income, show that an increase in price would induce the

substitution and income effects to move in the opposite directions. What would be the total effect on the quantity of

food.

Q3) Explain how the concepts of isoquant and isocost curves can be used to determine the equilibrium of a

producer.

Q1) Explain the two associated concepts used to determine the satisfaction or utility of a consumer. Which measure

is sufficient to sketch a set of indifference curves?

Q2) With the help of diagrams explain the following that whether these are false or true regarding the indifference

curves.

a) Indifference curves are positively slope.

b) Indifference curves can intersect.

c) Indifference curves are concave to the origin.

compare the possibility of earning Economic profit by the firms operating under the three types of market, viz. perfect competition, monopoly, and monopolistic competition 

Draw a diagram of the long run monopolistic competition. How is the price related to average 

total cost? How is price related to marginal cost?

Give an example of Government created monopoly. Is creating this monopoly is good for public 

policy or bad? Discuss.

i. Explain how a monopolist chooses the quantity of output to produce and price to 

charge. Give graphical representation.

ii. Describe the ways policymakers can respond to the inefficiencies caused by the 

monopolies.

Only one firm produces and sells soccer balls in a country namely XYZ, and as the story begins, 

international trade in soccer balls is prohibited. The following equations describe the 

monopolist’s demand, marginal revenue, total cost, and marginal cost: 

Demand: P = 10 – Q.

Marginal Revenue: MR = 10 – 2 Q

Total Cost: TC = 3 + Q + 0.5 

Marginal Cost: MC = 1 + Q

Where Q and P represent the quantity and prices respectively;

a. How many soccer balls does the monopolist produce? What will be the price and profit?

b. One day country decides free trade in the market that opens the doors for exporters and 

importers. The world price for soccer balls is now $6. The market is now perfectly 

competitive market. What will happen to the domestic production of the soccer balls?