Homework Clinic
Social Science Clinic => Economics => Topic started by: oliviahorn72 on Jun 29, 2018
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Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a monopoly or a monopolistically competitive market?
What will be an ideal response?
Question 2
What do economists call the situation where a hired manager does not have the same interests as the owners of the business?
A) a financial intermediary problem B) a principal-agent problem
C) conquest and control D) a financial problem
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Answer to Question 1
Prices are likely to be higher in a monopoly than in a monopolistically competitive market. Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost and read price off the demand curve. The demand curve facing a firm in a monopolistically competitive market is fairly elastic (that is, it is fairly flat) because other firms' goods are close (but not perfect) substitutes. Since monopolies face steeper demand curves, prices are likely to be higher in a monopoly.
Answer to Question 2
B