A market could function under competition in the situation of ...

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A market could function under competition in the situation of Figure 3.1 if demand is at the level of DD.
 
  Indicate whether the statement is true or false

Question 2

The unregulated profit maximizing monopolist prefers to operate where demand is inelastic.
 
  Indicate whether the statement is true or false

[mmpiza]

Answer to Question 1

F Only two firms can operate in such a market, and scale economies are so great that entry is not likely, so true competition cannot be expected to function well.

Answer to Question 2

F Where demand is inelastic, marginal revenue is negative and the monopolist could maximize profit there only if marginal cost was also negative, which is most unlikely.

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Gracias!

[coreycathey]

Excellent