Quiz 7 – Perfect Competition (Due in Class Tuesday 14th)
Professor Matthew Festa
1) State the 4 assumption of Perfect Competition and explain the meaning behind them (2 points)
2) In the graph below, what will happen if the producer produces more? What will happen if he produces less? Why is this the case? (2 points).
3) In the graph below, why is the market out of equilibrium? What will happen to price and output as competition corrects the imperfection in the market (2 points).
4)In the graph below, why does the monopolist enjoy economic (or monopoly profits? Why can’t the market compete these extra profits away? (2 points).
5) If the authorities attempt to force the monopolist to produce at P = MC, what is the problem from the standpoint of profits?. Base your answer on the graph of the monopolist? (2 points).
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