Microeconomics Final Exam Review

Why does a monopoly cause a deadweight​ loss? {Ans: because it stops producing output at a point where price is above marginal cost}The Aluminum Company of America​ (Alcoa) had a monopoly until the 1940s because {Ans: it had control of almost all available supply of bauxite.}Oligopolies exist and do not attract new rivals because {Ans: of barriers to entry.}Which of the following describes a situation in which a good or service is produced at the lowest possible​ cost? {Ans: productive efficiency}Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. If the diagram represents a typical firm in the designer watch​ market, what is likely to happen in the long​ run? {Ans: Some firms will exit the market causing the demand to increase for firms remaining in the market.}The graphs in the figure above represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. {Ans: The current market price is​ $3 but the price will fall in the long run as new firms