17 Jul A MONOPOLY OCCURS WHEN AN INDUSTRY HAS ONLY ONE FIRM THAT PRODUCES A PRODUCT AND THERE ARE NO CLOSE SUBSTITUTES. DESCRIBE THE CONDITIONS THAT LEAD TO A MONOPOLY.
A monopoly occurs when an industry has only one firm that produces a
product and there are no close substitutes. Describe the conditions that lead
to a monopoly. (6 points)
User Name:_______________ Instructor: _________________ Date:__________
(print clearly)
Directions
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Neatly write your responses in the spaces provided. Use a blue or black pen. Don’t write
in the margins.
Remember to complete the submission information on every page you turn in.
1. Monopoly
A. A monopoly occurs when an industry has only one firm that produces a
product and there are no close substitutes. Describe the conditions that lead
to a monopoly. (6 points)
B. A monopolist does not have a guaranteed profit. Draw a graph that
demonstrates a monopolist that is losing money but will not shut down. (4
points) Explain how your graph describes this situation. (3 points)
AP Microeconomics
Test: Market Structure
Page 2 of 4
2. Draw the graph of an oligopoly. Include MR, D, MC, ATC curves, and clearly
show profit and deadweight loss. (6 points)
3. Monopolistic and Perfect Competition
A. Why do firms in a perfectly competitive industry make zero economic profit
in the long run? (6 points)
AP Microeconomics
Test: Market Structure
Page 3 of 4
B. Draw a graph and write an explanation as to why a perfectly competitive
market is both allocatively and productively efficient. (7 points)
C. Use a graph and words to explain why a monopolistically competitive
market is neither allocatively efficient nor productively efficient. (7 points)
AP Microeconomics
Test: Market Structure
Page 4 of 4
4. What is a cartel? (2 points) How does it function? (4 points)
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