SAMPLE QUESTIONS – THEORY OF FIRMS

1. - Using diagrams, explain what it means for a firm to be a price taker.

- It is useless to study the market model of perfect competition because it doesn’t allow for
the possibility of economies of scale - a feature of many real world industries. Evaluate the
statement.
2. - Explain the relationship between price, the demand curve, average revenue, and marginal --
revenue for firms that have market power and firms that do not.
- Compare and contrast perfect competition and monopoly with respect to social welfare in
the long run.
3. - Using a diagram explain the meaning of natural monopoly.
- Evaluate the view that producers are the only stakeholders that can benefit from a
monopoly market structure.
4. - Explain why prices in non-collusive oligopoly tend to be stable over extended periods of
time.
- Evaluate the role of regulation and legislation designed to reduce monopoly power.
5. - Explain the conditions that must be satisfied for a firm to be able to practice price
discrimination.