The Principal Difference Between Economic Profits for a Monopolist and for a Competitive

question 20

Multiple Choice

The principal difference between economic profits for a monopolist and for a competitive firm is that:

• A)monopoly profits create major problems of equity whereas competitive profits do not.
• B)competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
• C)monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
• D)monopoly profits are usually larger than competitive profits.

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Definitions:

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, helping in the calculation of the risk premium of various assets.

Expected Return

The calculated average of the possible returns for an investment, weighted by the likelihood of each outcome.

Constant-Growth DDM

A model that calculates a stock's value by assuming dividends will increase at a steady rate forever, known as the dividend discount model with constant growth.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates that the stock is more volatile than the market.