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Unformatted text preview: Suggested Solutions to PS5 I. True, False or Uncertain. Explain . No credit given without explanation. Use graphs or algebra to help explain your answer whenever possible (3 points each). 1. Total welfare under monopoly is less than total welfare under competition. True. A monopoly restricts output relative to the competitive level. This generates a deadweight loss. Consumers value the units the monopolist does not produce more than the cost of producing those units. Thus, total welfare is lower with a monopolist. Draw the graph for monopoly and competitive case showing producers’ and consumers’ surpluses. 2. Consumers who are more sensitive to changes in price suffer a greater loss of consumers’ surplus from any given price increase. Answer: False. Consumers who are more sensitive to the price increase will reduce their purchase of the good by a greater extent than those who are not price sensitive. As a result, they incur a smaller loss of consumer surplus....
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This note was uploaded on 11/14/2009 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell University (Engineering School).
- Spring '07