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Econ 274 Practice Problems Answers

Econ 274 Practice Problems Answers - Econ 274 Practice...

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Econ 274 Practice Problems 1) Can you draw a monopoly supply curve? If so, what does it look like? No. A supply curve illustrates how much firms produce for a given price level. A monopolist chooses a single price and quantity level to maximize profits. 2) Why is the marginal revenue always less than the price for a monopoly? Because when a monopolist increases quantity, the price it can get falls a little bit. Said differently, a monopolist faces an elastic demand curve. 3) Can an economist infer whether industry behavior in an oligopoly is the result of tacit versus explicit collusion? Probably not. Both would look identical from the point of view of an economist who observes publically available data. If in a sealed bid auction, two parties bid exactly the same price, one would reasonably expect explicit collusion. Also, as CJ mentioned in class, precisely timed price increases suggests explicit collusion. Pricing behavior that is improbably correlated with something like phases of the moon would be a giveaway, but very difficult to notice.
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