E202PracticeExam3.6 - Delhi, India. The demand curve for...

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Practice Exam Three Solutions Chapter 9 1. (5 pts) What is the socially desirable price for a natural monopoly to charge? Why will a natural monopoly that attempts to charge the socially optimal price invariably suffer an economic loss? Answer : The socially desirable price to charge is the one at which the marginal benefit to consumers equals the marginal cost of production. However, natural monopolies usually have very large fixed costs and relatively low marginal costs. The high fixed costs mean that average cost is greater than marginal cost, so that charging a price equal to marginal cost implies economic losses. 2. (15 pts) Suppose that an airline has a monopoly on direct flight service from Chicago to New
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Unformatted text preview: Delhi, India. The demand curve for regular coach tickets during the summer is P = 2600 - 5Q, where P is the price of a ticket in dollars and Q is the number of tickets sold each day. The demand for tickets the rest of the year is P = 2000 - 5Q. The marginal cost of an additional passenger, regardless of the season, is $200. a. Graph the demand curve during the summer and for the rest of the year. b. Graph the marginal cost curve for both markets. c. Derive and graph the marginal revenue curve during the summer and for the rest of the year. Answer : The marginal revenue curves are MR = 2600 - 10 Q during the summer and MR = 2000- 10 Q during the rest of the year....
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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