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10 points  

QUESTION 2
  1. Which of the following is a criticism of

average-cost pricing as a regulatory response to a natural monopoly?

  • With average-cost pricing, output produced is smaller than the efficient level of output.
  • Firms that practice average-cost pricing suffer persistent losses.
  • Imperfect information about the firm's costs reduces the effectiveness of average-cost pricing.
  • Under average-cost pricing, the market price is lower than the efficient price.

  • Answers with average-cost pricing, output produced is smaller than the efficient level of output and imperfect information about the firm's costs reduces the effectiveness of average-cost pricing are both correct.

  • 10 points  

    QUESTION 3
    1. In the long run, monopolistically competitive firms:
    2. earn zero economic profit.
    3. face perfectly elastic demand curves.
    4. tend to standardize their products.
    5. produce output at minimum marginal cost.
    6. merge and form a few dominant firms to maximize profit.

    10 points  

    QUESTION 4

    1. Refer to Figure 8-1. If the firm operates as a monopoly in an unregulated market, its profit-maximizing price and output would be _____, respectively. 
    2. C and Q
    3. A and Q
    4. B and R
    5. D and P
    6. A and T

    10 points  

    QUESTION 5

    1. Refer to Figure 8-1. The efficient level of output in the market is:
    2. R - P.
    3. R.
    4. Q.
    5. P.
    6. T.

    10 points  

    QUESTION 6
    1. Which of the following is true in the long run under monopolistic competition?
    2. P = MC.
    3. P = AC.
    4. P > AC > MC.
    5. Price > AC = MC.
    6. MR > MC.

    10 points  

    QUESTION 7
    1. In a perfectly competitive market, industry demand is: P = 850 - 4.7Q, and industry supply is: P = 250 + 4Q (Supply is the sum of the marginal cost curves of the firms in the industry). If instead all of the firms behave as a cartel, prices will increase by ____.
    2. Hint: Round your answer to two decimal places

    10 points  

    QUESTION 8
    1. Unlike perfectly competitive markets, monopolistically competitive markets: 
    2. have significant barriers to entry.
    3. face declining average costs at all levels of output.
    4. have fewer firms.
    5. produce differentiated products.
    6. Answers face declining average costs at all levels of output and produce differentiated products are both correct.

    10 points  

    QUESTION 9
    1. Which of the following is a characteristic of a firm that is a natural monopoly?
    2. The firm's average costs decline over all levels of output.
    3. The firm's elasticity of supply is very low.

    4. The firm does not incur any sunk costs.
    5. The firm faces a horizontal demand curve.

    6. The firm makes zero economic profit.


    10 points  

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