Why is the demand curve for a monopolist downward sloping? How does this affect the monopolist’s behavior?
What will be an ideal response?
The competitive firm faces a horizontal demand, because it is so small compared to the market that it cannot affect price. It simply takes the market-determined price as given. The monopolist, however, is the entire industry and faces the industry demand curve for its product. Just as the industry demand curve for competition is downward sloping, the monopolist faces such a curve for itself.As indicated in the chapter on elasticity, when the firm must cut price to increase unit sales, there will be a loss of revenue on the output that it has been selling and a gain in revenue on the additional output. The marginal revenue in this case is less than the price the firm charges, and may even be negative. Therefore, the firm must be careful to charge a price high enough to keep marginal revenue positive. Further, the profit-maximizing firm should equate marginal revenue and marginal cost.
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According to the interest rate effect, an increase in the price level causes people to:
a) increase their money holdings, which increases interest rates and decreases investment spending. b) decrease their money holdings, which increases interest rates and decreases investment spending. c) to increases their money holdings, which decreases interest rates and decreases investment spending. d) to decrease their money holdings, which decreases interest rates and increases investment spending.
Refer to Figure 16.4. If the economy is initially in equilibrium at P3 and Q1, which of the following policies would move the economy to equilibrium at P2 and Q3?
A. Restrictive supply-side policy alone. B. A combination of restrictive fiscal policy and restrictive monetary policy. C. A combination of expansionary monetary policy and expansionary supply-side policy. D. Contractionary monetary policy alone.
The Temporary Assistance for Needy Families (TANF) program _____.
(A) Provides benefits to a family for ten years. (B) Can only provide jobs for individuals in an enterprise zone. (C) Only provides cash assistance to poor families. (D) Provides work in exchange for temporary assistance.
Suppose 10% of all workers are of high ability. If a firm knows a worker's ability, workers of low ability are paid $20,000 and workers of high ability are paid $30,000. A college degree can signal ability, and the cost of the degree is $11,000. Will there be a pooling equilibrium or a separating equilibrium?
What will be an ideal response?