Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power in the United States large or small?
What will be an ideal response?
Market power allows a firm to set its price above marginal cost, which creates deadweight loss. Research suggests that in the United States total deadweight loss from market power is fairly small, perhaps less than one percent of GDP.
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At his current level of output, a monopolist has a MR of $10, a MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, the monopolist: a. is producing at the profit-maximizing level of output
b. could increase profit by increasing output. c. could increase profit by increasing his price. d. should exit the market if significant fixed costs have been incurred.
If the economy is in a recession, the Fed is likely to:
A. buy bonds through open market operations. B. increase the discount rate. C. increase the reserve requirement. D. print more currency.
Refer to the graph shown. If consumers have a $15 co-pay, total expenditure on the product by both the third party and the consumer will equal:
A. $125. B. $1,125. C. $750. D. $375.
If workers and firms have rational expectations, they form their expectations using
A) all the information available to them. B) only information from the past. C) only information provided to them by the government. D) only information gathered from random sources.