Compare the advantages and disadvantages of marginal and average cost pricing for natural monopolies
Marginal cost is the correct cost to use in measuring the resources that go into producing additional output. But for firms that enjoy large economies of scale, MC lies below AC, so the firm loses money. AC pricing can allow the firm to earn a normal rate of return. The determination of AC is difficult if the firm produces multiple products. More fundamentally, price based on average cost does not lead to efficient consumption decisions, since P > MC.
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The natural unemployment rate is 4 percent and the actual unemployment rate is 7 percent. According to Okun's Law, how does of real GDP compare to potential GDP?
What will be an ideal response?
A firm in an oligopolistic industry has the following demand and total cost equations:
P = 600 - 20Q and TC = 700 + 160Q + 15Q2 Calculate: a. quantity at which profit is maximized b. maximum profit c. quantity at which revenue is maximized d. maximum revenue e. maximum quantity at which profit will be at least $580 f. maximum revenue at which profit will be at least $580
If resource prices rise and the average total cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will
a. be perfectly elastic (a horizontal line). b. be perfectly inelastic (a vertical line). c. slope upward to the right. d. be more inelastic than the short-run supply curve for the product.
If there is an improvement in technology that affects only Aggregate Supply and a nation's wealth falls due to a sagging stock market, then:
a. Price index rises, and the change in real GDP is uncertain. b. Price index falls, and real GDP rises. c. Price index falls, and the change in real GDP is uncertain. d. Price index falls, and real GDP falls. e. The change in price index is uncertain, and real GDP rises.