Compare and contrast the marginal cost and average cost pricing rules for regulating natural monopolies
What will be an ideal response?
Marginal cost pricing sets the price equal to the marginal cost. It does so by determining the price using the intersection of the marginal cost curve and the demand curve. Marginal cost pricing results in an efficient level of output but the firm incurs an economic loss. Average cost pricing sets the price equal to the average cost. It does so by determining the price using the intersection of the long-run average cost curve and the demand curve. Average cost pricing results in an inefficient level of output and zero economic profit, that is, a normal profit.
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A) $150. B) $75. C) $37.50. D) $0.
Customers who have long-term relationships with banks
A) pose particular problems with respect to adverse selection. B) pose particular problems with respect to moral hazard. C) often obtain credit at a lower rate or with fewer restrictions. D) are more likely to default or violate restrictive covenants.
Suppose Bright Orange is large firm that grows and harvests oranges. Each orange yields 2 ounces of orange juice and exactly one orange peel. Bright Orange sells the orange juice to juice distributors and the orange peels to fragrance companies. The market demand for Bright Orange's oranges is equal to ________.
A) the demand for orange peels only B) the demand for orange juice plus the demand for orange peels C) the demand for orange juice only D) the difference between the demand for orange peels and orange juice
An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving
a. True b. False Indicate whether the statement is true or false