Describe how the government should set a monopolist's price to ensure allocative efficiency. What is the problem with setting the price at this level?
What will be an ideal response?
To ensure that allocative efficiency is achieved, the government should set a natural monopolist's price at the point where the demand curve and the marginal cost curve intersect. Since MC is always less than ATC for a natural monopoly, this marginal cost pricing will lead to a loss on every unit of output produced, driving the firm into bankruptcy in the absence of a government subsidy.
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Suppose the elasticity of labor demand is 0.6. Then a decrease in the wage rate will:
A. Decrease total wage income B. Increase total wage income C. Have no impact on total wage income D. Have an indeterminate impact on total wage income
Most payments in the United States for goods and services are made using
A) currency. B) traveler's checks. C) checking account deposits. D) gold.
The demand for Dell laptops is more price elastic than the demand for laptops as a whole. This can be best explained by the fact that
a. There are fewer substitutes for Dell laptops than for laptops as whole b. There are more substitutes for Dell laptops than for laptops as whole c. Dell laptops are luxurious goods d. Dell laptops are a necessity
Ellie has been working for an engineering firm and earning an annual salary of $80,000 . She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of
deposit on which she was earning annual interest of $500 . According to an economist, which of the following revenue totals will yield Ellie's business $50,000 in economic profits? a. $55,200 b. $100,200 c. $132,500 d. $185,700