Question

8

When government regulators wants a monopoly to earn “a fair rate of return,” then they will allow the price to be set at what point?

Multiple Choice

• Where Price = Average Total Cost

• Where Price = Average Total Cost

• Where Price is just equal to the equilibrium point

• Where Price = Marginal Cost

12

Constant returns to scale on the Long-Run Average Total Cost Curve means what?

Multiple Choice

• The Long-Run Average Cost Curve is shifting down

• The business is operating at the low-end flat range of the Long Run Average Total Cost curve and your costs are not rising as you increase production.

• You are getting a fixed rate of return on your financial investments

• The Long-Run Average Cost Curve is shifting up

13

The marginal revenue curve for a monopoly tells us that as the monopolist sells one more unit, the marginal revenue per unit will fall.

True or False

15

Suppose a protestor who never took an economic or business class and who never studied the facts about world trade made a sign that said, “All U.S. multi-national corporations are greedy pigs who exploit the poor.”

Conclusion: This statement is going to be classified as a normative economic statement.

True or False

Answer 1

Q8 Answer is A. Where price = Average total cost.

In average total cost fair returns are already added by the firm , so when price is set equal to ATC then it means firm is earning fair returns.

Q12 Answer is B.

When there is constant returns to scale LRATC will be flat along the horizontal axis and as the output increases total cost are increasing with same rate and average total cost is not increasing.

Q13 Answer is True.

MR curve of monopolist is downward sloping which means if monopolist wants to sell the more units he have to decrease the price. So when he increase the sale by one unit his MR will be less because he have to decrease the price of additional unit in order to sell.

Q True.

Positive statements are value based and that could be proved or disproved. Since he has not studied anything this is a normative statement.

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