Question

Part a:

Let's say that a monopolist produces at an output where its price is greater than its average variable cost, but its price is less than its average total cost. In this case, the monopolist:

  

operates at a loss and should shut down.

   

operates at a positive accounting profit, but zero economic profits.

   

operates at a loss but should not shut down.

   

operates at a positive accounting profit, and at positive economic profits.

   

None of the above

Part b:

Which of the following situations is (are) a violation(s) of the United States anti-trust laws?

Mr. Blanco serves on the board of a large computer corporation. He also serves on the board of a large university.

A wholesale firm that sells hot dog rolls offers a fast food chain a discount of 20% on its products. It also sells soft drinks and doesn't offer a discount on these.

Executives of two large telephone companies meet and agree to charge their customers the same monthly price for a family plan offering.

  

All of the above are violations

   

Situations 1 and 3 (a and c) are violations.

Answer 1

The monopolist is produces the output where it's price is greater than Average variable cost but price is less than Average Total cost.

Thus the firm is operating at loss. But it should not shut down. Since it is selling its output greater than AVC. If price might have been less than AVC in that case firm must shut down.

Answer. Operates at loss but should not shutdown.

Part B.

Mr Blanco is working in a large computer firm board and in a large University .it may be a case of conflict of interest.

Anti trust law was established to stop corporates from creating cartel. Thus, the third scenario is a clear voilation of anti trust law. Executives of two large telephone companies meet and agree to charge their customer same monthly price is an example of cartel. Thus it is violation of antitrust law.

Option C. Is correct.

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