Question

Hey, I need help answering these questions, please provide your reasoning to each thanks!

1. Policymakers are discussing various proposals regarding how to deal with natural monopolies. Transportation Minister Gaston wants to regulate natural monopolies by equating price with average total cost. Gaston contends that such a policy will ensure that monopolies make every effort to reduce costs. Finance Minister Chen wants the government to own natural monopolies. Chen argues that government-owned monopolies usually do a better job of holding down costs than privately owned monopolies. Which Minister’s argument is correct?

	Transportation Minister Gaston’s argument
	Finance Minister Chen’s argument
	both ministers’ arguments
	neither minister’s argument

2. A monopoly firm maximizes its profit by producing 500 units output (so Q = 500). At that level of output, its marginal revenue is $32, its average revenue is $42, and its average total cost is $36.

What is the firm’s maximum profit?

Options:

	$2000
	$3000
	$4000
	$6000

3. Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to which factor?

Question options:

	a change in the technology that the firm utilizes
	new firms entering the market causing a shift of its demand curve
	new firms entering the market causing a shift of its supply curve
	increased product differentiation

Although the practice of predatory pricing is a common claim in antitrust suits, why are some economists sceptical of this argument?

Question 4 options:

	They believe the evidence of its practice is nearly impossible to collect.
	They believe predatory pricing is not a profitable business strategy.
	They believe predatory pricing may increase the total welfare of the economy.
	They believe that tying practices are worse for society.

5. Imagine that two oil companies, Big Petro Inc. and Gargantuan Gas, own adjacent oil fields. Under the fields is a common pool of oil worth $24 million. Drilling a well to recover oil costs $1 million per well. If each company drills one well, each will get half of the oil and earn a $11 million profit ($12 million in revenue minus $1 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue.

Refer to Scenario 17-2. If Big Petro Inc. were to drill a second well, what would its profit be if Gargantuan Gas did not drill a second well?

Options:

	$14 million
	$15 million
	$16 million
	$17 million

6. Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to which factor?

Question options:

	a change in the technology that the firm utilizes
	new firms entering the market causing a shift of its demand curve
	new firms entering the market causing a shift of its supply curve
	increased product differentiation

Answer 1