Question

Refer to the information provided in Figure 8.6 below to answer the questions that follow. Cost curves for Outdoor Equipment 1 B 3 Cost per unit 2 A Number of sleeping bags 9 Figure 8.6

Answer 1

1.

Since MC curve cuts ATC and AVC at their minimum points. So if MC equals average total cost, then average total cost is at its minimum value. If MC equals average variable cost is at its minimum value.

Hence curve 1 is outdoor Equipment’s marginal cost curve.

Hence option second is the correct answer.

2.

A monopoly firm is a single seller because there are barriers to entry. In a pure monopoly industry, there is a single firm. The barriers to entry are those factors which lead to the restriction of entry by the new firms. These are patent laws that restrict the entry of new firms. License and copyrights are also an example of barriers to entry.

A monopolist firm is a maker and profit-maximizing condition is

MR=MC

Corresponding to this condition profit-maximizing quantity is determined.

Hence monopoly price is (0G) and quantity is 500 units.

Since consumer surplus is the area below demand curve and above price.

Hence consumer surplus is area of triangle (GAB).

Hence option first is the correct answer.

3.

The socially efficient condition

P=MC

Corresponding to this condition socially efficient quantity is 800 unit.

Hence option third is the correct answer.

4.

TR=P*Q

So total revenue increases if price rises and demand is elastic.

Hence option fourth is the correct answer.