Question

PART 6: True or false and multiple-choice questions

Question 16: True or false, firms in situation of monopolistic competition have deadweight losses associated with monopoly because of barriers to entry.

Question 17: Which of the two demands functions below is most elastic

A) Qa=100-2p

B) Qb=120-p

Question 18: If a buyer values an object for $4 and a seller’s cost is $1, which of the statements below is false!

1. If a transaction takes place, total surplus will be equal to $3
2. For the exchange to occur, the price has to be equal to $2.50, no other prices will allow an exchange to occur.
3. Whenever an exchange takes place, the allocation is efficient.
4. The buyer is ready to pay up to $4 for the object

Question 19: True or false, price discrimination is inefficient.

Question 20: Which of these goods’ demand is likely to be most inelastic

1. An inhaler for asthmatic people
2. A generic soft drink brand
3. Cellphones
4. Airline tickets

Answer 1

Answer :

Question 16 : FALSE

In monopolistic competition there are no barriers to entry. The deadweight loss is because the firms in monopolistic competition charge a price higher than the marginal cost and also operate under excess capacity.

Question 17 : A) QA = 100 - 2p is more elastic. Since in this demand function a unit change in price changes quantity demanded by 2 units. While inoption B, a unit change in price changes quantity demanded by 1 unit only.

Question 18 : Option B) is False, since the exchange between the buyer and the seller can take place at any price between $1 to $4 (including them).

Question 19 : TRUE, price discrimination is inefficient, also allocatively inefficient. Since majority of the customers in this scenario pay a price well above the marginal cost.

Question 20 : Option A), inhalers for asthmatic people are kind of a true health necessity and thus they are expected to be less sensitive (inelastic) to changes in price. Thus their demand can be considered to be the most inelastic amongst the given options.