Question

In: Economics

1. What is likely to increase in a monopoly market compared to a competitive market? A....

1. What is likely to increase in a monopoly market compared to a competitive market?

A. Consumer surplus is likely to increase

B. Community surplus is likely to increase

C. Producer surplus is likely to increase

D. Social welfare is likely to increase

2. A deadweight social burden triangle (allocative inefficiency) occurs if a business produces an output where:

A. The total benefit to society equals the total cost

B. There is the biggest possible negative difference between marginal benefit and marginal cost on the last unit produced

C. The social marginal benefit of the last unit produced equals the social marginal cost

D. The social marginal benefit of the last unit produced is greater than the social marginal cost

3. The cobweb model of agricultural prices assumes that farmers base their production levels on what?

A. Last year's price

B. The government's price

C. The expected price next year

D. The output level set by the government

Solutions

Expert Solution

Q1) Monopoly is market structure when there is single seller in the market of the product . When seller face no competition or low competition . When price increase and demand does not fall it increases the producer surplus . As producer surplus increase initiative to produce more increase which further increase the firm monopoly power .

Correct answer is C

Q2) Deadweight loss is the cost to the society due to the market inefficiency , which occurs when demand and supply are not in equilibrium. This is negative social benefits to the society .  

Welfare to society = Marginal Benfit - Marginal cost .

Welfare is negative and maximum during dead weight loss .

Correct answer is B

Q3 ) According to cobweb model farmer produces the good seeing the last year price of the good . If the price of good last year is high they produces large quantity in hopw to earn profit , if the price are low they produce low quantity .

Correct answer is A


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