Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to the left and fifty to the right.
Suppose Candidate X is running against Candidate Y. If Candidate Z enters the race:
A. most of the voters who were going to vote for Y will now vote for Z.
B. approximately half of the voters who were going to vote for X will now vote for Z.
C. X will win because Y and Z will be competing for the same voters.
D. all of the voters who were going to vote for Y will now vote for Z.
Answer: A
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If the regulatory agency sets a price where AR = AC for a natural monopoly, output will be
A) equal to the competitive level. B) equal to the monopoly profit maximizing level. C) greater than the monopoly profit maximizing level and less than the competitive level. D) greater than the competitive level.
If a potato farmer increases output and finds that total revenue increased less than total cost, then you know for sure that
a. profit had been maximized b. the farmer should not have increased output c. the farmer should produce even more output d. the farmer suffers a loss e. the farmer should have decreased output, not increased it