In the Baumol model, the total quantity sold will usually be larger than
A) if perfect competition prevailed.
B) if total costs were minimized.
C) if profit were maximized.
D) if companies were interdependent.
C
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Suppose a monopoly sells to two identifiably different types of customers, A and B, who are unable to practice arbitrage. The inverse demand curve for group A is PA = 10 - QA, and the inverse demand curve for group B is PB = 18 - QB. The monopolist is able to produce the good for either type of customer at a constant marginal cost of 2, and the monopolist has no fixed costs. If the monopolist
practices group price discrimination, the profit-maximizing prices charged to each type of customer are A) PA = 6, and PB = 10. B) PA = 4 and PB = 8. C) PA = 10, and PB = 6. D) PA = 8, and PB = 4.
Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your action?
a. the law of supply b. tea and coffee are complements c. the substitution effect d. the income effect e. your nominal income has increased