Under what conditions might a monopoly be more efficient than a perfectly competitive firm?
When there is a natural monopoly, one firm takes advantage of economies of scale that cannot be fully exploited by a smaller firm, thus producing at a lower ATC (and perhaps selling at a lower price). Often, however, regulation is necessary to compel a natural monopoly to produce near the efficient level of output.
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Suppose we advertise up to the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one)
If the full marginal cost of advertising is greater than one, then we will generate: A) less output than the profit maximizing level. B) more output than the profit maximizing level. C) the profit maximizing level of output. D) We don't have enough information to answer this question.
Answer the following questions true (T) or false (F)
1. An inferior good is a good for which the quantity demanded increases as the price decreases, holding everything else constant. 2. The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded. 3. If consumers believe the price of hybrid vehicles will decrease in the future, this will cause the demand for hybrid vehicles to decrease now.