Allocative efficiency occurs where:
a. the price of a good is less than the marginal cost of producing it.
b. the price of a good is greater than the marginal cost of producing it.
c. the price of a good is equal to the marginal cost of producing it.
d. the greatest quantity of output is available for sale.
c
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If a monopoly is maximizing profits:
a. price will always be greater than average cost. b. price will always equal marginal cost. c. price will always be greater than marginal cost. d. price will always equal marginal revenue.
Two identical firms have access to a spring. Their marginal cost of bottling water from the spring is a constant 10ยข per bottle. The market demand for bottled spring water is P = 250 - 20Q, where P is the price (in cents per bottle) and Q is the quantity demanded (in hundreds of bottles).
(i) Suppose the two firms form a successful cartel. How much bottled water will the firms produce, and what price will they charge? (ii) Suppose the firms behave as in the Bertrand model of oligopoly. How much bottled water will the firms produce, and what price will they charge? (iii) Suppose the firms behave as in the Cournot model of oligopoly. How much bottled water will the firms produce, and what price will they charge?