Consider two resource markets in which the demand curves slope downward. In market A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource are hired. In market B, the supply curve is vertical, equilibrium price is $20, and 30 units of the resource are hired. Which of the following is true?
a. All of the resource earnings in market A are economic rent.
b. All of the resource earnings in both markets are economic rent.
c. All of the resource earnings in market B are economic rent.
d. None of the resource earnings in either market is an opportunity cost.
e. None of the resource earnings in either market is economic rent.
C
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The marginal cost curve is U-shaped. Over the range of output for which the marginal cost is falling as output increases, the marginal product is
A) increasing. B) decreasing. C) constant. D) probably changing, but there is no stable relationship between the marginal cost and the marginal product. E) not defined.
The authors claim that monopolists will tend to practice stronger conservation of depletable resources than would occur under a perfectly competitive market structure. Why is this true?
A) Monopolists are typically taxed at higher rates than competitive firms, so they will tend to reduce output and revenues in order to minimize their tax expenditures. B) The profit-maximizing decisions of a monopolist tend to generate lower output levels than under perfect competition, so the resource is depleted at a slower rate by the monopolist. C) Common property resource problems do not arise when there is only one seller. D) The lower depletion rate used by monopolists serves as a barrier to entry.