In general, monopolies decrease economic efficiency. But in the presence of detrimental externalities, is it possible for a monopoly to be more efficient than a competitive market? Why, or why not?
What will be an ideal response?
Yes. Detrimental externalities lead to inefficiently high production because marginal private cost exceeds marginal social cost. Monopolies reduce production and charge prices above marginal private cost. Theoretically, if the monopoly price is closer to marginal social cost than the competitive market price, the monopoly can reduce inefficiency.
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What is the difference between marginal product and average product?
A. Marginal product is the additional output that a firm decides to produce for the next quarter based on market conditions. Average product is the average output over the past four quarters. B. Marginal product is the additional output that will be forthcoming from an additional worker, assuming that other inputs are constant. Average product is output per worker, or the total output divided by the number of workers. C. Marginal product is the additional output for every extra dollar paid to workers, assuming that other inputs are constant. Average product is output divided by total wages. D. Marginal product is the additional output that will be forthcoming from building an additional factory. Average product is output per worker, or the total output divided by the number of workers.
When one automaker begins offering low cost financing or rebates, others tend to do the same. What two oligopoly models might offer an explanation of this behavior?
What will be an ideal response?