The product-variety externality arises in monopolistically competitive markets because
a. firms produce with excess capacity.
b. firms try to differentiate their products.
c. firms would like to produce homogeneous products, but the large number of firms prohibits it.
d. entry and exit is restricted.
b
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If a seller can sell 5 units at $8 each and can sell a 6th unit separately for $7 (the people willing to pay $8 don't learn about the reduced price), the marginal revenue from selling the 6th unit is
A) $47. B) $7.50. C) $7. D) $2. E) none of the above.
Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year
If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs? A) Fly Right. B) Fly by Night. C) Neither, the costs are identical. D) Neither, Fly by Night has lower costs at small output levels and Fly Right has lower costs at high output levels.