Answer the following statements true (T) or false (F)
1. For a monopolist maximum profits will occur when the gap between average revenue (or price) and average cost is biggest.
2. In the long run equilibrium, a monopolist will earn zero economic profits.
3. In a monopoly at equilibrium, price is greater than marginal cost.
4. A monopolist will try to charge the highest price that it can charge.
5. In an unregulated monopoly at equilibrium, the output level is higher than the economically efficient level.
1. FALSE
2. FALSE
3. TRUE
4. FALSE
5. FALSE
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The fair rules approach to fairness requires
A) that consumer surplus equal producer surplus. B) income transfers from rich to poor. C) property rights and voluntary exchange. D) that marginal cost equal marginal benefit. E) that consumer surplus exceed producer surplus because there are more consumers than producers.
Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. C) the borrower's lack of incentive to seek a loan for highly risky investments. D) the lender's inability to restrict the borrower from changing his behavior once given a loan.