28. When regulators require that a natural monopoly sets price equal to average

Question

28. When regulators require that a natural monopoly sets price equal to average total cost A] this is known as allowing a fair rate of return. BI the firm earns a normal profit. C] the firm operates where the demand curve intersects the average-total-cost curve. all of A, B or C 29. What distinguishes monopolistic competition from perfect competition? AjIn monopolistic competition each firm sells a slighty different or unique product. That is not the case in perfect competition. [BI The number of firms IC; In perfect competition each firm sells a slightly different or unique product That is not the case in monopolistic competition. IDJ The difficulty new firms have in entering monopolistic competition as compared to perfect competition. 30. A monopolistically competitive firm's demand curve slopes downward because Al the firm has complete knowledge of market information. B)a differentiated product gives the firm some monopoly power (B) a differentiated product gives the firm some monopoly power C] other firms are free to enter the market. D] the firms sells a standardized product 31. Successful product differentiation and marketing A] increases the price elasticity of demand and gives the firm more market power. [B] reduces the price elasticity of demand and gives the firm less market power [C] reduces the price elasticity of demand and gives the firm more market power. D] increases the price elasticity of demand and gives the firm less market power.

Explanation / Answer

28. D. The monopoly earns a normal profit since P=ATC. P is determined by the intersection of ATC and demand curve.

29. A. Monopolistic competition has sellers selling differentiated products.

30 B. A The firm has its own demand curve since it has market power to determine prices.

31..C. Product differentiation tries to reduce price elasticity.

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