Please give a short 1 line explanation... Please give a short 1 line explanation
ID: 1243928 • Letter: P
Question
Please give a short 1 line explanation...
Please give a short 1 line explanation...
The DeBeers Company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, then the price of diamonds will: be equal to the marginal cost of diamonds. be equal to the average total cost of diamonds. exceed the marginal cost of diamonds but be equal to the average total cost of diamonds. exceed both the marginal cost and the average total cost of diamonds. A natural monopoly: has an average total cost curve that reaches minimum possible average total cost at a low level of output. is usually subject to antitrust suits. is usually allowed to choose its price so as to maximize profits in the United States. occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market. If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Qd = 500 - 10P, then the monopolist maximizes profit by producing: 187.5 units of output. 250 units of output. 300 units of output. 500 units of output.Explanation / Answer
1.) A.) It is economies of scale because it shows that if you increase the inputs a certain percentage (in this case designing more parts of the car), you increase the output by a greater percentage (shown by the price going down). In diseconomies of scale, the car would cost more, and in constant returns to scale, the car would cost the same. And diminishing marginal product is not relevant to the question.
2.) D.) In a competitive market, we can assume that every product is identical, which we cannot assume on eBay. A is wrong because in a perfectly competitive market, there is an infinite number of sellers, because no single seller can affect the price. In this way, eBay is like a competitive marketplace. B is wrong because those small sellers cannot affect the market. And C is wrong because entry into the market should be easy in a competitive market.
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