The Above Figure Shows the Market Demand Curve for Long-Distance

question 6

Multiple Choice

The above figure shows the market demand curve for long-distance land-based telephone calls. Suppose the marginal cost of a long-distance telephone call is 2 cents per minute for a call no matter how many minutes of calls are made and there are three firms in the industry. If the firms in the industry operate as perfect competitors, the price of a call is ________ per minute and if the firms in the industry operate as a monopoly, the price of a call is ________ per minute.

• A) 2 cents; more than 3 cents and less than 4 cents
• B) either equal to or more than 4 cents; 2 cents
• C) 1 cent; 2 cents
• D) more than 3 cents and less than 4 cents; more than 3 cents and less than 4 cents
• E) 2 cents; either equal to or more than 4 cents

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Definitions:

Adverse Selection

A situation where asymmetric information results in high-risk individuals being more likely to participate in a market, leading to an imbalance in the market.

Durability

The quality of being able to withstand wear, pressure, or damage; the ability of a product to last for a long time.

Used-Toyota Market

A specific segment of the automobile market dealing with the buying and selling of pre-owned Toyota vehicles.

Consumer Goods

Consumer Goods are products bought for consumption by the average consumer, distinguishing them from items used in production of other goods or services.