The Behavior of the Monopolistic Firm

question 107

Multiple Choice

The behavior of the monopolistic firm

• A)maximizes the benefits to consumers, given the resources available to the economy.
• B)increases output in order to raise prices in the short term.
• C)results in excess capacity and inefficiency.
• D)results in entry into the market by other firms.

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Definitions:

Price Ratio

The ratio or comparison between the prices of two different goods or services.

Diamond/Water Paradox

A paradox highlighting the contradiction between the high value of items with little utility (diamonds) and the low value of items with great utility (water), illustrating the difference between total and marginal utility.

Value in Exchange

The worth that a product or service has in the marketplace, determined by what others are willing to give up in exchange for it.

Marginal Utility

The increased gratification or utility obtained by consuming an additional unit of a good or service.