Suppose a Monopolist Has Costs Such That When Output Is

question 54

Multiple Choice

Suppose a monopolist has costs such that when output is 1,000 units per hour, average cost is $5. If the monopolist is regulated by a policy of average-cost pricing, the monopolist will charge a price of

• A) $5.
• B) $5 only if the quantity demanded is 1,000 units per hour at a price of $5.
• C) $5 only if the quantity demanded is greater than 1,000 units at a price of $5.
• D) $5 only if the quantity demanded is less than 1,000 units per hour at a price of $5.

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Definitions:

Perpetuity

A type of annuity that pays a fixed amount of money to an individual indefinitely, without a set termination date.

Compounded Semi-annually

Describes a type of interest calculation where the interest is added to the principal amount twice a year, leading to interest on the interest in the next compounding period.

Ordinary Perpetuity

A series of indefinite cash flows that occur at regular intervals.

Ordinary Annuity

A financial product where payments of a fixed amount are received at the end of equal intervals.