Suppose a Monopolist Has a Choice to Charge a Higher

question 31

Multiple Choice

Suppose a monopolist has a choice to charge a higher price in one market than another,what would be the guideline to determine which market is charged more?

• A) The market with the less elastic demand curve is charged more.
• B) The market with the less elastic demand curve is charged less.
• C) The market with the less elastic supply curve is charged more..
• D) The market with the less elastic supply curve is charged more.

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Definitions:

Arbitrage

The practice of buying and selling equivalent assets in different markets to take advantage of a price difference.

Law of One Price

An economic theory that states that in efficient markets, identical goods must have only one price when prices are expressed in a common currency, absent any transaction costs and tariffs.

Treasury Bond

A long-term, interest-bearing security issued by the U.S. government.

STRIPPED Cash Flows

Cash flows that are separated from their financial instruments in order to be sold as individual securities.