1a) The following graph shows the demand and supply curves of a resource. The op

Question

1a) The following graph shows the demand and supply curves of a resource. The opportunity cost of the resource in equilibrium equals ____.

1b)The profit maximizing quantity for a monoplist that faces an upward-sloping marginal cost curve will:

a.occur at the minimum point of the marginal cost curve

b.be less than the revenue maximizing quantity

c.be equal to the revenue-maximizing quantity

d.occur along the unit elastic segment of the demand curve

e.occur along the inelastic segment of the demand curve

Explanation / Answer

(1-a) Option (d)

In equilibrium, Demand curve intersects supply curve where Price = $10, Quantity = 100 and Minimum acceptable price = $6. Therefore,

Opportunity cost = ($10 x 100) - [(1/2) x $(10 - 4) x 100] = $1,000 - [(1/2) x $6 x 100] = $1,000 - $300 = $700

(1-b) Option (b)

Profit is maximized by equating MR and MC. Revenue is maximized at mid-point of the demand curve, and profit maximizing quantity is lower than revenue maximizing quantity.

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