Luke\'s Express Diner is the only place that sells burgers in a remote town in A
ID: 1115690 • Letter: L
Question
Luke's Express Diner is the only place that sells burgers in a remote town in Arizona. As one of the long-time residents of the town, Bertha Hayes contends that the burgers at Luke's are priced a bit too high. She claims that this is because the diner enjoys monopoly power in the town. Her neighbor, Ruth Ernes, disagrees that the diner is in a position to over-price products due to monopoly power because she herself knows a lot of people who don't like the food there.
Which of the following, if true, will strengthen Bertha's argument?
A.
The ratio of the burger's price to the cost of producing the burger is high.
B.
Like most other restaurants in town, Luke's Express Diner offers specials and regular discounts to attract customers.
C.
The ratio of returning customers to new ones at Luke's is high.
D.
Luke's Express Diner recorded a 5 percent decline in net profits this year as compared to the previous year.
E.
The number of people in town who eat out has increased over the last ten years.
Explanation / Answer
Bertha who claims that Luke's Express Diner over price their products because he experiences monopoly in Arizona as he is the only one selling burgers. The argument becomes stronger when the statement C. The ratio of returning customers to new ones at Luke's is high. Because monopolist can set prices but not too high as the demand curve is downward sloping as this place is the only seller, people return to this place even if the prices are set a little high.
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