Refer to Figure 1. The shape of the average total cost curve reveals information

Question

Refer to Figure 1. The shape of the average total cost curve reveals information about the nature of the barrier to entry lhat might exist in a monopoly market. Which of the following monopoly types best coincidcs with the figure? A. ownership of a key resource by a single firm B. natural monopoly C. government-created monopoly D. a patent or copyright monopoly 8. Refer to Figure 1. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximirang monopolist to take advantage of A. economies of scale. B. diseconomies of scale. C. diminishing marginal product. D. increasing marginal cost. 9. Refer to Figure 1. Considering the relationship between aserage total cost and marginal cost, the marginal cost curve for this firm A. must lie entirely above the average total cost curve. B. must lie entirely below the average total cost curve. C. must be downward sloping. D. does not exist. 10. If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3.90 per unit, it will produce and sell the sixth unit if its marginal cost is A. S3.90 or less B. $3.40 of less C. $3.50 or less D. $4.00 or less

Explanation / Answer

a. This is a natural monopoly as the Average Total Cost is contiuously declining.

b. Advantages of the economies of the scale because as the size of the production increases, the ATC keeps on declining.

c. The marginal cost curve will lie below the ATC curve. This is because if it lies above then the firm will suffer losses.

d. $3.90 or less.

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