Historically, classic examples of Natural Monopolies have been: a. Small wheat f

Question

Historically, classic examples of Natural Monopolies have been:
a. Small wheat farmers
b. “Big Oil” companies
c. Public utilities
d. Small entrepreneurial businesses
The Law of Diminishing Returns refers to the condition that as more units of a factor of production are brought into use, beyond some point
a. The marginal physical product of that factor will fall
b. Total output of production will fall
c. Marginal physical product of all the factors of production will fall
d. Owners of an enterprise will experience a decline in economic profit


How could you explain the diminishing marginal product for grape pickers?
a. When only a few workers are hired, they pick from the most productive and accessible vines in the vineyard.
b. As more grape pickers are hired, the vineyard might become crowded with grape harvesters who are in each other’s way.
c. As more grape pickers are hired, they must pick from vines that have fewer grapes
d. All of the above could explain the diminishing product of grape pickers.




Considering allocative efficiency from a total societal point of view: The monopoly produces too little because price of his/her output:
a. Is less than marginal cost
b. Is less than average cost
c. Exceeds average cost
d. Exceeds Marginal Cost

Explanation / Answer

C) Public utilities Public utilities have pretty much always been natural monopolies with govt. involved. Hell, they still are today. B) Total output of production will fall Or that marginal productivity eventually becomes negative. Think of it as hiring so many people that they trample over each other and get less work done than if you had hired less people. B) As more grape pickers are hired, the vineyard might become crowded with grape harvesters who are in each other’s way. Kind of the same reason as above. I don't think the other two choices are valid. D) Exceeds Marginal Cost (?) I think this is right. Basically, in perfect markets, P = MR = MC, and so society doesn't get harmed at all. With monopolies, they have the power to charge more than the MC of making a product, so they benefit off of society.

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