Econ 601: Basic Economic Analysis
Assignment #5
Answer Key
Text Questions:
1.A natural monopoly exits for a product when it is more efficient to have the entire output in a
market come from one large seller rather than from several smaller sellers. Natural monopolies
occur because strong economies of scale in production and distribution result in falling ATC as
output increases. Natural monopolies create a dilemma for consumers and policymakers.
Because of economies of scale, consumers benefit from lower per unit costs when dealing with
only one seller. But if there is only one seller in the market, that firm may abuse its market
power. Regulation is often the answer.
2.
Labor
0
1
2
3
4
5
6
Wages
$1200
670
430
220
40
0
TR
$0
1200
1870
2300
2520
2560
2450
MRP
$1200
670
430
220
40
-110
Qty of Labor Demanded
1
2
3
4
5
6
3. Student will provide a list of the major provisions of each as listed in the text. The NLRA
strengthened organized labors’ bargaining power. The T-H Act strengthened businesses’
bargaining power.
Analytical Question:
1. In both cases, only 3 workers would be hired.
Multiple Choice:
1.B
11. A
2.D
12. D
3.B
13. C
4.C
14. D
5.D
15. C
6.B
7.D
8.D
9.D
10.B