Question

Microeconomics

Posted 2 months ago

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Selena's Sandwiches operates in a monopoly and sells 100 sandwiches for $\$ 10$ each.
Based on this information, which of the following can we be certain is true?
Choose 1 answer:
(A) Average total cost is minimized.
(B) The market is allocatively efficient.
(C) There is no deadweight loss in this market.
(D) The marginal cost of the $100^{\text {th }}$ sandwich is less than $\$ 10$.
(E) The socially optimal quantity in this market is 100 .
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Answer from Sia

Posted 2 months ago

Solution

a

Marginal Cost: In a monopoly, the price ($P$) is typically greater than the marginal cost ($MC$). Since Selena's Sandwiches sells 100 sandwiches for $10 each, we can infer that the price of the 100th sandwich is$10. Therefore, the marginal cost of the 100th sandwich must be less than $10

Answer

(D) The marginal cost of the $100^{\text{th}}$ sandwich is less than $10$.

Key Concept

Marginal Cost in Monopoly

Explanation

In a monopolistic market, the price is usually set above the marginal cost to maximize profit. Given that Selena's Sandwiches sells each sandwich for $10, the marginal cost of producing the 100th sandwich must be less than$10.

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