If the price of a good falls, the marginal utility per dollar spent on that good:
a. also falls.
b. stays the same.
c. rises.
d. will rise or fall, depending on the consumer.
e. remains unchanged, provided the consumer buys no more of the good.
QUESTION 2Which of the following firms operates in a natural monopoly?
a. Telephone company.
b. Electric company.
c. Water company.
d. All of these.
QUESTION 3The statement as more of a good is consumed, the utility a person derives from each additional unit diminishes is known as the:
a. water and diamond paradox.
b. law of diminishing marginal utility.
c. law of total utility.
d. marginal-utility-to-price ratio equalization rule.
e. law of diminishing demand.
QUESTION 4An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a:
a. natural monopoly.
b. competitive monopoly.
c. patent monopoly.
d. limit monopoly.
QUESTION 5If marginal utility becomes negative for the first time, which of the following is true?
a. Total utility is growing steeply.
b. Total utility begins to decline.
c. A rational consumer would never knowingly pay a positive price for these units of the good or service generating negative marginal utility.
d. Total utility equals marginal utility.
e. Both b. and c. above are correct.
QUESTION 6Which of the following is true under natural monopoly?
a. The marginal cost curve will be above the average cost curve.
b. The monopolist will set price equal to marginal cost and will earn economic profits.
c. Economies of scale exist.
d. Output is produced under conditions of constant cost.
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