A monopolist will be able to earn positive pure economic profits ...

[D2AR0N]

A monopolist will be able to earn positive pure economic profits regardless of the price elasticity of demand.
 a. True
  b. False
  Indicate whether the statement is true or false

Question 2

Michael spends 10 a month on Pez dispensers and Superman action figures. His marginal-utility-to-price ratio for the Pez dispensers is 40, while his marginal-utility-to-price ratio for Superman action figures is 47 . Explain why Michael is not maximizing his utility and how can he change his behavior to increase his utility?

[jessofishing]

Answer to Question 1

False

Answer to Question 2

To maximize utility, one must consume the combination of goods where the marginal-utility-to-price ratios of the goods are equal. Since 40 is less than 47, Michael is not maximizing his utility. He should buy more Superman figures and fewer Pez dispensers. This would lower the marginal-utility-to-price ratio of Superman figures and raise the marginal-utility-to-price ratio of Pez dispensers.