Lisa has an income of 250 per week, which she spends entirely on ...

[Davideckstein7]

Lisa has an income of 250 per week, which she spends entirely on milk and eggs. The price of milk is 2 per gallon and the price of a dozen eggs is 1 .
 
  What is the opportunity cost of a gallon of milk? If the price of a dozen eggs rises to 1.50, what happens to the opportunity cost of a gallon of milk?

Question 2

How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
 
  What will be an ideal response?

[aloop]

Answer to Question 1

The opportunity cost of a gallon of milk is 2 dozen eggs. If the price of eggs rises to 1.50 per dozen, the opportunity cost of a gallon of milk falls to 1.33 dozen eggs.

Answer to Question 2

Natural monopolies arise because of economies of scalethe firm's ATC curve decreases over the relevant range of output. Network effects arise from the benefits conferred on consumers, and does not affect costs or economies of scale, which are related to the firm. There are some goods that feature both economies of scale and network effects, such as operating system software and telephone networks.