A profit maximizing single-price monopolist sets price equal to ...

[jman1234]

A profit maximizing single-price monopolist sets price equal to marginal cost.
 
  Indicate whether the statement is true or false

Question 2

When the price of raisins falls, the quantity of raisins demanded rises. Explain this change in terms of income and substitution effects.
 
  What will be an ideal response?

[smrtceo]

Answer to Question 1

FALSE

Answer to Question 2

When the price of raisins falls, households have more purchasing power than before. If raisins are a normal good, this means that they will consume more of them. This is the income effect. Also, a decrease in the price of raisins makes raisins relatively less expensive. Thus, households will shift toward purchasing raisins from purchasing relatively more expensive goods. This is the substitution effect. Both effects imply that the quantity of raisins demanded will rise as the price of raisins falls.

[jman1234]

Gracias!

[dantucker]

Thanks for the timely response, appreciate it