Author Question: Describe the conditions under which monopoly exists. Give two examples. What will be an ideal ... (Read 77 times)

jilianpiloj · **on:** Jun 29, 2018

Describe the conditions under which monopoly exists. Give two examples.

What will be an ideal response?

Question 2

You are studying with a friend, and your friend says To maximize utility, a consumer must consume the combination of goods so that the marginal utility of good X equals the marginal utility of good Y.

Explain whether your friend's statement is correct or incorrect.

allisonblackmore · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Monopoly occurs when one firm produces a unique good or service for which there are no close substitutes. No competing firms can enter the market because there are barriers to entry. These barriers can be legal or natural. Your local water company and the U.S. Postal service are monopolies.

Answer to Question 2

Your friend's statement is incorrect. To maximize utility, a consumer spends his or her entire budget and consumes the combination of goods and services so that the marginal utility per dollar from the goods is equal.