Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should
a. pay the higher rent and increase menu prices
b. pay the higher rent and leave menu prices unchanged
c. pay the higher rent and lower prices
d. go out of business
e. shut down
Question 2
Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company. Which of the following arguments supports marginal cost pricing?
a. Marginal cost pricing gives the monopoly economic profit and a reason to stay in business.
b. Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business.
c. Marginal cost pricing is allocatively efficient.
d. Average cost pricing requires subsidies, which can be costly.
e. Average cost pricing forces monopolies to operate at a loss.
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