Author Question: La Tortilla is the only producer of tortillas in Santa Teresa. The firm produces 10,000 tortillas ... (Read 164 times)

Engineer · **on:** Jul 1, 2018

La Tortilla is the only producer of tortillas in Santa Teresa. The firm produces 10,000 tortillas each day and has the capacity to increase production to 100,000 tortillas each day.

La Tortilla has made a large profit for years, but no other firm has chosen to compete in the Santa Teresa tortilla market. La Tortilla has been able to deter entry because if other firms were to enter the market it would greatly step-up production and reduce price. A) La Tortilla's behavior is inconsistent with economic theory.
B) La Tortilla has been successful because of its credible threat.
C) La Tortilla behaves like a Stackelberg firm.
D) La Tortilla must have other barriers to entry to protect its monopoly power.

Question 2

Refer to Figure 10.2. At output Qm, and assuming that the monopoly has set her price to maximize profit, the consumer surplus is:

A) CDE.
B) BDEF.
C) ADEG.
D) 0DEQm.
E) none of the above