If an industry could be organized either perfectly competitively ...

[burton19126]

If an industry could be organized either perfectly competitively or as monopoly, a monopoly would
 
  A) produce less output.
  B) produce where P > MC.
  C) charge higher prices.
  D) All of the above

Question 2

Recall that the Cobb-Douglas Utility function U(X,Y) = XaY1-a has the unusual property that the demand for each good depends only on its own price.
 
  Therefore, a consumer will always allocate the same proportion of income to each good. Specifically, the demand for X is
   X = aI/px
  where I is income and px is the price of X.
  a. What is the price elasticity of demand for X?
  b. What is the direction of the income effect on X of an increase in px?

[trog]

Answer to Question 1

D

Answer to Question 2

a. Using calculus,
X/px = -aI/px2
Then E = -1. Because a constant proportion of income is devoted to each good, an increase in price will be matched by an equal offsetting proportional decrease in quantity.
b. X is a normal good from the demand equation. Therefore, the income effect from a price increase will be to reduce consumption of X.

[burton19126]

Gracias!

[ricroger]

Excellent