Author Question: If differentiation makes the market demand curve less elastic, then A) consumer surplus ... (Read 42 times)

mpobi80 · **on:** Jul 1, 2018

If differentiation makes the market demand curve less elastic, then

A) consumer surplus increases.
B) the market structure changes into a monopoly.
C) price markup over marginal cost is lower than when products are identical.
D) price markup over marginal cost is higher than when products are identical.

Question 2

Suppose Charley only purchases boardgames (B) and haircuts (H) with his income.

If the price of boardgames increases by 100 while the price of haircuts increases by 300, how will the MRT change (consider the budget constraint drawn on a graph with boardgames on the horizontal axis)?

onowka · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

D

Answer to Question 2

Before the price change, the MRT = -pB/pH. After the price change, the
MRT' = -(2)pB/(4)pH = MRT/2. The MRT is half.