1. Prompt:Read“YOU’RE THE ECONOMIST: Recession Takes a Bite Out of Gator Profits” in Chapter 8. Assuming gator farming is perfectly competitive, explain the long-run competitive equilibrium condition for the typical gator farmer and the industry as a whole.
2. Read “YOU’RE THE ECONOMIST: The Standard Oil Monopoly” in Chapter 9. If Standard Oil was a natural monopoly, what would happen to the average cost of producing gasoline after the company was split up? Explain using an LRAC curve.
o Requirements: 250 words minimum for each question
Requirements: Discussion | 1 pages, Double spaced
Answer preview
For Standard Oil, its natural monopoly state would maximize returns-to-scale at all output levels, making the LRAC drop as the production processes expand. The LRAC falls due to having the long-run marginal cost below the LRAC curve. Overall, natural monopolies supply products and services to the entire market at a lower price. Consumers end up benefiting because of getting efficient products and services at an affordable price. Generally, due to the reduced threat of new entrants, the natural monopolies exploit all accessible internal economies of scale.
