The figure given below represents two monopolists James and Jerry.James produces Good A using the input Good B which is produced by Jerry and has no other variable costs.James is the only consumer of Good B, and the marginal cost incurred by Jerry to produce Good B is zero.DA and DB represent the demand curves for Good A and Good B respectively.MRA and MRB represent the marginal revenue received from Good A and Good B respectively.It takes one unit of A to produce a unit of B.

-Refer to Figure .Which of the following observations is true, assuming the two monopolists do not merge?
A)The price charged by James for his output is equal to that charged by Jerry.
B)The profit earned by James is almost double of that earned by Jerry.
C)The marginal cost of producing Good A is zero.
D)The marginal revenue curve for Good A is the demand curve for Good B.

Question

The figure given below represents two monopolists James and Jerry.James produces Good A using the input Good B which is produced by Jerry and has no other variable costs.James is the only consumer of Good B, and the marginal cost incurred by Jerry to produce Good B is zero.DA and DB represent the demand curves for Good A and Good B respectively.MRA and MRB represent the marginal revenue received from Good A and Good B respectively.It takes one unit of A to produce a unit of B.

-Refer to Figure .Which of the following observations is true, assuming the two monopolists do not merge?

-Refer to Figure .Which of the following observations is true, assuming the two monopolists do not merge?
A)The price charged by James for his output is equal to that charged by Jerry. 
B)The profit earned by James is almost double of that earned by Jerry. 
C)The marginal cost of producing Good A is zero. 
D)The marginal revenue curve for Good A is the demand curve for Good B.

Quizplus · Accepted Answer

The marginal revenue curve for a monopolist is always below the demand curve because the monopolist has to lower the price to sell more output. Therefore, the marginal revenue curve for Good A (MRA) is below the demand curve for Good A (DA). Since it takes one unit of A to produce a unit of B, the marginal revenue received from selling one more unit of B (MRB) is equal to MRA. Therefore, MRA is equal to the demand curve for Good B (DB). This means that D is the correct observation. A, B, and C are not necessarily true based on the information given.

The Figure Given Below Represents Two Monopolists James and Jerry