(1) Suppose you set up a lawn-mowing service and recruited friends to help you. Would the law of diminishing returns apply? Explain (12 points)
(2) Why doesn’t Coke lose all its customers when it raises its price? Why would a catfish farmer lose all her customers if she raised her price? (12 points).
(3) What circumstances might cause a monopolist to charge less than the profit-maximizing price? (14 points)
(4) A student argues: “to maximize profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If it produces more than this quantity, then the profit made on each additional unit will be falling.” Briefly explain whether you agree with this reasoning (12 points).