Asked by Sierra Beets on May 23, 2024
Verified
In the middle ages, the French government auctioned off monopoly rights to the sale of salt. Economic theory predicts that the highest bids would
A) leave substantial economic profits for the winning bidders.
B) equal the economic profits the winning bidder would expect to earn by owning the monopoly rights to sell salt.
C) ensure that prices remained low, making salt available to the masses.
D) equal the winner bidder's explicit costs of selling the salt.
Economic Profits
Profits exceeding the opportunity costs of all resources used by the firm, indicating an above-normal return.
Monopoly Rights
The exclusive power granted to a company or individual to produce, sell, or conduct business in a specific market without competition.
Auctioned Off
The process of selling goods or services to the highest bidder in an auction format.
- Interpret the effects of monopoly on pricing and economic profits.
Verified Answer
KZ
Kinsley ZhangMay 29, 2024
Final Answer :
B
Explanation :
Economic theory suggests that in auctions for monopoly rights, the highest bids will typically equal the economic profits the winning bidder expects to earn. This is because bidders will bid up to the point where the expected profit from obtaining the monopoly rights equals the cost of the bid, a concept known as the winner's curse in auction theory.
Learning Objectives
- Interpret the effects of monopoly on pricing and economic profits.