A monopolist supplier has constant marginal cost. The demand for her product is linear in the price charged. That linear demand curve passes below the marginal cost of production.

(This is the standard case that we considered in class.)

A rise in input costs increases marginal cost by 40 per unit. There is no movement in the demand curve; for example, the choke price Pmax does not change.

The optimal profit-maximising price will move

Group of answer choices

• upward by 40
• upward by 30
• upward by 20
• upward by 0

Suppose that each potential buyer's willingness to pay for a product is a fixed fraction of his or her disposable income.

An reduction in income inequality (the average disposable income remains the same, and the distance between very high and very low incomes is reduced; this might happen if a government redistributes income from rich to poor) is most likely to

Group of answer choices

• shift the demand curve inward.
• shift the demand curve outward.
• rotate the demand curve anti-clockwise, and so make the demand curve shallower (more horizontal, or more elastic).
• rotate the demand curve clockwise, and so make the demand curve steeper (more vertical, or more inelastic).