Question

Which of the following statements is true of monopolies?

i. They have market power, so they can increase their price without losing customers.

ii. Their marginal revenue is less than their price.

iii. They earn a profit by producing at a point where price is greater than marginal cost.

a. i only

b. ii only

c. i and ii only

d. ii and iii only

e. i, ii and iii are all true

Answer 1

Hi,

Hope you are doing well!

Question:

Answer:

d. ii and iii only.

Monopolies:

Monopoly is firm that is a single producer of the product and service and there is not any close substitute available in the market. Firm is price maker and entry of new firm is restricted very tuff.

In monopoly market firm is price maker but the demand maker is customers or consumers. The level of demand is decide by the customers not by the firm. When a firm increase price in monopolistic market above the fair level or can say that when  monopoly charges a higher price then the quantity demanded fall ( according to law of demand). The level of demand depends upon price and others factors that affect consumer choice. In the market customer is king not the producer.

In monopolistic market firm's marginal revenue is less than their price because Because the monopolist must lower the price on all units in order to sell additional units. We have seen above that in monopoly market firm is price maker but the demand maker is customers or consumers. The level of demand is decide by the customers not by the firm. When a firm increase price in monopolistic market above the fair level or can say that when  monopoly charges a higher price then the quantity demanded fall ( according to law of demand). The level of demand depends upon price and others factors that affect consumer choice. In the market customer is king not the producer.

In monopolistic market firm earn a profit by producing at a point where price is greater than marginal cost (marginal cost is the cost added by producing one additional unit of a product or service.).  Monopolies produce an equilibrium at which the price of a good is higher, and the quantity lower, than is economically efficient. We all know that monopoly is firm that is a single producer of the product and service and there is not any close substitute available in the market. Firm is price maker and decide price at that level where its price is above the producing one additional unit of a product or service.

Thank You